Recession Ups and Downs Trickle to Wine Country

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By Courtney Cochran

With our nation now fully entrenched in a recession, no one can deny the ripple effects of the economic downturn coursing through our lives and those of friends, colleagues and family.  And, though we'd all like to imagine the wine industry impervious to the nation's economic ills, the fact is that wine country, too, is feeling the effects of the crisis.  Fortunately, it's not all bad news when it comes to financial affairs and wine.  
Sales Shift, Consumer Habits Change
Generally, the recession has resulted in consumers dining in far more than in recent years, with restaurant sales slumping as a result, in some instances dramatically.  "We are seeing longer lead times in receivables from [restaurant] accounts and have had one of our best customers shutter their doors," reports Jay Kell, co-founder of Verge Wines, which produces critically acclaimed Syrah in Sonoma County and sells much of its 300-case production to restaurants.  

The downturn, Kell says, means he and his business partner, Michel Schlumberger winemaker Mike Brunson, have to work harder to build key relationships and continue to move product.  "The environment now is challenging, but it's one that will eventually leave us a better company," he adds on a positive note.

Retail Sales Mostly Steady
With more consumers dining at home, retail sales (which include those at supermarkets, wine stores, e-tailers and other merchants) have been less hard hit.  And though the trend away from restaurant dining is hurting wineries for whom a large portion of sales comes from those accounts, it brings some benefit to those whose brands are well positioned on the shelves of supermarkets and other wine retailers. 

Michele Kawamoto, Estates Manager for ICON Estates, the fine wine division of Constellation Wines USA, says retail sales are still strong for many of the brands she manages, including New Zealand's Kim Crawford, known for its popular Sauvignon Blanc.  "Being in the Wine Spectator Top 100 last year, and scoring over 90 points for 7 years in a row demonstrates consistent quality and boosts consumer confidence in [Kim Crawford]"," Kawamoto says, a factor she attributes to the brand's continued strong sales in a down market. 
 
Value, Value, Value
But not all consumers are splurging on wines that cost $19, the price tag you'll find on Kim Crawford's coveted Sauvignon Blanc.  Instead, many consumers are trading down in their wine purchases, opting for lower-priced wines and formats delivering significant value, including large-format bottles and boxes. In fact, December sales reports show that the under-$10 category is particularly popular in today's retail climate, with wines selling for less than $7 emerging as the most popular buys. 

Interestingly, American consumers continue to purchase roughly the same dollar amount of wine at retail, but are shifting those dollars decidedly towards value-priced products, often purchased in greater volume. So, for example, someone who usually buys a $20 bottle of Chardonnay may be opting instead for two $10 bottles of the same popular varietal.  The rationale seems to be psychological - shoppers do not want to be perceived as spending lavishly during a downturn.

Softening demand for pricier wines makes it more important than ever for producers - particularly those with wines that cost upwards of $10 - to invest in their brands and find new and interesting ways to connect with consumers.  As ICON's Kawamoto puts it:  "Now is the time to find alternative means of marketing - including such high-touch outlets as Facebook and Twitter - to build and maintain customer loyalty."  Or, as she put it quite simply during an interview, it's time for producers to "be involved." 
 
Silver Lining for Wine Country
On a very positive note, a 2008 Sonoma County tourism report predicts that Bay Area tourism - including that in wine country - may actually benefit from the ailing economy as residents eschew air travel for excursions closer to home.  Seen from this angle, wine country looks to be in an advantageous position - relatively speaking - to weather the current economic storm.  In light of this last nugget, here's to thinking positively, supporting restaurants and retailers, and making plans for wine country travel in 2009.  

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3 Comments

My wife and I own The Shelford House Bed & Breakfast Inn and are experiencing a slower start than 2008 (but about equal to 2007, which was a good year for us personally). Our thoughts parallel your article, as we are planning on more local destination travelers that can drive up and back on a tank of (much cheaper) gas or so. This is a great time to visit the Sonoma Wine Country as the benefits of slower times are more personal attention at the tasiting rooms (the winemaker may be pouring your glass of wine) and more availability at the best restaurants. We are offering deep discounts to Winter/Spring travelers. 2009 will be a challenging year, but it will make us look harder at out spending habits and those that make the appropriate adjustments will survive just fine.

That's what my sister and mom and I plan to do in April - drive up to San Francisco, see Cali's beautiful wine country, then on to Reno / Tahoe. A nice, long road trip for a wonderful California spring. Although we're hesitant to spend a lot of money on a long trip somewhere, we know that we have a lot of fun and beauty right up north and we plan to see wine country which we have never done! I'm hoping that others can also do the same and enjoy all that California has to offer!

With the crisis we are going through right now, some people can either splurge their money on wine and drink while others prefer to be wise and save their money instead. I'd go with saving my money.

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