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New orders, loosened restrictions revive local beverage industry

The year of COVID-19

This story is part of a series that looks at the economic impact of the coronavirus pandemic since March 2020 and how North Bay businesses are recovering.

For a number of North Coast wine businesses, the first year of the coronavirus pandemic was a one-two punch of closures major sources of revenue followed by massive wildfires just as their costly winegrapes were ready to be picked.

While local breweries and distilleries didn’t have the added stress of massive blazes disrupting their supply, they also are recovering from the double blows of closures of bars, restaurants and hotels plus pandemic state rules that didn’t allow restricted them from serving visitors without accompanying food service.

But as the second year of the virus begins, such restrictions on marketing directly to consumers are starting to lift, and the phone is starting to ring again from those key trade accounts in areas of California and the nation where on-premises dining is increasingly reopening as pandemic metrics are falling.

Rob McMillan, founder of Silicon Valley Bank’s premium wine group and author of the institution’s closely followed annual industry forecast, said he’s “unusually optimistic” about the prospects for a “very good year” for industry for 2021. The thinks the vaccine rollout, though uneven, will spark recovery in the second half of this year of the venues and occasions that are critical to the business of fine wine.

“We’re pushing to open business sooner than expected,” McMillan said. “Wineries that on average were off 10% in top-line growth should be able to recover that.”

Reopening of restaurants and winery tasting room bodes for a better spring then a year ago, when shelter-in-place orders closed both, he said. Winter and spring, except for visits and orders related to Easter, tend to be slower for the wine business.

Another cause for optimism, McMillan said, is national savings rates, which suggest higher-net-worth households that haven’t been able to spend discretionary income on travel, weddings, parties and restaurants while both have been heavily restricted during the pandemic will do so after the threat of the virus wanes.

The anticipated consumer jubilation later this year should be more closely compared with that after the return of servicepeople from World War II than to the Roaring ’20s, McMillan said. The latter was during Prohibition, while the former had a steep rise in wine sales in the late 1940s then a steep drop and rise again after depleted wine stocks were replenished.

In western Mendocino County, the McGee family has been spending the pandemic retooling Anderson Valley Brewing Co., which was acquired a few months before, in December 2019, according to Kevin McGee. A little over half the 20,000 barrels the brewery produces is sold in stores in 35 states, soon to be 37, but about 30% is sold to on-premises accounts such as restaurants, and much of that that is in kegs for draught.

“It’s been bad, but it hasn’t been a disaster,” McGee said. It has given the brewery time to finish a complete overhaul of branding and packaging, renovate the facility and taproom.

When the pandemic dragged on after the first shelter orders, the brewery worked with trade accounts on beer in kegs, and by August had that sorted out.

The company has been able to recoup about 60% of the meager sales from the brewery taproom with on-site pickup.

The new state rules that now allow breweries and distilleries to reopen tasting outside accelerated plans for a 30-acre “beer park” Anderson Valley Brewing had spent the better part of 2020 working out licensing issues with the state Alcohol Beverage Control Department.

Anderson Valley Brewing Company’s new licensing allows much of the 30-acre Mendocino County property to become a “beer park” for events and tastings across the area. California’s new allowance in March 2021 for outdoor tastings at breweries sped up the park’s opening timeframe. (courtesy of Anderson Valley Brewing Company)
Anderson Valley Brewing Company’s new licensing allows much of the 30-acre Mendocino County property to become a “beer park” for events and tastings across the area. California’s new allowance in March 2021 for outdoor tastings at breweries sped up the park’s opening timeframe. (courtesy of Anderson Valley Brewing Company)

Effective March 13, California changed its rules on outdoor tasting for breweries and distilleries that don’t serve food with their drinks, making their rules the same as for wineries, which since July have been allowed to host visitors outside so under graduated levels of restrictions based on local pandemic metrics. A state craft beer trade group had sued California officials, claiming the differing rules for beverage alcohol businesses were discriminatory.

Even with the rule change, breweries, wineries and distilleries that do serve food will continue to be governed by the same restrictions for restaurants.

For counties in California’s two strictest tiers for business operations, purple and red, visitors to adult beverage producers’ establishments must make reservations for 90-minute sessions, which must stop by 8 p.m. All six North Bay counties moved into the red tier this month, and some are poised to move into the next less-restrictive tier, orange, this week and ones following.

The year of COVID-19

This story is part of a series that looks at the economic impact of the coronavirus pandemic since March 2020 and how North Bay businesses are recovering.

That will allow these beverage businesses to begin to open indoors, but capacity will be limited to the lesser of 25% or 100 people. In the least-restrictive tier, yellow, capacity goes up to 50% or 200 people.

Spirit Works Distillery Head Distiller Krystal Goulart and co-ower Ashby Marshall stand in front of their still in production facility at The Barlow in Sebastopol on Jan. 8, 2021. (Loren Hansen Photography)
Spirit Works Distillery Head Distiller Krystal Goulart and co-ower Ashby Marshall stand in front of their still in production facility at The Barlow in Sebastopol on Jan. 8, 2021. (Loren Hansen Photography)

Spirit Works Distillery in The Barlow complex in Sebastopol had been considering its next steps just before the state allowed breweries and distilleries to open without food service, according to co-owner Ashby Marshall.

“We never had space for food, so we did not open up,” she said. Now the company is eyeing Sonoma County’s move into the orange tier as the right time to reopen the tasting room, and that will call for a couple more hires.

At Spirit Works, wholesale to restaurants and tasting room sales made up half of revenue, and that came to a halt a year ago, according to Marshall. Though a pick-up window was available for club members and the general public, tours had been the distillery’s direct-to-consumer lifeline, and those ended also with the economic lockdowns.

With the allowances from the state beverage agency for online sales by distilleries in the pandemic, Spirit Works rushed to get e-commerce working and in the past six months has been conducting virtual tastings, like what local wineries jumped into to keep sales flowing. The distillery also does some contract projects, which helped to keep the staff of 10 employed.

The distillery makes 3,000–5,000 9-liter cases of its own brand, and the Sebastopol space was designed to add another still and a couple more fermenters to increase production.

And as the prospect of reopening the tasting room nears, the phone at Spirit Works has started to ring again for wholesale.

“It’s now nice to see accounts opening up, with bars and restaurants placing orders,” Marshall said March 17. “It just happened in the past couple of weeks, with San Francisco opening up again.”

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

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