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Covid-19 And The Wine Industry

Covid 19 and the wine industry

Over the past few months, Covid-19 has changed the world. It’s changed our daily lives, it’s changed our economic circumstances and it’s changing the world before our very eyes.

It’s caused us to be running a high school counseling department, 3rd grade, preschool and a small business out of the house. We’re ordering groceries online, I’m using a bleach soaked paper towel and q-tip to get gas every couple of weeks.  I’ve taught the kids to wear masks.  The 4 year old is obsessively crossing the street whenever he sees another person.  He yells at people from the couch if they aren’t 6 feet apart as they’re taking a walk, same family or not.

But we’re good.  We’re safe and other than an early scare of Influenza A finding the house, healthy.

I can’t imagine those that aren’t and while the amount of human suffering should stand on its own and thinking of how this effects the wine industry doesn’t seem right to me, we’re in this for a while, so I thought having a look at what’s happening and what’s next for the wine trade, makes some sense.

Before we go on, I think we should take a second to take stock at what a true 100 year event this is.  The last time California closed wine tasting rooms was Prohibition.

First, you’ll read a ton about how Covid-19 has increased wine sales.  Overall sales have increased 66%. Even moreso, online sales are up 243%.

So all good right? No wait, GREAT…..right? I mean, as an online wine club, seeing wine sales up 2/3rds and online wine up more than 2x, this is basically Christmas for online wine sales right? Wait, better than Christmas. Finally, I’m winning, the demographics have come home to roost, but in my favor…..right?

Not really.

The direct to consumer market for wine is an interesting one.  It’s largely dominated by websites and retailers that you recognize.  My former business partner said that it’s like a mall, but people only stop at the first two stores and the only available leases are in the back. 

What’s actually happening? So there are some larger groups of wineries and though those groups, often through winery software that they share, give us some idea on who is winning and who is losing.

So who’s getting all these sales?  

Welp, I’m sure spots like Wine.com and Total Wine are doing great.  They’re hiring after all. Whole Foods and other grocery delivery apps are also eating a lot of these sales.  For the most part those sales are sitting at the lower end of the price spectrum.  I mean, a lot of people are drinking more, but those sales are stocking up. There’s too many tales already about small locally owned wine shops that are laying people off.

The small groups of wineries show us that wine club memberships, generally the backbone of direct to consumer sales are actually decreasing during Covid 19. Why? It’s an economic crisis and the average bottle sold direct to consumer is often about 4x as expensive as the average bottle sold in the country as a whole. So they’re luxury purchases.

To help articulate that point, according to Wine Business the fastest growing wine brands during the Covid crisis include “Barefoot, Black Box, Bota Box, Franzia, Josh, Stella Rosa, Woodbridge, and Yellow Tail”

Are you looking for all the little producers in that list? Yeah you won’t find any.  But this makes sense, not only are we having a crisis in terms of this virus, but the current economic fallout as well as, the long term economic fallout means people are watching their money more carefully.

Anecdotally, I heard from a major deal site in a severely affected city.  They’ve run ads for perhaps my cheapest competitor and sold 2,000 wine club memberships.  They also ran one for a mid priced competitor (I sit at the high end of the price spectrum) and sold only 200 wine club memberships. That’s about the ratio that I would expect and I think we’ll see it continue moving forward. The cheapest drinkable wine will win the day, even if sales are going to dry up at your local grocery store…..because much like the meat department, they won’t need to offer them to make sales any longer.

Looking forward, there are even more sobering statistics.  Small wineries (those producing 5,000 cases or less) are expected to see a 57% decline in sales. 

I’m going to empathize that for a second, if you only have one take away here, please remember that. The average winery that would have a winemaker, often a spouse or business partner running the business side and some small consulting help in terms of accounting etc…..is about to lose over half their sales.

Here’s the full quite from an article in the San Francisco Chronicle: “Of the 2,077 wineries in Napa and Sonoma counties, 74% produce fewer than 5,000 cases of wine annually, according to Wines Vines Analytics. On average, American wineries of that size are expected to see a 57% drop in revenue in 2020”

With what I know about small winery finance that 57% drop in revenue basically ends the industry as we know it.

As you might expect given these grim statistics and predictions, the industry is already working on how we might fix this, or at least keep people in business.  No, I’m not talking about PPP because the likelihood of those helping anyone survive more than a month or two is low.  I’m talking what the industry can do, as tourism continues to struggle through the summer.  To get there though, we’ll have to chat about how small wineries actually make their sales. That’s next time. Tomorrow maybe. Maybe the day after. Depends on how 3rd grade writing goes, preschool etc. Such is life during a shelter in place, Covid 19 lockdown here in the Bay Area.

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