How the $30 billion wine industry is struggling to stay afloat during the pandemic

wine industry coronavirus
Photo via Jun Seita/Flickr (CC BY 2.0)

The coronavirus pandemic is unsurprisingly hitting many businesses hard, and the $30 billion a year wine industry has been no exception, due to widespread tasting room and restaurant closures. But rather than close doors permanently, many wineries are turning to innovative methods to keep product moving—and tech-savvy wineries are currently leading the charge.

Smaller wineries, mirroring most small businesses, are predictably facing the greatest hardships. According to USA Today, wineries producing 1,000-5,000 cases a year stand to lose nearly 48% of their revenue in 2020, while those producing fewer than 1,000 cases could see up to 66% in losses. The newspaper wrote that the industry could lose as much as $6 billion in 2020.

Though wineries have traditionally eschewed e-commerce, many are realizing now that it may be their primary way to stay afloat in these uncertain times.

“The U.S. wine industry became over-dependent on [tourism],” e-commerce expert Paul Mabray, CEO of the wine industry customer insights platform Emetry.io, told Forbes. “I have been beating the drum about the brittleness of the model and this pandemic truly brought that sad fact home..”

But wineries are starting to understand that you don’t need a brick-and-mortar tasting room to move product.

“E-commerce was coming for the wine industry whether the wine industry wanted it to or not. It just got expedited by COVID-19,” Justin Noland, head of digital strategy and e-commerce at Wente Family Estates in California’s Livermore Valley, told USA Today. “The wineries that were more prepared to pivot to digital have done better in COVID-19, and they are poised to do better after COVID-19.”

To his point, larger established online wine retailers have seen staggering profits since social distancing measures went into place in March—as bars and restaurants closed across the country and many more people began drinking at home or on Zoom hangouts.

Wine.com chief executive Rich Bergsund said that the online retailer saw a revenue growth that quadrupled to more than $1 million per day since March 28—with April revenue topping $40 million and a total of $100 million expected this quarter. The company has since hired 500 additional employees and tripled its marketing spend.

Creative approaches some wineries are taking

Though not every winery has the tech or marketing budget to quickly ramp up online sales, some are coming up with more creative solutions to move products, such as virtual tastings and tours on social media or platforms like Alexa and Google Home.

“You can learn about the winery, the grapes, the winemaking techniques and the people behind it all,” Noland said. “You can buy the wine you love or you can explore a huge range of small lot production wine you’ll never find in a store, and you can do it in pajamas from the comfort and safety of your home.”

Susan Tipton started Acquiesce Winery in Acampo, California with her husband in 2003. The winery currently produces about 4,000 cases per year. However, when their tasting room had to suddenly close its doors due to the pandemic, Tipton said that about half of her revenue disappeared overnight.

In response to these new challenges, Acquiesce’s sommelier—who is typically found greeting guests and suggesting wine pairings onsite—is now conducting “Somm Thursdays” on YouTube. Tipton has also begun experimenting with Instagram Live, and a new marketing firm is helping the winery with strategic Facebook and Google ads.

As a result, Acquiesce’s e-commerce sales are already at 10% so far in 2020, compared from just 3% last year—with many of these sales coming from new customers.

What the future for wineries may look like

Even as wineries find ways to temporarily adapt, long term strategies may be more challenging—as there is currently no vaccination, cure, or even widespread testing for COVID-19. And even when tasting rooms eventually begin to reopen, it will be at limited capacity due to both state regulations and consumer comfort. But it’s not all bad for the industry.

“It’s both devastating and positive at the same time. Half of our customer base—restaurants—is essentially closed and we are unsure of when they might recover,” Mabray said. “Moreover, what has been our primary director-to-consumer (DTC) acquisition channel—the tasting room at wineries—is also closed. The waves of layoffs at wineries and restaurants are beyond sad. The glimmer of good news we see is that retail wine sales are thriving and this event has catalyzed wineries to pivot to use digital and e-commerce services which will be a key pillar of sustainability post pandemic.”

As of June 1, the California Department of Health approved Napa County to allow some retail stores and dine-in restaurants to reopen. However, wineries and tasting rooms are currently excluded from the mandate. And even when tasting rooms are permitted to reopen, they will also have to adhere to guidelines required by the Napa County Public Health Officer. Those may include social distancing, indoor mask use, limited occupancies, and various other health protocols.

Sources: USA Today, Visit Napa Valley, Forbes

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