California wine business takes tough lessons out of the pandemic: experts
It’s a difficult time for wine and other businesses to plan for the future as the U.S. economy roars back from the pandemic amid rollicking price, supply and labor pressures, according to wine industry experts at a business event Wednesday. But they said some of the tough lessons learned as wine businesses fought to survive will be key to success in the recovery.
“The market is not returning to what was,” said Jon Moramarco, editor and partner of Gomberg Fredrikson, publisher of closely watched reports on wine, beer and spirits industries.
The good news for the wine business is that leisure travel, a key wine market, is trending up as economies reopen from pandemic restrictions, but the bad news is that business travel and spending on wine to entertain clients may be trending downward with efficiencies found with digital tools such as video conferencing, he told the audience of the Business Journal’s 21st annual Wine Industry Conference.
Also in the midst of significant change are post-pandemic approaches to tasting rooms (appointment only) and Wine Country tourism marketing, plus potential for more share of sales shifting to off-premises-consumption channels such as stores, Moramarco said.
Survival of the quick and the bold
A key lesson learned from the Great Recession of 2007–2009 was that wine companies that acted swiftly and made bold decisions were the ones that did well amid a steep fall-off in purchases of fine wine after that global financial shock, said conference speaker Mike Holden, CEO of Clos Du Val in Napa Valley.
“I came from the school of thought that brands were built direct consumer and through on premise. And if that had been the case for this business that I now work in, we would have been in a difficult situation unless we're able to pivot quickly,” Holden said.
That’s when he learned that it’s critical to balance a winery’s channels of distribution, what he calls be “channel agnostic.” That means developing off-premises trade accounts as well as direct-to-consumer efforts and on-premises accounts such as restaurants and bars. That became critical during the pandemic, when tasting rooms were ordered closed but club membership and e-commerce proved resilient revenue centers.
Marketing wine via social media and other digital platforms such as virtual tastings is the future of the business, especially for family and other small-scale producers, according to speaker Tammy Boatright, founder and president of VingDirect, a direct-to-consumer business consultancy.
“Our clients — we work for family wineries — overall saw an increase in sales and profitability for 2020,” Boatright said. Key to that was moving quickly into virtual tastings with the goal of getting new customers and building relationships with them.
Industry gears up to prevent wildfires
While wine marketing may not be going back to the way it was, North Coast wine grape growers, vintners and public officials are busily working to make sure the region won’t be going back to the way it was with massive wildfires raging across large swaths of the counties. Conference speaker Rick Jones, owner and manager of Jones Family Vineyards, recounted how his family escaped the advancing flames of the Glass Fire in early morning of Sept. 27, 2020.
“At that point, I realized that this was something that we had to take seriously,” Jones said.
The Glass Fire burned 67,500 acres of Napa and Sonoma counties and damaged more than two dozen wineries, according to Cal Fire. A month earlier, the LNU Lightning Compex, which included the Hennessey and Walbridge fires, burned 363,000 acres in Napa, Sonoma, Lake, Yolo and Solano counties.
Jones noted that Napa County government and other agencies have received over $30 million in funding to reduce fuels for the next conflagration, and Sonoma County has received $37 million from the Federal Emergency Management Agency to do likewise.
He pointed to the need to fix California’s property insurance of last resort, the FAIR Plan, to be able to cover rural wineries and ranches, as a number of local operations have received letters of nonrenewal from their insurers because of the heightened fire risk and losses estimated by Moramarco to be $2.3 billion in Napa County alone last year. Senate Bill 11 would allow the FAIR Plan to cover such properties, and it passed the Legislature in June and awaits the governor’s review.
Inflation risk is expected to be temporary
At the half-year point, it appears that the U.S. economy hit “peak growth” in its rebound from the recession sparked by the pandemic, said conference speaker Sarah House, senior economist for Wells Fargo. Gross domestic product growth is expected to have been 9% for the second quarter of this year, pushed on by money that came through the $1.9 trillion federal relief package signed early this year on top of more states’ allowing their economies to reopen from restrictions such as capacity limits and mask mandates.