At WIN’s Leadership Conference, experts analyze the financial state of the wine industry
On February 9, 2022, Wine Industry Network welcomed attendees to its virtual Leadership Conference, a day dedicated to understanding current economic conditions affecting the wine industry and best practices for maintaining a modern wine business into the future.
The first session of the day, Economic Forecast: What to Expect in 2022, featured presentations from Dr. Robert Eyler, dean of the school of Extended and International Education at Sonoma State University in California, and Mike Veseth, editor of The Wine Economist.
Eyler gave a comprehensive overview, starting with the national economy before drilling down to the state of California and then its wine industry, in particular. Unsurprisingly, COVID-19 aftereffects and supply chain challenges topped the talking points.
The ongoing pandemic—though (hopefully) finally waning—has impacted the labor force as well as the country’s economic growth trajectory. Job numbers can be hard to interpret, he explained, since it’s still unknown whether changes in that statistic are due to truly unemployed workers or those who have left the workforce permanently (i.e. chosen retirement). He also cited the egress of families and workers in recent years as another impactor.
Despite calling analysis of Core PCE Inflation (basically, consumer prices not including food and energy) an “inside baseball” effort, Eyler proceeded to make complex information digestible. In short, the world is slowly “drifting back toward pre-pandemic numbers,” though it may take a few years to fully recover. The American economy, he continued, is currently being negatively impacted by the global supply chain, but this, too, should resolve itself as pandemic restrictions lift in the coming year.
Shipping costs, changing DtC regulations and inventory saturation (“a lot of people have built their library” over the past few years) are all pieces of the same conundrum—with time and patience being the best solution.
The real concern Eyler identifies is the likelihood that hospitality sectors (accommodations, food and drink, tourism) won’t bounce back as quickly as other economic sectors. “We need to get people back traveling. Specifically, traveling to wine country, staying overnight and spending money while they’re here.”
The Big Squeeze
Veseth’s presentation, The Big Squeeze, picked up where Eyler left off, focusing on stressors the wine industry is facing, including rising costs (through a variety of categories), and labor and supply chain shortfalls. Shipping, storage, and equipment and all cost more, and the wine industry is struggling to react.
The uncertainty of this “bottleneck economy” has led to a change in mindset from “just in time” (buying what you need when you need it) to “just in case” (stockpiling what you may need in case it’s unavailable when you need it). These squeezed margins can be felt all along the supply chain and have pushed up prices in warehouse space, shipping containers, bulk wine and bottling supplies, among others. It’s even affected the labor pool.
“Ten years ago, we would have been talking about the cost and availability of vineyard labor, for the most part,” Veseth stated. “Now we’re talking about attracting and retaining skilled marketing and administrative professionals.”
As mounting pressure continues to affect all links in the supply chain, vulnerabilities will lead to breaks. Retailers will ask distributors to lower prices; distributors will ask wineries the same; wineries will approach their growers and suppliers. The opposite will also be true, and it could be some time before a new balance is established. Raising prices seems the obvious answer but, Veseth warned, it’s not that simple.
“We’ve been through a period of premiumization, where consumers have gradually moved to higher price points,” he said, “and the pandemic has led to further growth in this direction. This may indicate a willingness to go even higher—but I have my doubts.
“It’s not that people have been willing to pay more for the same wine,” he continued, “but instead that they’re willing to pay more for different wines they think will be better.” This has led to the global proliferation of wine brands, as producers split their portfolios and rebrand in an attempt to attract consumers at higher price points.
It could work, but Veseth cautions that, at least some of the pandemic upgrades were likely due in part to consumers buying more expensive wine for home consumption instead of paying restaurant mark-ups. Direct-to-consumer purchasing (with its accompanying discounts) further pushed this trend.
He advised looking to your competitors when revising your business plan: What’s working for them? How can you translate that to your situation? Where can you trim? Expand?
Some solutions he’s observed include changing from small AVA-specific fruit to a wider, California designation to allow sourcing from more growers; and blending multiple vintages (NV) to make the most of your harvests. Go old school, he continued: “You’d be surprised what you can accomplish with a phone call to your customers. You have wine club data—use it.”
New School doesn’t hurt either: “Beer producers are coming up with multiple beverage categories that can be sold in the beer aisle — hard seltzers and such.” How can you reframe your product to appeal to new consumers? What can you bring to market that’s new?
“A few years ago, I asked a large wine producer about the China market,” he said. “I was told, for the amount of money it would take to launch in China, he could make a whole lot more money making sure his products were firmly established in less saturated domestic markets.” Think about where you can maximize your markets.
In summary, the wine industry has experienced more changes, more quickly, than ever before. Long-term trends have magnified and accelerated, and there’s no going back. It’s up to each producer to make the most of it.
Alexandra Russell is a writer and editor living in Sonoma County, Calif. Formerly editor-in-chief for Spirited Magazine and NorthBay Biz, she is currently a freelance jill-of-all-trades, covering topics as diverse as employee benefits insurance, health and wellness, and the alcohol beverage industry. Contact her at [email protected]