This is an updated and more detailed version of an earlier post on our sister site, winelaw.ca. As noted previously, these predictions are obviously speculative.
As discussed previously, the current societal restrictions (lock-downs, business closures, social distancing, event size limits) have produced dramatic effects for the wine industry:
- A collapse in sales to restaurants/bars/hotels, which entire sector is bearing the full brunt of the fight against the pandemic.
- An increase in sales to the retail sector due to consumers switching to wine consumption at home.
- An increase in online (direct to consumer) sales due to consumer preferences for product delivered to homes.
- The closure of winery tasting rooms, although many on-site stores are still operating for online sales and "curb-side" pickup.
- The closure of restaurants located at wineries.
- A severe reduction in tourism and travel (including the closure of international borders) which has reduced or eliminated wine tourism activity.
- The cancellation of traditional promotional events such as winemaker dinners and larger tasting events, both in respect of trade and consumer events.
- The cancellation of on-site winery events including consumer-focused ones (such as wine club release parties) and social events (such as weddings).
The Future of the Restrictions
The strategy of most governments is to control the number of infections (and hospitalizations) through the use of the restrictions such that the medical care system is not overwhelmed (i.e. 'flattening the curve'). As noted previously, in China it took 3 months of very significant restrictions to 'turn things around' (or 'flatten the curve' sufficiently to ease the restrictions). Indeed, the Canadian Prime Minister, Justin Trudeau, stated today that Canada's restrictions would last "a few months, probably" (see Globe article: Return to Work Will be Graduated and Likely Months Off). Update (April 9th): Trudeau stated that restrictions would likely continue until a vaccine is ready ... 12-18 months.
The long term goal is a gradual easing of the restrictions in North America, including BC. Scientists are warning that the relaxation of restrictions too quickly, could cause a 'second wave' of infections and problems creating a recurring cycle of problems and re-imposed restrictions. Media is already reporting on the efforts to slowly relax the restrictions in certain countries (see NY Times article: Some of Europe Will Loosen Coronavirus Restrictions). As such, and barring a miracle cure/vaccine, it appears that the most likely outcome is a continuance of some level of restrictions for at least 2-3 months, with a possible gradual easing over a longer number of months (Bill Gates has predicted a shutdown of 6-10 weeks).
The implications of this for the wine sector will likely depend upon the extent of the ongoing restrictions. In an attempt to gauge the consequences of this, I have made some comments (and guesses) in the tables below and categorized them according to the level of restriction.
Continuation of Strong (Current) Restrictions. Seems Likely for 2-3 Months. Could Repeat with Second Wave.
|Current Restriction||Impact on Wine Industry|
|Restaurants Restricted to Take-out; Bars Closed||Continued Severe Decline in Sales to Hospitality Sector|
|Winery Tasting Rooms Closed||Loss of Tasting Room Sales and Tourist Season|
|Winery Restaurants Closed||Loss of Sales and Restaurant Revenue|
|Travel Restricted (Borders Closed)||Loss of Tourist Season|
|Restrictions on Event Size (currently less than 50)||
Not possible to hold traditional promotional events such as regional promotional tasting events and winemaker dinners. Loss of on-site winery events such as wine club parties and social events like weddings.
Under this scenario, sales to the retail sector would likely stay strong, although the surge may level off somewhat or even decline if consumer confidence wanes. Online DTC sales may be somewhat stronger than traditional retail sales due to consumer preferences for delivery.
Medium Restrictions (if Progress Made). Could Possibly Extend Through the Summer or longer.
|Restriction Example||Impact on Wine Industry|
|Restaurant, Bar, Hotel Operations Restricted with Ongoing Distancing Measures||Continued Weakness in Sales to Hospitality Sector|
|Winery Tasting Room Operations Restricted (e.g. appointment only or distancing measures)||Decline in Tasting Room Sales and Revenue from Tourist Season, Tasting Room capacity likely to be way down. Winery tour bus model unlikely.|
|Winery Restaurant Operations Restricted||Lower Sales and Restaurant Revenue|
|Travel Reduced. Borders Restricted.||Lower Revenue from Tourist Season.|
|Restrictions on Event Size Moved Up (e.g. 200)||
Likely still not possible to hold most traditional promotional events such as regional promotional tasting events or on-site winery events such as wine club parties and social events like weddings.
Under this scenario, sales to the retail sector would likely level off, although there could be a decline if consumer confidence wanes. Online DTC sales may remain stronger than traditional retail sales due to consumer preferences for delivery.
Lesser Restrictions (if significant progress made). Could Possibly Extend For 12-18 months (until vaccine produced).
|Restriction Example||Impact on Wine Industry|
|Restaurant, Bar, Hotel Operations Resume, possibly with some distance restrictions||Sales to hospitality sector unlikely to bounce back to normal but may recover somewhat|
|Winery Tasting Room Operations Resume, possibly with some distance restrictions||Slow Recovery for Tasting Room Sales and Revenue from Tourist Season|
|Winery Restaurant Operations Resume, possibly with some distance restrictions||Slow Recovery for Sales and Restaurant Revenue|
|Travel Resumes. Borders Reopen.||Likely still a decline in tourist revenue as consumer confidence and economic capacity will be lower.|
|Restrictions on Event Size Moved Up (e.g. 500)||
Likely still not possible to hold traditional promotional events such as regional promotional tasting events. Possible resumption of winemaker dinners or on-site winery events such as wine club parties and social events like weddings.
Under this scenario, sales to the retail sector would likely return to traditional levels, although there could be a decline if consumer confidence wanes. Online DTC sales may remain stronger than traditional retail sales due to consumer preferences for delivery.
As a result, even the best of these scenarios will likely have some significant consequences for the wine sector. As discussed below, wineries may need to take immediate actions in an attempt to deal with the effects.
In addition, the long term scenarios are concerning. A continuation of the restrictions beyond 2-3 months could cause significant disruption to existing winery business models, particularly in respect of hospitality industry sales and DTC tasting room channels. To date, governments do not seem to have articulated a long term strategy, which is worrying both for the wine sector and for society generally. This NY Times article provides a useful discussion of the issues: Lockdown Can't Last Forever. Here's How to Lift It.
An alternative potentially more optimistic scenario, is that mass testing and increased protection of vulnerable groups (following a successful effort to 'flatten the curve') results in better and more targeted management of any ongoing cases and outbreaks. This strategy seems to have worked in some other countries, such as South Korea and Singapore, which have not had to impose such significant broad societal restrictions. Nevertheless, these countries have relied on monitoring and compliance programs which are more intrusive than anything seen to date in North America (e.g. GPS or technology based location reporting to enforce self-isolation or quarantine). This approach could conceivably allow for a faster relaxation of the restrictions - and a faster return to 'normality'.
Your Sales Channel Mix
Wineries may need to review their past sales channel mix and actively re-calibrate it. If a high percentage of sales was to the hospitality sector (including an on-site restaurant), you may need to find other channels for most of this wine. Similarly, if a high percentage of sales came from "walk-in" tasting room traffic, you may need to re-think. This is of obvious concern if the restrictions continue into the summer tasting-room 'high season'.
Here are a few ideas:
- Treat your existing customer lists as the "holy grail" (you were doing this before, right?). You may be able to increase sales to your loyal clientele through promotions and/or effective direct marketing. For example, one winery that I visited recently sent me both a hand-written thank you note and a corkscrew in the mail a few weeks after I visited.
- If you don't have a wine club, think about starting one.
- Upgrade your DTC capabilities. If necessary, re-vamp your web site and online sales processes. If you haven't added free shipping, do so now.
- Create a 'Plan B' for your tasting room. If it can re-open, could you do 'appointment only'? Could you make it work with restricted numbers?
- Create a 'Plan B' if you have a restaurant. If it can re-open, could you do 'take-out only'? Could you do 'picnic packs'?
- Think about what alternate marketing you would do if dinners and tasting events do not resume. Can you work with your existing retailers? Can you ramp up online marketing? Think about wine clubs. Think about joint marketing initiatives.
- Think about re-scheduling winery events. Adopt a flexible cancellation policy.
- Review your production targets and plans for the current vintage. If your sales are down or likely to be down, you may need to "carry-over" inventory to future years.
- Cross your fingers ... and hope that things get under control sooner rather than later.
Informative general discussion about public health policy approaches to the pandemic: Coronavirus: the Hammer and the Dance
Stat Article (Health Policy website): When Can We Let Up? Strategies to Relax the Lockdowns
Stat Article (Health Policy website): What We've Learned About the Coronavirus and What We Still Need to Know
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