Survey: After robust 2021, winery owners face long-term challenges

Water availability and insurance coverage represent obstacles, according to the report.|

A new survey has found renewed optimism in America’s wine industry as almost 30% of winery owners said they believed that 2021 was their best year in business.

The survey released Wednesday from Silicon Valley Bank of more than 600 winery owners and executives recapped a successful year for many who pivoted from a COVID-19 challenged 2020. Most of the respondents were from the West Coast, including 18% from Sonoma County and 22% from Napa County.

Rob McMillan, founder of Silicon Valley Bank’s wine division and author of the report, said he was amazed that almost a third thought it was their winery’s best year and another 24% said it was one of their better years. Eight percent said it was one of their most challenging years.

“That's remarkable to me. Think of the challenges that we've had to deal with the supply chain, the pandemic, labor, the reopening and closing of restaurants. The challenges are just daunting,” McMillan said.

Yet, the corresponding report from the bank also flagged long-term issues that were problematic before the pandemic and continue to pose challenges for the industry. That includes more difficulty in attracting younger consumers and the effects of climate change, especially in securing water for vineyards.

“2020 was difficult. We effectively had zero (flat) growth rate for North Coast premium wine,” McMillan said.

The past year was different. The survey found a 21% sales growth rate in 2021 for premium wineries, which are the basis of the North Coast industry. That spike reached a level that hadn’t been achieved since 2007. “It’s astounding. That was reopening. That part of the market did very well with restaurants. People needed to restock,” McMillan said of the sales jump.

The optimism also was reflected in the uptick of mergers-and-acquisitions activity. The report noted that such deals “were by all accounts the strongest ever” with the first initial stock offerings of a significant U.S. wine company in 20 years, which included both The Duckhorn Portfolio in St. Helena and Vintage Wine Estates that has its main headquarters in Santa Rosa.

Paul Mabray, chief executive officer of Pixwine, a Napa-based wine digital retailer, said he sees opportunity especially selling directly to consumers, which represents about 9% of all wine sales but is poised to grow more in future years. “One of the greatest outcomes of this pandemic was the adaptability of wineries and resilience with change that is coming that hadn’t been there before,” Mabray said. “I think you’re kind of seeing that manifest this year as they (wineries) invest in digital.”

Still, there are obstacles. That includes reaching younger consumers who are attracted to various alcoholic drinks from beer to hard seltzers as opposed to Baby Boomers who have carried the wine segment for decades. The report highlighted a Harris Poll taken in November that found that almost half of those 65 years and older would bring wine to a party while that share was 29% for those 55 to 64. “While boomers are still purchasing at higher price points, demand for wine will be slack as the median boomer hits normal retirement age in 2022 and younger consumers continue to prefer alcoholic beverages other than wine,” the Silicon Valley Bank report stated.

Water supply also could emerge as another factor as the survey found that 43% of respondents were very concerned about the potential for a serious shortage. More than 80% of wineries in Napa and Sonoma counties said they were impacted by the drought. “There’s a lot of things you can mitigate. You can’t mitigate no water,” McMillan said.

The survey also found wineries had more difficulty in obtaining insurance coverage, especially those in areas where wildfires have ripped through in recent years. Thirty-five percent of respondents either could not obtain coverage or get a sufficient amount of insurance, the survey found.

The report noted that the lack of insurance puts winery owners “in a position to lose everything” because if they cannot obtain coverage, they will have to rely on the California FAIR plan, which is the state’s insurer of last resort. The maximum coverage of the FAIR Plan is $8.4 million, which is insufficient for many wineries, McMillan noted.

Bill Swindell

Business, Beer and Wine, The Press Democrat  

In the North Coast, we are surrounded by hundreds of wineries along with some of the best breweries, cidermakers and distillers. These industries produce an abundance of drinks as well as good stories – and those are what I’m interested in writing. I also keep my eye on our growing cannabis industry and other agricultural crops, which have provided the backbone for our food-and-wine culture for generations.

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