Can local economy keep rolling? Sonoma County business leaders offer 2019 predictions

For the past five years, the Sonoma County economy has been relatively humming along - even in the aftermath of the October 2017 wildfires.

The central question heading into 2019 is whether or not the good news continues given some troubling indicators across the North Bay. Businesses struggle in the tight labor market to find available workers. Too many residents can’t afford a home or even a place to rent. More bricks-and-mortar stores have closed as shoppers flock online. And tourism growth remains a challenge after the fires, as shown by the popular Shed Modern Grange foodie destination in Healdsburg planning to close Monday.

To gauge local sentiment, The Press Democrat asked five Sonoma County business leaders and analysts for their outlook for 2019. Their answers have been edited for brevity and clarity.

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Robert Eyler, Sonoma State ?University economics professor

Q: What do see as the economic outlook for Sonoma County in 2019?

A: It is likely to be a year of transition for the Sonoma County economy as rebuilding continues. The national economy may be slowing down a bit, and the Bay Area may see more abrupt slowdowns if investors begin to pull back from companies that dominate the Bay Area economy. It would not be shocking to see some major employers in the core Bay Area begin to shed workers in 2019, but that may not trigger such a change to affect local industries like tourism and wine.

Also, 2019 may be a year where those that lost homes in the fire are challenged by reductions in insurance payouts and some decisions on movements into a rebuild or elsewhere locally, or leaving the area. Generally, Sonoma County is likely to follow the state economy closely, and the forecast is for positive, slower growth.

Q: Do you see any hope to make housing more affordable? And if not, what will be the ramifications?

A: We need to build more housing and affect the supply side of the equation. However, if there is excess demand to live here, prices may fall for a short time and then available supply will be consumed and prices will stabilize and rise again. The ramifications of not having more affordable housing markets is more commuting workers; higher wage levels; perhaps more conversion to technology and away from labor; some business failures; and also preservation of housing wealth for those that own.

Q: Are there any local industries especially vulnerable now in this economic climate?

A: I think the most vulnerable is retail due to rising labor costs, tight labor markets, and global competition that has come home to one’s phone versus local merchants. Local retail is likely to be very challenged over the next few years. The key challenge there is remaining different and relevant to the local market served: why would a local resident shop here versus Amazon? Retail tied more directly to visitors versus local residents may delay some of that pressure.

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Tyler Smith, owner and brewer at Cooperage Brewing Co. in Santa Rosa

Q: What’s the outlook for the local craft beer sector in 2019?

A: It is a great time to be a beer consumer. There is an abundance of breweries in the Bay Area with many more in the planning or beginning stages. Many established breweries are expanding production, which helps to lift issues with accessibility in the market. Restaurants, bars and tap rooms have really embraced the local beer scene, making it easier for small producers to secure a tap handle and for consumers to find a great local pint.

Q: Is there still room for new breweries even with all the competition in Sonoma County? Have we reached a limit?

A: I do think we are close to reaching saturation, both locally and nationally. Cooperage completed an expansion three months ago allowing us to increase production capacity from 800 barrels a year to roughly 5,000 barrels a year. Russian River Brewing Co. just finished their ?$50 million expansion and Henhouse just announced a $4.5 million expansion. There are many others in our region that are growing, which will make it really difficult for anyone starting off on a shoestring budget. It is a super competitive market that requires a lot of capital and labor to sell a very perishable item. There is a limited number of tap handles and limited amount of shelf space, so to survive, you really have to do it right.

Q: What’s the biggest challenge you face in running your business?

A: My biggest challenge personally is finding enough time to spend with my family. It was much easier working 100 hours a week for months at a time when I was 30 and didn’t have a child. Once my son was born two years ago I scaled back the hours, but I am still working seven days a week. At our scale, the margins are too thin to hire on more help that would allow me to cut back to five to six days a week. From the business perspective, it will always be staying relevant.

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Keith Woods, CEO of North Coast Builders Exchange in Santa Rosa

Q: What’s the outlook on rebuilding efforts from the October 2017 wildfires?

A: What I tell people is you can think of the North Bay’s rebuilding efforts to date as being shaped like a hockey stick. Rebuilding was relatively flat from October 2017 through April 2018. There were homes being built, but not at a pace that was as rapid as we all would like.

Through May to December 2018, permit applications rose dramatically, as did actual construction of homes. A drive around Coffey Park in particular showcases a significant number of homes under construction. It’s slower in Fountaingrove because hillside and sloped lots are more difficult - and expensive - to build. Builders and local officials told me that around 200 families will be back in homes by the end of the year, and an additional 800 families by the end of 2019. The year 2020 will likely produce another 1,000 completed homes. After that, who knows?

Q: What is the biggest headache for builders right now?

A: The most frequent problem I hear about from contractors is a shortage of concrete and the length of time to get it delivered. I’ve heard delivery times were averaging five to six weeks because of excessive demand and limited supply and not much can happen until foundations get poured. Since the pace of rebuilding is picking up, the problem might get worse before it gets better.

Q: Most insurance companies will cover rental assistance for fire victims through October. Is that deadline putting pressure on builders to finish before that time, and do you see policyholders selling their lots because they will not be able to rebuild under that deadline?

A: Yes, builders are feeling some pressure because fire survivors hear the clock ticking on how long the rental assistance will go on and they are understandably concerned. That is why the pace of rebuilding is accelerating now and will continue to do so in the first quarter of 2019. Fire survivors know the race is on: will their new home be completed before their rental assistance runs out? I know some who want to rebuild will win the race, but there is a likelihood that others won’t.

Will a sizeable number of policyholders sell their lots? Yes. It’s been happening for the past 15 months and will continue. For the sake of the fire survivors and our community as a whole, I hope that the numbers don’t grow to the 35 to 40 percent figure that I’ve heard frequently.

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Sara Cummings, executive director of the Sonoma County Lodging Association, which represents a group of local hotel operators

Q: What is the outlook for area hotel industry for 2019?

A: We are cautiously optimistic about lodging and tourism in 2019. The teams at Sonoma County Tourism and Visit California are working on national and international levels to get the word out that Sonoma County remains beautiful and fully open for business in the aftermath of the 2017 wildfires. As all Sonoma County businesses communicate to our customers and friends, we must continue to deliver this message. What’s happening in the Bay Area with tourism is another factor to consider. The Moscone Center in San Francisco is set to reopen in early 2019, which could affect our business in a positive way.

Q: Is there any worry that tourism may be flattening since the October 2017 wildfires?

A: There is no doubt that much of Sonoma County’s lodging and tourism was adversely affected by the fires, and it will take some time to rebuild and return to a more typical occupancy pattern. It is also important to remember that each lodging and tourism business in Sonoma County has its own patterns. The vacation rental in The Sea Ranch or Bodega Bay sees a very different visitor than a hotel located on the Highway 101 corridor, for example. We have a diverse mixture of leisure and business travelers, but our hope is that all of them will continue to benefit from continued communication and promotion of all that we offer here.

Q: What have local hotels done to stay competitive in hiring in a tight job market?

A: Every Sonoma County business is feeling the pinch of low unemployment rates in staffing their businesses, and lodging and hospitality are no exception. Because our industry is one that young people don’t necessarily target in their career goals, we work to speak to high school and college students whenever possible about the breadth of opportunities in a lodging or hospitality career path. We are working in 2019 to partner more closely with local schools in addition to hosting our annual Chefs of Tomorrow event, where high school culinary program student teams and their chef mentors compete to raise funds for their programs.

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Kim Stare Wallace, president of Dry Creek Vineyard winery in Healdsburg

Q: What do you see as the outlook for the local wine industry in 2019?

A: As a general rule, I feel optimistic about the coming year. Sonoma County enjoys a world-class reputation and tourism, while perhaps not at the same levels as before the fires, seems to be rebounding positively. Wineries with a unique story, sense of place and exceptional wines will fare better than those that are either just starting out, or aren’t authentic in some way. Those wineries that go the extra mile and excel in this area will thrive. Unfortunately, I think we will see more and more brands get gobbled up by larger corporations as the industry becomes increasingly competitive. This is an industry that is not for the faint of heart.

Q: How much harder is it to sell wine with consolidation in both the wholesale and retail sector? What can smaller wineries do to grow their portfolio?

A: Our family winery has been around for nearly 50 years, so I often refer to the “good old days” when pioneering wineries like ours were out trailblazing the California wine industry. While it wasn’t necessarily easy back then, there were plenty of distributors looking to represent wineries and not nearly the amount of brands and labels available. Today, you have very few small to midsize distributors left, with the “big boys” controlling access to the marketplace. It is extremely difficult to not get lost in these large distributor portfolios. The same is true for retailers. Wineries need to work diligently to be relevant, which includes having a robust sales and marketing plan; strong relationships with distributors, trade buyers and consumers alike; a social media following; snappy packaging; a compelling and authentic story; and of course, top-notch wines.

Q: What do you see in the future for wine tourism, especially for reaching millennial consumers?

A: People of all ages, but especially millennials, are seeking out specialized experiences. This provides a wonderful opportunity for wineries to think out-of-the-box and find a compelling aspect of their story that they can share in a unique way. As an example, as the first winery to use the term “meritage” on a label back in 1985, visitors can participate in our meritage blending experience where they get to make their very own blend. Have a photo worthy destination that can be put on Instagram. That appeals to millennials. In our case, we found our original winery sign from 1972 and installed it in front of the winery. Every day, I look out of my office and see people taking pictures of themselves in front of it and sharing their experience with the world of social media.

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com.