To Industry Insiders, The Immediate Future For Wineries Is Grim

The drinks delivery company, Drizly recently reported that, as of the week of 4/13, beverage alcohol sales were up 535% over the same period in 2019—this, while new Drizly users dropped to 35% of sales during the week, as opposed to 40% of sales the week before. But the drop isn’t bad news, since the company typically expects new users to represent closer to 15% of sales.

According to Drizly, “IPAs, ales, porters and stouts at around 700% growth in sales over baseline [last year at this period]. Porters specifically were up 1,071% this week.”

Additionally, gin and mezcal, along with some whiskeys, are outpacing their previous year’s performance. What about wine?

Although wine had at times reached 44% of alcohol sales over the past year, its sales this past week were down by almost 3% from the same period in 2019.

On the heels of Drizly’s report came a notice from Wine Business “Revenue losses for the nation’s more than 10,000 wineries and more than 8,000 wine grape growers due to COVID-19 could reach $5.94 billion on an annualized basis in 2020, according to a new analysis by wine industry expert Jon Moramarco, managing partner of bw166 and editor of the Gomberg-Fredrikson Report.”  

Mr. Moramarco points out that the combination of on-premise and tasting room closings, along with a projected decline in direct-to-consumer sales (DtC) from wineries may offset what he sees as short-term sales gains. He recognizes the pandemic is altering consumer buying, but he isn’t sure it’s clear to what extent the new e-commerce and off-premise buying patterns will do to wineries and wine sales in the future.

According to Wine Business 97% of domestic U.S. wineries produce under 50,000 cases. The magazine estimates this segment of the industry will “…experience annual revenue losses of between 36% to 66% with smaller wineries most impacted.” Wineries producing from 1,000 to 5,000 cases are expected to lose almost 48% of their revenue; producers under 1,000 may lose as much as a third of their revenue.

These assumptions are for on-premise activity, including restaurants, bars, hospitality and winery tasting rooms, based on a 50% recovery within three months after the pandemic closings are lifted. Full recovery is expected to arrive only after the development of a COVID-19 vaccine.

It seems every day that goes by in lockdown and with social distancing threatens more and more the future of on-premise and tasting room sales—losses are already estimated to reach 80% of pre-pandemic revenue (a fall worth $2,54 billion). DtC will fall too, but the estimated drop is only 10%—$323 million.

The drop in wine sales will of course have an effect on winegrowers, which will have excess grapes on their hands while facing an estimated 25% drop in wine grape sales—$140 billion.

The off-premise beverage alcohol segment has a brighter immediate future. After an initial rush of orders, the segment, especially those with delivery capability, is estimated to rise by an overall 10%—$1.33 billion.

Still, Robert P. Koch, President and CEO of the California-based Wine Institute pointed out that its member wineries rely heavily on their tasting rooms and on restaurants.

About those restaurants, writing for medium.com, restaurateur Joelle Paranteau says the pandemic appears about to kill the U.S. restaurant business, “by the thousands.”

She points to what she refers to as “razor thin profit margins” which leave most restaurants without any reserves. To illustrate, Paranteau says, combined a restaurant’s food and labor cost generally gobbles 66% of revenue; that’s before overhead costs. In her calculation, most independent restaurants enjoy profit margins at 3–9%. She compared those margins with some industries that often receive bailouts first: banking, accounting and legal services margins (18–25%), healthcare (12-15%), and software technology (15–25%).

Wine industry turmoil of course is not confined to the U.S.

An Australian ABC news outlet claims the pandemic can take out about one-third of that country’s wineries—and, according to Lisa Riley, Harpers UK, South Africa’s government has banned all wine and spirits exports.

Meanwhile, Vancouver Canada-based BarrelWise Technologies, which develops and manufactures a barrel management system for winemakers to mitigate the risks of contaminating wine barrels, has received funding from British Columbia’s Rapid Response Funding for COVID-19 to develop and produce a decontamination oven for disinfecting filtering facepiece respirator (FFR) masks essential for healthcare workers.

It’s going to be a long haul.