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How California North Coast wineries are surviving during shelter orders that shutter big sources of sales

“There is always something new happening at Charles Krug.”

That's what co-proprietor Peter Mondavi Jr. said just four weeks ago as Napa Valley's oldest winery and home to one of the region's first tasting rooms was rolling out a calendar spring and fall wine, food and entertainment events that would bring hundreds of consumers to the property.

Now entering the fifth week of shelter-at-home orders in California Wine Country and more recently across much of the nation, Mondavi instead will be leading a video conference tasting with members of an East Coast country club who buy the luxury-tier Charles Krug wines through that organization.

And the vintner's sales professionals in major wine markets across the country are doing likewise with trade accounts such as wholesalers and grocers.

It's the social-distance or no-contact nouveau statut of wine marketing during the global coronavirus pandemic, as vintners quickly have had to get creative to reach consumers who early evidence shows are eager to stock up on beverage alcohol.

But “high-touch” marketing methods that the Mondavi families made California Wine Country status quo over 7 decades for producers of premium wines morphed overnight in mid-March by public health necessity to video conference tastings, curbside pickup of wine orders, increased direct-to-consumer sales by phone and website, and a surge in sales at brick-and-mortar stores.

Closed tasting rooms requires being nimble

“We're trying to be really fluid,” said Judd Wallenbrock, CEO of C. Mondavi & Company, which produces the Charles Krug (suggested retail price $21-$125 a bottle), Flat Top Hills ($14) and CK Mondavi ($8).

When C. Mondavi closed its St. Helena tasting room in mid-March as did other wineries at the time, the company shifted the seven full-time employees to other wine and grape production tasks still allowed to continue under state and Napa County shelter orders, such as the bottling line and taking inbound phone calls for orders.

There were about as many part-time workers who mainly worked during the busier weekends.

Soon to come will be virtual in-home tasting parties for Charles Krug aficionados that had been done previously by flying out key winery personnel to meet with groups of eight to 10 couples, who would then spur future tastings. That obviously doesn't work with current social-distance guidelines.

While current direct-to-consumer promotions such as “shipping included” likely won't outlast the lockdown, virtual tastings likely will, Wallenbrock said.

“They are less costly, and we can do them a lot more frequently,” he said. Shipping costs, however, can be steep for a vintner to eat: up to $50 a case for packaging, labor and couriers.

Wineshipping is part of the DTC Logistics company that through a recent acquisition of 24Seven Enterprises now has 21 temperature-controlled warehouses nationwide, able to deliver wine to consumer doors in more than 90% of the country in one or two days.

The Napa-based company handles C. Mondavi's order fulfillment and has been working with its courier partners on creative approaches to shipping costs, which alone normally are $20-$40 a case, according to Darren Plewes, vice president for sales and business development.

“We're following the Amazon model as consumers are shopping more on digital,” he said. “It' a thriving channel now for wine, with tasting rooms and restaurants down.”

The use of social media, email and telesales to communicate more frequently with consumers about where they can still buy the wine also will be key going forward, Wallenbrock said. Some wholesalers are employing telesales and business-to-business e-commerce to reduce costs for supplying smaller, farther-flung stores and restaurants.

Call centers for wine buzz

Wine outbound marketing firm VinoPro has been hiring dozens of former casino and hospitality workers to make the 8,000–12,000 calls from call centers in Rohnert Park, Las Vegas and Arizona to talk with thousands of current, former and prospective customers of wineries large and small.

“We're going to get wine club consumers cancelling because their 401(k)s were hit,” said Jeff Stevenson, who founded the company in 2008. “The time to get as much wine into consumers' hands is now.”

On March 15, Gov. Gavin Newsom took an early step in the U.S. effort to slow the health care system impact of the COVID-19 virus, calling for Golden State's restaurants, wine tasting rooms, bars and similar “nonessential” gathering places to close.

Local governments followed suit in a few days with increasingly restrictive shelter-at-home orders. Those currently have three more weeks to go, and there's talk among federal public health officials of some restrictions on public gatherings stretching until a vaccine enters circulation perhaps sometime next year.

Closure of the tasting rooms, restaurants and hotel can be a huge financial blow to a number of the well over 1,000 North Coast wineries, according to industry analysis.

For the average West Coast family producer of wines retailing for over $15-$20 a bottle, 61% largely results from visits to the tasting room: 28% from sales at the venue, over 22% from club shipments and more than 9% from subscribers to the mailing list, according to Silicon Valley Bank's 2020 State of the Wine Industry Report. Direct-to-consumer sales have become such a dominant force for local vintner finances largely because consolidation among wholesalers since the 1990s has made it difficult for smaller brands to get noticed, the report said.

Just how big of a hit there has been to tasting room revenue is seen in sales data from direct-to-consumer wine order fulfillment companies. Tasting room sales dropped 45% in March from a year before, starting with a tapering off in the first two weeks of the month, according to Napa-based WineDirect, whose software and fulfillment services handle $130 million in monthly transactions for more than 900 U.S. and Canada small and large wineries.

But at the same time, winery e-commerce sales jumped 40% from the previous March, offsetting 70% of the lost tasting room revenue, according to Carly Imhof, product marketing manager.

“At this time of year, club sales peak as wineries bill members for Spring shipments, making March an atypical sales month,” Imhof said in an email. Averaged throughout the year, club and tasting room revenue are about equal, respectively 36% and 34% of direct sales.

She expects winery e-commerce revenue to further accelerate this month, after what will be six weeks of tasting room closures.

The number of signups for clubs dropped well below cancellations through most of March for vintner sales systems hosted by British Columbia-based Commerce7, while winery e-commerce sales quadrupled during that period.

Yet one of the outbound marketing services VinoPro provides is sales of clubs for vintners, and those sales are up 25%, according to Stevenson. Overall sales of wine over the phone have doubled so far this year from a year ago, he said.

Legalized in the years since the Granholm 2005 U.S. Supreme Court decision, wine direct-to-consumer shipments had been lagging the share of sales seen in other consumer packaged goods, limping along at less than 2%.

One-third of revenue for family wineries comes from wholesale, with 15% of sales for family vintners' coming from restaurants, according to the Silicon Valley Bank report.

TwoXSea, a San Francisco-based seafood supplier to 250 Bay Area white-tablecloth restaurants, told the Business Journal that orders from them largely ended with the local government mandates to shift to take-out only. The National Restaurant Association estimates that the pandemic lockdowns will result in the loss of a quarter of the industry's $889 billion in annual sales through May and 5 million to 7 million jobs.

The tasting room accounts for only 9% of C. Mondavi's annual sales, but it's “the face of Charles Krug,” according to Wallenbrock. Together with what's shipped to on-premises accounts - namely, restaurants and hotels - it makes up about one-quarter of the vintner's revenue that's been hit hard by the pandemic economic lockdowns.

But much of C. Mondavi's total production volume is the CK Mondavi brand, with well over 1 million cases made annually. It's a brand at a price that's targeted to mass-market food stores, where sales of the brand and others in grocery have enjoyed a surge in pantry stocking since the seriousness of the response to the pandemic started to be realized in March.

“If 75% of your business is exploding, it is compensating for the other part,” Wallenbrock said.

Sales of beverage alcohol in food and drug stores tracked by Nielsen were up 27% for the latter half of March from a year before. However, the big buy-up came in the first week of the lockdowns, with a 24% drop week-to-week drop for the period ended March 28.

Staff writer Jeff Quackenbush covers wine, construction and real estate. Contact him at jquackenbush@busjrnl.com or 707-521-4256.

Correction, April 14, 2020: Wineshipping's David Plewes said a potential solution to shipping costs for cases could potentially be use of a weighted average, which could lower the shipping cost of a case to $10-$12. The company does not do that.

Clarification, April 13, 2020: VinoPro's Jeff Stevenson said one of its outbound marketing services is sales of club subscriptions for vintners, and those sales are up 25%. Overall sales of wine over the phone have doubled so far this year from a year ago.

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