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Road ahead for wine business

Here’s a highlight from a panel discussion with North Coast business, law and financial experts during the Business Journal’s 20th annual Wine Industry Conference.

Participating on the “State of the Industry” panel were Lee Ann Pearce, manager of Food & Agribusiness Advisors, Wells Fargo Commercial Banking; Katherine Phillippakis, partner, Farella Braun + Martel LLP; Bill Vyenielo, senior business consultant, Moss Adams; and Mario Zepponi, principal, Zepponi & Company. This has been edited for length and clarity.

Where are we headed in the next six to 12 months?

Mario Zepponi: There's a lot of crowded wine portfolios that wine companies have, whether they're big or small. And I think that you're going to see, we call it in the industry SKU (stock-keeping unit) rationalization. What it basically means is eliminating product lines and simplifying it. … It's not just because of the distractions. It is because of all the consolidation that's been going on with wholesalers and the retailers.

And then now you couple it with this complete pressure where you have a breakdown in sales channels. And I think it's going to lead to wineries' wanting to be much more efficient in terms of looking at their winning brands and their losing brands and phasing out their losing brands to make it so they have more attention focused on where they're making money.

… To the extent that you're in the three-tier system, you need to invest in those partnerships, see how your distributors are doing, your retailers are doing. Sometimes, you have limited ability to make any change, but just the fact that you're engaging with them is critically important, because you're saying, "You matter to me." And typically, what comes around goes around.

The other thing that I would add is I think that when Constellation (Brands) made the investment in Empathy Wines, you would have thought that this was a multibillion-dollar acquisition. … Empathy Wines was a direct-to-consumer platform. They did about 15,000 cases a year. But what it represented to (Constellation) is that they need to figure out how to engage with the consumer outside of the traditional three-tier channel.

I think you're going to see that there's going to be a lot more interest in direct-to-consumer brands, as well as direct-to-consumer platforms. Because what you basically have is a situation right now where you cannot engage the way you comfortably did in the past with the consumer. So how does your brand survive in the marketplace? And if you don't have a social media platform or strategy, if you don't have a wine club that operates separate from a tasting room — all these different things — then you're going to be vulnerable.

What Constellation did was the shot that was heard around the wine industry. You're going to see a lot of people now double back and figure out, "How do I do it? Do I build it? Do I buy it? Do I do both?"

Bill Vyenielo: We are seeing a shift from how do we get through the rest of the year to a mindset that's how do we get through 2021 and into 2022. Opportunities are that we're seeing people are going to continue to consume wine, just in different locations. Home meals. We know that more wines being consumed in outdoor activities, so we're seeing some opportunities through innovations in packaging.

Canned wines, for example, the smallest category in the industry but one of the fastest growing. So if it's safe to be outdoors in an area that's socially distanced, canned wines fit that bill. We're also seeing boxed-wine sales increase pretty dramatically. That's a view of value wines selling to people being at home. … And I've been reading where some wineries in the upper-priced wine categories are starting to box their wines ….

We are seeing prices softening on the grape sales side as well as on the wine sales side, but the availability of high-quality grapes is on the increase. We're seeing a lessening of the excess inventory that did start with the 2018 vintage, so I think wineries are in a little better position to inventory. But it all I think means that you're going to see greater opportunities for consumers to have greater value, greater quality of wine, greater value on pricing. …

(W)e're seeing some opportunities where winery owners or just business owners in general are looking at some decreased valuations of assets. They're taking an opportunity to look at succession planning, perhaps making a transition or transfer of assets from their current operation to the next generation. There's estate planning that's related to that, and we're seeing a big uptick in that. …

Katherine Philippakis: (W)e're going to see a partial end to the grape monoculture. I foresee smaller wineries becoming more like integrated small farms. Partly, this is because it adds an additional attraction for visitors when they can visit or even online, it's a different way to relate.

One possible way forward for smaller wineries is adding food products. You see this all over Wine Country with olive oil, but I think we'll see it with other products as well. With a stronger emphasis on health and knowing where your food comes from and buying what's locally sourced. I think we might see in addition to food products, things like botanical oils and other cosmeceuticals that are linked to products grown on site. …

(W)e're going to see a partial end to the grape monoculture. I foresee smaller wineries becoming more like integrated small farms.

We’re going to continue to see what I think of as a return to the homestead. We're seeing a flight to the Wine Country from more densely populated urban areas. People want to buy properties with some land, the ability to have gardens, fruit trees, chickens, this sort of idyllic country dream. And in general, what they want are turnkey properties, so they don't want to buy a project. They want something that they can move into an escape from the ills of the world. …

When you can, buy neighboring property. Second, consider modifying your use permit. … I’ve been a practicing wine lawyer for 20 years now, and I've seen a lot of people buy neighboring properties. I've never seen anyone come back to me and say they regret it. …

Tasting room restrictions changed a bit to allow outdoor tastings on food and wine pairings (during the pandemic), but if you want to make outdoor improvements, pavilions, if you want to change your opening hours, if you want to change your marketing plan, this is a good opportunity. Recessions are always a good time to make land use entitlement modifications, because the regulators are worried about the economy, and they tend to be more liberal than they are in good times. …

Lee Ann Pearce: While certainly we're going to see some casualties from this disruption, which is major, I'm very excited because I feel like businesses are starting to speak to the millennial population and the ones coming behind them through technology in ways they didn't before. …

(I)f you can tell your story on your label or your website, that you're sustainable, that you care about things that your consumers care about, that will really speak to (consumers) going forward.

I agree with Kate that people are seeking that self-sustaining lifestyle. And I believe that they're all looking at these companies they do business with, and they're looking at their own values. So if you can tell your story on your label or your website, that you're sustainable, that you care about things that your consumers care about, that will really speak to them going forward.

We will have some pain, but I think we will end up stronger at the end of this.

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