California North Coast vintners should shift marketing to survive until economy recovers in 2022-2023, experts say

With North Coast wineries’ key routes to market under a second round of business sector closures to slow the coronavirus outbreak, these vintners need new tactics to survive the current situation and what’s coming until economic recovery arrives, now expected to be two or three years from now, according to wine business experts.

The return to lockdowns of key sectors of the economy in California and other states because of rising COVID-19 metrics is frustrating earlier forecasts of a rapid recovery from the virus-influenced recession. The “really ugly” outlook for the U.S. economy in the spring because of the first wave of business sector shut-downs — second-quarter gross domestic product down 32% — had been expected to turn the corner this quarter as reopenings were expected to be largely underway, according to Sonoma State University economist Robert Eyler.

But the rapid rise in cases in recent weeks followed by a second round of public health orders to close businesses — especially, these important sectors for wineries: restaurant dining and wine tasting indoors — now has prognosticators pushing back the beginning of the economic recovery from early next year to later in 2022. That’s after one or more vaccines currently in the works are anticipated to reach meaningful distribution to slow transmission of the virus.

“We might remember 2020 as basically the lost year in tourism and in … sales at the winery,” said Eyler during a July 15 research summit webcast by the university’s Wine Business Institute.

A return to the way the economy was humming before the pandemic is projected to be even further out, in 2023, he said. If unemployment moves above even the historic levels now may cause consumers start backfilling their wallets by selling off assets such as homes and investments over the next 18 months, affecting their thirst for wine and other products, he said.

“It will take a few years to seize recovery momentum,” Eyler said.

Here’s what the experts at the summit suggest vintners do to be able to survive until then:

  • Conserve cash through better forecasting, look for more capital sources, or look for an exit, said Terry Hill of financial advisory BPM.
  • Learn how to better engage consumers where they’re shopping, which is increasingly online, through marketing research such as which incentives lead to higher lifetime customer value and less margin loss, according to SSU professors Sam Riewe and Steve Cuellar.
  • Use virtual tastings more effectively, says Kat Stark, director of experiences for It has conducted 23 tastings so far, including celebrity-driven “edutainment” sessions, and found that 60% of registered attendees buy sets of wine to use in the tasting, resulting in $1.2 million in wine sold since the end of April.
  • Some California vintners are keeping an eye on the impact of virus restrictions on wine sales to decide how much to spend on grape purchases and harvest costs in August, September and October, according to interviews of local vintners by MBA students supervised by Armand Gilinsky of SSU.

As it was, the first round of virus-related business restrictions was projected to result in a loss of $4.2 billion in revenue for California’s wine business, according to a study the institute released late last month, based on analysis from April. The biggest losses were estimated to come from shuttered tasting rooms ($3 billion) and on-premises venues such as restaurants ($2.5 billion), offset by a $1.3 billion jump in retail sales.

Viewed from another perspective, U.S. wine sales for consumption on premises fell 80% in March from a year ago, while sales at independent wine shops was up roughly 15% and at food, drug and club stores up almost 40%, according to Gomberg Fredrikson & Associates data cited at during the summit.

Leading up to Memorial Day, it had looked like there was the beginning of a recovery for the restaurant business. Restaurants in several key wine consumption states such as Texas, Florida and New York in the past two months started being allowed to reopen to varying degrees — both indoor and outdoor seating or just outdoors, and some with restrictions on seating capacity as low as 25%. In Wine Country, Napa and Sonoma counties started allowing indoor dining with restrictions in late May and early June, respectively.

Yet Texas and New York have rolled back indoor seating in the past two weeks as their case numbers spiked, and California did so statewide on July 14 for a similar reason.

“Even by the end of 2022, we don't see a full recovery in full-service restaurants,” said summit speaker Stephen Rannekleiv, who leads beverage alcohol research for major wine business lender Rabo AgriFinance. “And keep in mind, even at the end of 2019 this (was) already a challenging and competitive channel to begin with.”

Such “white tablecloth” establishments may only represent 20% of wine industry sales overall, but for makers of fine wine they are important places where consumers can discover brands, he said.

Full-service restaurant compound annual sales growth went down from around 6% before the Great Recession to around 1% in 2008-2010 but only bounced back to about 4% before the pandemic, according to Rabobank analysis of U.S. Census Bureau data. With many such restaurants needing 70% or better customer capacity to break even, the institution is projecting negative growth of around 2% annually in 2020-2022.

Though there has been a rise in wine sales at mass-market stores, makers of fine wine need to be cautious in pursuing that channel, because it can result in an immediate hit to revenue and profits, and finding wholesaler representation to take them to those shelves and back to restaurants when they recover, Rannakleiv said.

“We’ve shifted to the lowest average revenue channel,” he said.

Average revenue per case can be over $80 at an independent wine shop and around $70 at a restaurant but less than $50 at a grocery store, with margin per case at roughly half those levels, he said, citing Gomberg Fredrikson data.

“It is going to be really, really difficult for a lot of these small wholesalers who depend on the on-premise (buyers),” Rannakleiv said. “It's an opportunity for large wholesalers to consolidate. But for small wineries, this means fewer opportunities, fewer options to access the three-tier system.”

The post-Prohibition federal regulatory system for beverage alcohol distribution include three tiers of players: producers, wholesalers and retailers. The emergence of e-commerce two decades ago and a pivotal 2005 U.S. Supreme Court ruling on interstate shipments has allowed wineries to sell directly to consumers now in most key markets, but that channel had only a few percentage-point share until the pandemic.

Jeff Quackenbush (, 707-521-4256) covers wine, construction and real estate.

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