Northern California wineries innovate to replace virus lockdown's big hit to main sales channels
Going into the sixth week of the coronavirus lockdown, the concerns of the California wine business near the beginning of this year of a 200,000-ton oversupply of grapes seems like a memory to Dan Zepponi, CEO of Napa Valley's Cuvaison winery.
At that time that equivalent of 15 million 9-liter cases too much of wine for the slowing trajectory of sales growth for the beverage overall in the past two years. By Zepponi's rough figuring that overhang amounted to an extra bottle and three-quarters per U.S. adult per year.
“Talking to most of my friends and colleagues, we've already done that, I think we're eating at the oversupply, and there's a kink in the supply chain coming from Europe,” he said.
“The real issue that we're looking at is after two, three, four, five weeks, if the stimulus package doesn't really help people, we'll just start tightening them tighten their belts,” Zepponi said. “And one of the first things to go is, obviously, luxury goods, of which wine could be considered one. But in good times and bad, people seem to drink wine. It's that one little indulgence you're doing at home with your family, and I think we've all seen that so far.”
For Napa Valley's Far Niente Wine Estates, which also produces the brands Nickel & Nickel, Dolce, EnRoute and Bella Union, 2020 was shaping up to be a record-selling year, according to Steven Spadarotto, CEO.
“January and February numbers were the best we've ever seen, and we were staged to have the best first quarter ever,” Spadarotto said. “But it feels like we've been assassinated. From a cash-flow perspective, we came into this very strong, and while we're trying to be extremely prudent on cash management, we're trying not to overdo it, because you can overtighten and come out of this flatfooted.”
While Far Niente and Nickel & Nickel historically have been strong restaurant brands, and they've been hit hard with the steep dive in restaurant business, but EnRoute and Far Niente chardonnay have been buoyed by the jump in food store sales in the first weeks of the economic shutdown to slow the spread of the virus.
“The on-premise (market) scares me to death, and if restaurants have a hard time to come back, we may channel-shift to off-premise. It's a strategic challenge we've never really had before.”
For Sonoma-based Don Sebastiani & Sons, maker of roughly 1.2 million cases under two dozen labels, the emphasis on off-premises sales means business as usual - kind of - as the portfolio retail pricing is positioned to range from $5-$20 a bottle, according to Donny Sebastiani, CEO.
“People want to buy value wine,” Sebastiani said. “People want to buy it at grocery stores and at retail. Those are all pillars of our business.”
While sales of wine and other beverage alcohol shot up in food stores in the two weeks following the March 15 recommendation from California Gov. Gavin Newsom to close tasting rooms, bars and restaurant dining rooms, the pace of such buying has been easing. North Coast vintners have said that doesn't make up for their sales at such venues or for marketing wines for direct sales through their clubs or at stores close to home.
Sales of beverage alcohol for consumption off-premises for the week ending April 4 remained well above (up 25%) those of a year before a year, and year-over-year sales were up 32% for wine, 33% for spirits and 19% for beer, other malt drinks and cider, according to the latest Nielsen data. But alcohol beverage sales growth in stores slowed for a second week, up 3% from the week ended March 28, which were up 4% from the week before.
Though sales growth for all tiers of wine in stores up to $25 a bottle enjoyed double-digit growth from a year before, $11-$25 wines were doing better than $8-$11 wines, which were faring better than under-$8 wines, Nielsen said.
"“The general premiumization trend that we've seen for a few years now has continued to this point," said Danny Brager, senior vice president of beverage alcohol, in an email. He noted that average selling prices were up year over year by 2% for wine, 3% for beer and 1% for spirits.
And when taking in new data sets for alcohol sales through e-commerce (via Rakuten Intelligence) and direct-to-consumer methods (Wines Vines Analytics), Nielsen said the combined growth of off-premises was 30% in March from a year before. Nielsen noted that direct-to-consumer sales in March of $423 million amounted to over 20% of all off-premises sales for the month and were up 18% by value and 30% by volume from a year before.
"The March 2020 growth rates represented a significant turnaround from what had previously been a deceleration of DtC Shipment growth rates – which were down to mid-single digits in 2019 and even further reduced in the first two months of 2020," according to Nielsen.