How California North Coast vintners are finding bottles, labor, way out of the pandemic

Without large staffs to help handle it all, these owners or operators of smaller wineries can tick off the problems they face these days from inflation, to finding bottles to fill and labor to fill their jobs.

The Business Journal asked several top executives at California North Coast independent wineries about the key challenges and opportunities they see ahead. The following are their responses, edited for clarity and brevity.

What are the three biggest concerns facing North Coast vintners? What are you doing about them? How do these challenges compare with those from previous business cycles?

Richard Bruno: Supply chain problems. Inventory management in wholesale distribution. Inflation.

We have had to make some bottle mold changes because of lack of supply and unprecedented price hikes.

Adopt a JIT (just-in-time) model for inventory management, and reschedule bottlings based on both. To manage inventory, we work with our marketing company and use Driver software to understand what our current inventories are in distribution. We had to raise our prices.

Raising prices on our wines became essential because I don’t ever think the price of gasoline for example will ever come down to pre-pandemic levels.

Remi Cohen: Climate change and its resultant impact on the wine industry is one of the most significant business concerns facing North Coast vintners.

At Domaine Carneros, we have a strong commitment to sustainability and to reduce our carbon footprint. In 2003, with the vision of founding CEO Eileen Crane, we installed the largest solar energy array of any winery in the world.

Now, we are amping up, pun intended, our commitment to solar by building a microgrid which will allow us to store energy we generate during the day for use at night and in the event of a power outage.

Our extensive recycling and reuse programs allow us to reuse our packaging boxes, having reused over 1 million boxes since its inception, and we have composted over 420,000 pounds of waste, diverting over 90% of waste away from landfills.

In recent years, we have experimented with and expanded our use of a lighter weight bottle to reduce the impact on shipping, and our direct fulfillment partner offsets all of its carbon emissions from shipping.

With staffing and labor concerns at the forefront of the industry, Domaine Carneros strives to create an engaging work environment with opportunities for career development and enhancement.

Our robust employee engagement programs include the practice of open book management, where we provide transparency to all employees about the company’s performance of key metrics, including net income, during our monthly company-wide meetings.

We believe this level of transparency helps employees to understand their roles in our success and challenges. We have a comprehensive onboarding program, and through our continual education program, employees are encouraged to learn about their own areas of responsibility but also about other areas including finance, winemaking, vineyards, technology, and sales and hospitality.

In 2020, we launched an internal mentorship program where employees are paired with a member of our management team, in or outside of their department, to focus on their career growth and opportunities.

We recently launched a language learning reimbursement program, encouraging employees to learn an additional language, to add to our overall educational reimbursement program.

We also provide reimbursements for health and wellness related expenses. These types of benefits build on our traditional comprehensive benefits package to make Domaine Carneros an excellent place to work.

Water quality and availability is another major concern facing the industry. At Domaine Carneros, we created a complex system to capture the rainfall on our property into irrigation ponds and use that for our vineyard irrigation.

The water that we use to make wine is treated and reused as vineyard or landscaping irrigation. In the vineyard, we use several techniques to gauge water status and implement minimal irrigation, and in the winery, we track and implement best practices to improve water conservation.

Hugh Davies: Wildfire Risks: This challenge won’t impact all producers equally, yet all have been impacted over the past several years. The stakes can’t be much higher when the worst-case scenario results are destroyed property, buildings, inventory and crop. Defensible space, water system development, and Calfire coordination are a few areas that we are working on to be best prepared. Escalated insurance premiums and diminished coverage is another new reality for which we have not found much of a remedy. These are problems that we haven’t faced before.

Supply Chain Breakdowns: Like other industries, ours is struggling to secure steady, predictable flow of materials. The unavailability of specialized glass and cardboard has been difficult to manage. We have turned to alternative options in order to continue processing, including Dubai-produced bottles and alternative box configurations. These aren’t problems that we have faced before either.

Inflation: Another challenge that is being felt globally is the steady rise in costs. From payroll, healthcare, transportation, fuel, to packaging, we are seeing elevated prices. Demand is outstripping supply on many levels. We are doing our best to keep pace, slowly raising our prices in turn. Fortunately, demand for premium CA wine also appears to outstripping supply, giving us some price elasticity. We have not been in an inflationary moment like this for many years.

Michael Honig: Environment, environment, environment. If we cannot grow the quality of grapes we currently produce, then nothing else matters!

We are doing everything we can to leave a small footprint for the next generation of family members to step into.

Also, we are never satisfied with our progress and always are looking for ways to improve. Next time you come by the winery, ask about our worm farm.

This has been an ongoing concern but with too much talk and not enough action this will be the biggest challenge we can face.

Will Jarvis: We were impacted by the fires in 2017 and 2020 and are now much more focused on fire preparedness and developing our in-house fire defense capabilities. The most basic precautions are to keep the grass mowed and remove dry vegetation from around the buildings, but we are also purchasing a fire engine to keep on the property and have been working with a private fire-fighting consultant.

North Coast vintners are still experiencing an unusually tight labor market, however it is starting to normalize. We decided early on during the pandemic not to downsize our hospitality team, and consequently were able to hit the ground running when visitations rebounded sharply in mid 2021.

Low inventory levels are an issue because of low yields from the fires in 2017 and 2020. We adjusting by limiting the availability and quantity of our wine allocations so that we can ensure an uninterrupted supply to our existing members.

Lee Martinelli Jr.: I’d say that currently the three biggest challenges we are experiencing are labor costs, the increased cost of supplies for everything from tractor parts, glass, corks, fuel etc., and the impact wildfires have to our environment and our community’s livelihood.

Michael Muscardini: Everyone will say supply chain challenges, and for us, it is glass.

It is very problematic and continues to be. We have been working with TriCor Braun and thankfully, they have been able to take care of us really well. I don’t think we have to worry about generating business right now; business is very, very good.

I think the challenge for a lot of wineries is having staff. We want to make sure the team is all set up to take care of other people so that customers want to come in and enjoy tasting wine. Myself and our general manager Natalie have focused on putting together an exceptional team. That means that you must listen to what their needs are and take care of them.

I’m very proud to say I think we’ve done an excellent job in regard to that. During Covid we kept the skeleton crew on and switched our focus from tasting room sales and direct to consumer, to phone sales that allowed us during Covid to actually grow.

Omar Percich: If I can only pick three then I would say rising costs, insurance, and labor challenges.

We have seen an inordinate amount of increases in our costs over the past 12 months and I know that is something that is not unique to us. We had to pass on increases to consumers for the first time in over a decade and it’s not something we take lightly.

We pride ourselves on making affordable, everyday wines and alcoholic beverages with the intention to bring value to consumers. Our intent is to create lifelong relationships with customers, and we feel that affordability is a big component of what we continually strive for.

Insurance has become a real challenge over the course of the past three years and even though we have a great track record with little to no claims, we are not absolved from tremendous increases because of so many losses insurers have had within the industry and just overall.

Luckily, our safety record is one of the best and we have been able to keep those costs fairly even. We buy a lot of grapes and bulk wine so even if our policies are leveling off a bit, we know that those costs need to be passed on from our vendors in order for them to keep providing the fruit necessary for the next vintage. We have been very lucky in terms of labor turnover, but I know that this has been a challenging period for many others.

How do your current level of sales and approach to marketing compare with those before the pandemic? What innovations from the past two years are you keeping or leaving behind?

Richard Bruno: As a small producer it has become clear that most of our wine is sold in independent restaurants. While we attempt to diversify into corporate retail our sales have increased as restaurants have reopened and become healthy businesses again.

During the pandemic, we saw a surge in our online orders and people joining our wine club through our website in more significant numbers than ever before. In addition to launching a new website in April 2020, we continue to explore engagement in the digital space through social media and other online channels.

Beginning in the spring of 2021, visitation returned to pre-pandemic levels, and we are seeing an increase in spend per guest as consumers take advantage of our food pairings and elevated experiences. We will continue our focus on these unique experiences and creatively approach the guest experience.

We have always loved our Château Society members, many of whom have been with the winery for twenty or more years, and the pandemic reinforced the value of these relationships. We are excited to bring back programs for our members, including our highly sought after Le Rêve and Lobster dinner series and new offerings such as our Pinot Noir and Truffle Dinner. We are hopeful to bring the Domaine Carneros experience to members who aren’t always able to come to the chateau, from perks that can be taken advantage of from far as well as events in areas with a concentration of members.

We had packaged a good deal of our wine in kegs for on premise accounts. As the pandemic closed most restaurants, as a result we have lowered our inventories for kegged wines. We will continue to use a JIT inventory approach to kegging and may from time to time be out of stock.

Remi Cohen: During the pandemic, we saw a surge in our online orders and people joining our wine club through our website in more significant numbers than ever before. In addition to launching a new website in April 2020, we continue to explore engagement in the digital space through social media and other online channels.

Beginning in the spring of 2021, visitation returned to pre-pandemic levels, and we are seeing an increase in spend per guest as consumers take advantage of our food pairings and elevated experiences. We will continue our focus on these unique experiences and creatively approach the guest experience.

We have always loved our Château Society members, many of whom have been with the winery for twenty or more years, and the pandemic reinforced the value of these relationships. We are excited to bring back programs for our members, including our highly sought after Le Rêve and Lobster dinner series and new offerings such as our Pinot Noir and Truffle Dinner.

We are hopeful to bring the Domaine Carneros experience to members who aren’t always able to come to the chateau, from perks that can be taken advantage of from far as well as events in areas with a concentration of members.

Hugh Davies: While 2020 was a difficult year, demand grew to outpace supply in 2021, and that trend continues into 2022. We have experienced growth through the direct-to-consumer and three-tier wholesale channels. Concerted marketing effort during the pandemic afforded us with a unique opportunity to connect with our consumers and wholesale partners alike.

Zoom presentations, digital campaigns, virtual tastings, and good old-fashioned phone outreach have all broadened our ability to connect with our audience. At the winery, while the visitor headcount is held flat, the diversity of experiences, including outdoor tastings, has increased through the pandemic, and our visitors have truly appreciated that transition.

Michael Honig: Sales have been very strong, and I just wish we had more wine. We have adjusted some of our sales dollars and cut down on business travel. The pandemic forced us to pivot and think of innovative ways to market our brand and reach consumers who were unable to travel or visit.

We adopted a robust virtual tasting program, conducting hundreds of consumer tastings, as well as partnering with companies like Google, Wells Fargo, and UBS to provide tastings to their employees in lieu of sales meetings and holiday parties. It was also a great opportunity to focus on a stronger social media presence.

Rather than streaming tastings with our winemaker, we decided to partner with well-known celebrities to taste our wines on Instagram Live. It was a lot of fun! As with most wineries, we saw a significant increase in online wine sales (about 400%). A lot of people did not know you could order wine for home delivery, but once they found out it was very popular.

Will Jarvis: We are currently experiencing a post-pandemic surge in visitations. People who were cooped up at home during the pandemic are eager to travel, and Napa is a highly regarded domestic destination.

We experimented with “virtual tastings” during the pandemic, but it was not a good substitute for tasting wines together in-person and we are leaving that practice behind.

However, in the last two years we have also experimented with “in-market” direct to consumer events, which have been successful and that we plan to continue.

Michael Muscardini: As I said before we’re very focused on marketing our experiences. I think for a winery of our size it has really helped with our sales. This seems simple, but someone at the winery needs to ask the customers coming in the door buying wine or buying online, “What would they like? What are they looking for?"

Our main innovation is that for the past two years, we have requested reservations. It has made all the difference in the world. Our tasting room manager Nick Ciccolella can do all the scheduling for staff around our reservations. The goal is never to be understaffed, and we use TOK.

Omar Percich: We were actually lucky in some ways as grocery sales really jumped during the pandemic, but we did lose sales in the on-premises world and those are still just recovering. Overall, we are happy to see our portfolio doing well and we will continue to innovate products using the strengths of our employees and our expertise.