This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.
For wineries throughout the state of California, Gov. Gavin Newsom’s directive on March 15 dealt a blow to the industry: He instructed closures of all tasting rooms (and for many Northern California counties, the new “shelter in place” directive made shutdowns mandatory). Wineries, many of which count the tasting room as a core part of their business, now seek creative ways to generate revenue.
Direct-to-consumer sales now represent 10.8% of all retail sales of domestic wines in the U.S., according to the Sovos ShipCompliant/Wine Vines Analytics 2020 Direct-to-Consumer Wine Shipping Report. Furthermore, this channel grew by 7.4% in value and 7.9% in volume in 2019, according to the same study. For many wineries, especially those producing less than 5,000 cases annually, direct-to-consumer sales constitute a large portion—if not all—of their revenue.
Tyler Russell, owner and winemaker at Cordant and Nelle wines in Paso Robles, Calif., sells everything directly to customers, and his tasting room is his only showcase. “One thing that we have always focused on is knowing that we are not only a winery with a strong mission to make a quality product, but we also identify as a hospitality business,” he says. “We pride ourselves on providing a memorable experience for people. Not being to offer that puts a damper on things, for sure.” In order to maintain business, Russell is offering inclusive shipping on wine orders and operating the tasting room as a pickup point for customer orders.
In Napa, Ed Feuchuk, Tank Garage Winery’s vice president of marketing, says that within 90 minutes of Newsom’s announcement, they shut their doors. The announcement hadn’t come as a complete surprise; the winery had proactively been reaching out to customers via email and social media the week before in an effort to be transparent about the uncertainties of the business. Feuchuk anecdotally notes an uptick of orders as a result, and on Sunday, after the governor’s press conference, he says “people really started coming out and supporting us, which has been awesome, and keeping us afloat.”
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As another winery that only sells directly to consumers, Feuchuk calls Tank Garage’s unique tasting room—a refurbished 1930s gas station—the lifeblood of the business. “By cutting that out, you’re effectively just suffocating our business, because that feeds our customer database,” which in turn fuels email campaigns, the wine club, and subscription services, he explains. Even with the recent push, Feuchuk is worried about overall revenue. “I haven’t actually run the numbers yet because I’m afraid to,” he says, half laughing. “I would guess just over the last couple of weeks, we’re probably at least 10% down from expectations, but I don’t know. Our customers are doing an awesome job keeping us up, and we’re just playing it day by day.”
Even larger wineries with broader distribution stress every sales channel is vital these days. Charles Krug, one of California’s historic wineries whose tasting room opened in 1882, says direct-to-consumer accounts for 10% of its business. However, with the wholesale portion in flux, the St. Helena–based producer is redoubling outreach to its customer base through new communication initiatives over phone calls, email, and text messages.
“About 25% of our business goes through restaurants,” says Judd Wallenbrock, president and CEO of C. Mondavi & Family (which owns Krug), and the rest through retail. “That 25% of our business, we believe, over probably a four- or five-month period of time, will suffer significantly.”
And support for employees is top of mind, especially in an industry that skews toward part-time and seasonal help. Under the “shelter in place” rule, winemaking and distribution are considered “essential,” so workers involved in production are less affected by tasting room closures. However, for the 12 full-time and six part-time employees working out of the tasting room at Krug, Wallenbrock says, the company is actively redirecting team members to other parts of the business, such as logistics.
Alison Smith-Story, cofounder (with husband Eric) and president of Smith Story Wine Cellars, which has tasting rooms in Anderson Valley and Russian River Valley, says the timing couldn’t be worse. “We were just seeing a little bit of recovery from the Q4 fires and PG&E power outages of 2019,” she says. To compound the stress, they source grapes from growers, and Smith-Story notes that “grower bills are all due in March each year.”
Leveraging the power of social media (the @smithstorywines Instagram account has 14,900 followers, while the couple’s dog, Lord Sandwich, boasts an impressive 72,900 followers on his @sandwichthedoodle account), the couple stay connected to their clients. “Our customer and fan base is very active; their shares on Instagram, in particular, have brought us new customers and have continued to lift our spirits,” Smith-Story says. They also plan to launch a virtual tasting, dubbed “Smith Story Saturday Night Live” the evening of March 21, as a way to further engage with customers.
Despite the hardships, many winemakers are maintaining a positive attitude, tinged with a fiery drive to succeed. “Failure is not an option for us,” says Smith-Story.
Tank Garage’s Feuchuk agrees: “We are going to adapt, we’re going to be nimble, we’re going to be creative, and we’re going to get through this thing one way or another.”
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