Home Finance Staying Ahead of the Supply Struggle Curve

Staying Ahead of the Supply Struggle Curve

1968
0
Advertisement

Historic trucker shortages, port logjams and labor strikes are just some of the elements bringing the wine industry to its knees this year. Supplies are down, and prices are up, across the board.

Kathleen Willcox

Turning the page on 2020, the wine industry was optimistic about the year ahead. But sunny predictions were eclipsed and chaos—caused by weather challenges and supply chain disruptions—reigned.

This year, the wine industry is swapping out optimism for war-like preparedness. Read on for what problems from 2021 are predicted to recur and how wine business leaders are arming themselves for whatever comes down the pike.

Glass & Labels

Kathleen Inman, owner and winemaker at Inman Family in Santa Rosa, says “glass prices have increased, as have shipping costs and even the costs of printing labels.”

For some producers, an increase in glass prices may mean an increase in wine prices. / Photo Courtesy Good Goods
For some producers, an increase in shipping prices for glass may mean an increase in wine prices. / Photo Courtesy Good Goods

She turned to domestic glass a few years ago, but a shortage forced her to turn to Chinese glass, which now includes an 18.23 percent tariff. Currently, Inman says, it costs more to ship bottles than the base cost of glass itself, and “labels have almost doubled in price.” The price increases for raw materials mean the 2021 vintage will cost $14.95 more per case to produce.

“Some of these costs came into effect for my summer 2020 bottlings, and I absorbed those,” she says. “But we also have higher labor costs, and the cost of farming our 10.45 acres has gone up significantly in the last two years. We will have to price the 2021s a bit higher.”

Barrels & Capsules

Bobby Richards, winemaker at Seven Hills Winery in Walla Walla, says driver shortages meant a delay in his barrel delivery.

“It’s a perfect storm of delays,” Richards says. “It seems as though everyone is expecting to receive their orders in early versus late spring or early summer, causing many people to over-purchase because they think [suppliers] will run out.”

Seven Hills also had to push back their upcoming bottling schedule because of delays in importing their capsules.

To contend with these issues and prevent more in the future, Seven Hills is working with local trucking companies to get their barrels in ASAP, ordering capsules way ahead of their usual schedule, and bottling months in advance of release dates in hopes of “reducing the potential to run low on inventory.”

Bobby Richards didn't get his barrels on schedule due to the lack of delivery truck drivers. / Photo Courtesy Seven Hills Winery
Bobby Richards didn’t get his barrels on schedule due to the lack of delivery truck drivers. / Photo Courtesy Seven Hills Winery

Cardboard & Cans

Ryan Ayotte, CEO and founder of Ohza, a canned mimosa, says that “everything from the cans, to the cardboard to shipping has increased and is harder to come by. Extreme cardboard delays recently went from six to 15 weeks, and it has forced us to change how we forecast sales and find better finance options.”

Once Ayotta had the cardboard and can situation under control, he had to deal with shipping. “Freight costs surged due to lack of driver supply and increasing demand,” he explains. “We had to ask—and we will continue to [ask]—distributors to exponentially increase their order size so we can include more product per delivery, and make fewer deliveries.”

Labor & Shipping

Hans Herzog Estate in Marlborough, which produces 2,500 cases of organic wine, has overcome several problems—including a 40 percent lower harvest. But their biggest challenge was labor, says co-owner Therese Herzog.

“With closed borders there are just not enough laborers in New Zealand,” Herzog says. “Hourly rates go up dramatically in an extremely competitive market, so everything gets more expensive. We depended on people working who were here on a working holiday visa, but that’s no longer possible. My husband Hans is practically a one-man show.”

Due to pandemic-induced travel restrictions, the Herzogs can no longer depend on their typical labor force. / Photo Courtesy Hans Herzog Estate
Due to pandemic-induced travel restrictions, the Herzogs can no longer depend on their typical labor force. / Photo Courtesy Hans Herzog Estate

Tom Steffanci, president of Deutsch Family Wine & Spirits, which has 24 brands producing 12.9 million cases under its umbrella, agrees that “labor shortages at warehouses, production facilities, and transportation companies” led to “extended fulfillment times and a reduction of service.”

Transit over water increased 50 to 100 percent, creating an uphill battle in terms of getting product to customers. But by working with distributors to “dramatically increase their inventories,” placing orders far earlier with suppliers, rerouting imports from West Coast to East Coast ports, and paying premiums for freight and warehousing—they’re able to maintain a 98 percent in-stock rate, Steffanci says. With the same game plan for 2022, he expects to maintain that high in-stock average.

They will not be increasing prices significantly this year, despite needing to absorb spikes of freight of up to tenfold, and raw material increases up to 15 percent.

“We take a long-term view, and it’s very important to keep prices stable,” Steffanci says. It paid off last year with a 12 percent increase in sales across the board, he says.

Solutions + Unexpected Benefits

Supply chain disruptions have not been all bad, some argue.

“While it poses an immediate business challenge, it’s also an opportunity to rethink how we approach packaging, shipping, and consumption,” says Zach Lawless, founder and CEO of Good Goods. The company launched mid-pandemic in 2020, with the goal of creating a circular economy for glass bottles and with aims to alleviate bottle supply issues and reduce waste.

“Wine bottle production creates the largest carbon footprint in the winemaking cycle due to the energy required to produce the glass, and only about 30 percent of wine bottles are recycled,” he says. “We help resolve both issues by picking up, sanitizing, and reselling existing bottles to producers.”

Good Goods' business model is built on sanitizing and re-filling used wine bottles in an effort to reduce waste. / Photo Courtesy Good Goods
Good Goods’ business model is built on sanitizing and re-filling used wine bottles in an effort to reduce waste. / Photo Courtesy Good Goods

Good Goods is also creating standardized reusable branded bottles for wineries, with a loyalty program that incentivizes future purchases.

“As a small producer, we are disproportionately affected by the current glass shortage,” says Wild Arc Farm’s co-owner Todd Cavallo. “Programs like Good Goods are critical to building a more resilient and equitable supply chain.”

Producers say that some challenges have benefits.

“Our costs are increasing slightly as a result of supply chain challenges,” says Nicolas Quillé, chief winemaking and operations officer at Napa’s Crimson Wine Group. “Dry goods costs are increasing significantly. To offset the costs, we’ve turned to local companies whenever possible, and have worked to consolidate and simplify our supply chain.”

Instead of shipping glass and cardboard from China, they get both from California now.

Crimson has on-shored most of its supply chain, which has reduced its carbon footprint.

Rethinking the supply chain on the fly isn’t easy, but these producers prove that a steady supply of creativity and flexibility—and the willingness to absorb cost increases in the short term—pays off in customer loyalty now, and hopefully into the future.

_______________________________________________________________________

Kathleen Willcox

Kathleen Willcox writes about wine, food and culture from her home in Saratoga Springs, N.Y. She is keenly interested in sustainability issues, and the business of making ethical drinks and food. Her work appears regularly in Wine SearcherWine Enthusiast, Liquor.com and many other publications. Kathleen also co-authored a book called Hudson Valley Wine: A History of Taste & Terroir, which was published in 2017. Follow her wine explorations on Instagram at @kathleenwillcox

 

Advertisement
Previous articleTrade Show Only Discounts on New Purchases and $100 Off Pre-harvest Service
Next articleFreemium software lets you test-drive Process2Wine’s Intuitive Solution

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.