top of page
  • Writer's pictureErik McLaughlin

Thoughts on Winery response options in the midst of Covid-19

Over the weekend an industry colleague asked for my analysis and advice for the wine industry, currently more disrupted by COVID-19 than anything since prohibition. It was Sunday. I was working in the garden. My brain was exhausted from the last two months of counseling businesses on how to navigate this and all I could muster was “fortune cookie” wisdom. I got called out by another industry colleague, insisting that I really should share our perspective on a broader platform rather than just private consultations for clients. So, I sat down to try and share advice that was both general and useful. Forgive me, it is long. Below is what I wrote:

I have started writing, deleted, written more and deleted again several times. As I said before, it is very difficult to come up with advice that is broadly applicable in this time. I agree with everything Dave Chen (see related post) has said regarding the macro situation. This will be a slow and painful recovery.

It is hard to fathom any real recovery with unemployment nearing 20% (and likely to exceed it). You can't have that many people out of work and have a real recovery. The business mortality in this cycle is going to be substantial, so many of the jobs these folks would go back to might not be there waiting for them. I'd be pleased with a "V" shaped recovery, but I think it is extremely unlikely. Certain sectors are clearly more affected than others, with hospitality being both the most squarely hit and the least capable of weathering this. It may be cold comfort, but (though I haven't seen unemployment numbers segmented by income yet) I suspect that the vast majority of those newly unemployed are coming from service sector jobs at relatively low-income levels. Though they are key to the wine industry in several ways (restaurant, retail, tasting room, distribution, etc.) the core luxury wine consumer is likely the least affected by the quarantine effects. Now their behavior may change, and ultimately our economy is one big ball of string so there are indirect and psychological effects on them, but most of the people who have been buying $25+ bottles of wine are still just as capable financially of buying that wine.

Grocery/Drug/Big Box/Club numbers are of course through the roof and have sustained beyond just the initial "hoarding" bounce. DTC shipments are also through the roof, how that will sustain is more questionable. Of course, these numbers are coming at the expense of on-premise being virtually non-existent and TRs being shut. It's a massive channel shift. With that channel shift obviously comes brand shift as well, since only certain brands are well developed in these channels. The folks who were already the best at chain retail and selling wine DTC remotely are taking the lion’s share of the spoils. I've spoken with several companies whose net sales are up the past two months. I've spoken with more than one winery who shipped more wine DTC in March than any month in their history. I've also spoken to several whose revenues are off by over 50%. This disruption is causing massively divergent results for individual businesses. The great thinning (that has been predicted for years but never seems to materialize) is beginning.

If a brand had product that was good enough to float with the tide of their category, they are sinking right now. Consumers are rationalizing what they spend on. Whether that be through stocking up from their favorite wine clubs or stocking up on their favorite brands available at Costco, only the favorites are getting the lift while everything else is being left behind. If you're not already a favorite, it's too late to become one. If you are already a favorite, well you better know how to capitalize on it now.

What are those who are winning in DTC doing right?

1. They know what their customers want - they have good CRM data and are customizing their offers to what each customer has historically proven to be interested in.

2. They are talking DIRECTLY to customers. Phone sales have never been more important. I know several wineries who have taken an all-hands-on-deck approach to phone sales, winery owners, managers, winemakers, TR staff, everyone is picking up the phone and talking to customers. No one wants to do it, but people are craving connection more than ever and phone sales are stunningly effective, especially when done in-house.

3. They are creating meaningful discounts/incentives. Free shipping on 6 bottles? Yawn. EVERYONE is doing free shipping. You can redecorate your house and not pay for shipping on any of the furniture. I just bought two frickin kayaks that were delivered to my door in a semi and I didn't pay for shipping. Free shipping is EXPECTED, you have to give them something MORE. Is that a price discount? Is that access to your most special wines that they couldn't get before? Is that buy 10 and we fill the case with two special bottles on us? Is that library wines priced at current release levels?

4. They have authentic online presence. I know everyone feels like they need to be doing virtual tastings or vlogs, but if you can't do it well it might be worse than not doing it. Having a winemaker drone on (or a salesperson make a pitch) directly into the camera (with fixed camera angle) ad nauseum is awful. You have to have the right, compelling personality, the video production has to be there (you can't just set it up on a tri-pod and talk into the camera unless you are under 60 seconds long), and connect. Be funny. Be vulnerable. Be honest. Sell by not selling. The best one I've seen was a Zoom call with a winemaker, where it was truly interactive. There was a host who moderated. People all saw each other's faces, real people asked real questions to the actual winemaker, and a moderator made sure it stayed on topic and kept moving. It actually felt like a conversation rather than being one-way. I'm stunned the number of videos I see posted that are 20, 30, 40+ minutes long, even over an hour. I don't have that much attention span for a winemaker. Make a series of short, impactful videos with clear messages (funny is helpful) and roll them out in a series rather than a couple long ones. The first thing I look at when I see a video posted is how long it is, if it's from a winery and over 3 minutes, I move on. If it’s a winery I like and it's under 60 seconds, I'll almost always watch it.

What can you do to help your distributors? You can call directly on the accounts that you personally have a relationship with and help them get your wine sold. You can offer your distributors extended terms during this time. Some are worried their distributor won't make it through this and whether or not they will get paid, so they've stopped shipping until their accounts are brought current. Guess what? They are now letting your wine go out of stock and shipping someone else's instead. This is a tough one, but consider shipping them more wine with the arrears holding where it is, but 50% payment on new shipments. Your AR will grow still, but you keep wine moving through the system and at least cover your COGS as it heads out the door.

What can you do with your bankers? Talk to them! They know you are struggling. Most winery owners avoid calls with their bankers as much as possible. Guess what? Those bankers are far less willing to work with those who they think are hiding the ball. Be forthright and pro-active. Call the meeting and go in with a plan. You'll be surprised how often good bankers will be patient (and will cut you short-term slack) if they know there is a plan.

What you should be doing with your inventory? It's stunning to me how many wineries make roughly the same amount of wine every year. Many (if not most) wineries' biggest line item on their balance sheet is inventory. Inventory is capital. When sales are decelerating or you have excess inventory, adjust fruit intake and production overhead until you can get into balance. If you have substantial excess inventory (as many wineries do) you can actually shrink your way into a cash flow positive situation by reducing production and production overhead below your current rate of sales. It's hard to do. Fewer people need to be able to do harvest, bottling, cellar work on their own. Even if it's a smaller harvest, people get used to how they've done it in the past, but you need to do nearly the same with less. You also need to tell growers you love you are taking less (or none) this year, which is hard when they are hurting as well. You must secure your own oxygen mask first.

What about fruit intake? There has rarely been a better time to negotiate better pricing on better fruit than now. I know the growers are your friends, but be up front with them and let them know what you can do. If you are willing to sign up multi-year contracts, you can get better pricing and terms now than any time in memory. If you are on the spot market, you can negotiate great pricing now or wait for the massive game of musical chairs that will come in August (since most wineries are delaying their commitments this year). There will be deals, but it will be chaos. I suggest working with your favorite sources now to get what you want at advantageous price and terms. And man, I'm hearing of some pretty extended terms some growers have started offering to get fruit committed.

What if you cut back too much, sales bounce back, and you get caught short on inventory? First, that’s not the worst problem you could have. Second, if you end up not taking in enough fruit in 2020, there is likely going to be plenty of wine waiting for you on the bulk market 12 months from now that you can bulk up your blends with, allowing you to delay the cash outlay as well as the decision on how much wine you will need from the vintage until you have more clarity on what demand looks like in 2021.

Who deserves your time? Ever run sales reports and then sorted them by revenue? You will be stunned how few customers (DTC) and accounts (FOB) make up 50%+ of your sales. Do this. Do it now. Then get on the phone and call every one of those people. Don't give it to your TR manager or your NSM to do. You, winery owner, pick up the phone and call every one of those people. The list won't be as long as you think it is. Just call them to thank them for all their support in the past. Ask them what you can do to help them. You will cement the relationships that got you to here for the future when you really need them and you'll end up selling a lot of wine in the process. Some of those accounts will be restaurants that aren't open and can't buy any more of your wine right now. Call them too. Call them especially. Tell them you are thinking about them, you appreciate them, and you will do what you can to support them when things open back up. They are hurting more than you are. They will remember you when they get back on their feet.

So what's going to happen to on-premise? This part really sucks. Those servers and cooks are out of work, hopefully making by on unemployment. Those owners are negotiating with their banks and landlords for lenience to try and simply survive. Maybe they have a skeleton crew (including themselves) trying to keep the lights on with curbside and delivery orders. Trust me, even that isn't enough to sustain them, it just might stem some of the bleeding. Likely, it's costing them as much in payroll and food cost alone as the revenue they are bringing in but maybe it keeps a few key people employed. The hard and sad truth is that many of the restaurants won't re-open, at least not as you knew them before. Will there be significant new restrictions on food service and distancing that make their previous business models unsustainable? Possibly. They were already operating at record high occupancy and labor costs. Reducing seating capacity to enable distancing? Not sustainable without significant rent concessions. Sadly, many people won't make it through, many of these people are our friends and they will have to seek protection from the bankruptcy courts as their TI loans, LOCs, and Leases almost invariably have personal guarantees. It will be heartbreaking. People will come back out to eat though, and landlords will have fully built-out restaurant spaces they need to lease. Once the loans for equipment and TIs get washed in BK court and the landlords take back fully built-out spaces (with equipment bought back from the banks for pennies on dollars) the slate will be cleared for the next wave of restaurants to start opening back up, likely with less debt and more attractive leases. It will be sad, but it will be a reset that will allow for more sustainable on-premise businesses for the future. On-premise business will return. Eventually. But it will look different. In the meantime, continue to try and diversify your channels and revenue streams.

What about tourism? It is really difficult to predict how quickly and to what extent the tourism bounces back. I'm hearing of current hotel occupancies in the single digits. Airlines are at record low load factors. Historically, rubber-tire tourism bounces back (from recession and from 9-11 disruption) fastest. Will there be enough increase in tourism from those in driving distance to Willamette, Walla Walla, CA North Coast to offset the slow return of the tourists from afar? Presuming tasting rooms are allowed to open again by summer (which is uncertain) and people WANT to go out again, I think few West Coasters are going to be flying to Europe this summer. Hopefully, they show up in your TRs. Honestly though, my guess is that TR traffic will be off by 30-50% after the quarantine is lifted and we won't see things looking anything like previous years until Spring 2021 at the earliest.

Another unpalatable but viable option is a managed wind-down of your winery business. We've run wind-down models for quite a few wineries, usually with owners surprised by the results. Often, they can harvest more cash out of their business through a wind-down and staged sale of remaining hard assets than in a straight sale. And a straight sale (especially now) is not an option available to everyone. Buyers want only the very BEST brands/assets and discount severely for something if it does not have strong profitability. Typically, inventory is the largest item on a winery balance sheet, and sometimes the margin that can be made recouping that over time can often be greater than the current market value of that inventory/brand plus the ongoing selling costs. Once you commit to a wind-down, you can offload non-selling expense and stop putting capital into creating new inventory. Though the P&L might look negative, you can flip a business from being unprofitable into at least cash-flow positive as you shrink the balance sheet. If you have debt, you'd be surprised how cooperative your banker will be with a managed wind-down if you show them it's their best bet at getting paid back. For various reasons, winery owners rarely choose to do a wind-down even when it's demonstrably the smartest option, usually some combination of ego and not being able to stomach committing to being around to execute the slow demise of their business. Too often we see wineries continue to spend and build up losses until they blow-up, when a wind-down can be a viable off-ramp.

I know this post is long, rambling, and overly general, but it is in response to multiple people asking for general advice and insight for our industry at this time. Actual strategies should always be specific to an individual business’ situation and based upon what assets and talents they have available to work with. Turbulence creates both challenge and opportunity, by definition. Self-honesty, agility, and the willingness to make the hard decisions – doing the hard work will be the key to being one of the businesses that can grasp the opportunity in this time.


Recent Posts

See All


David Larsen
David Larsen
Jan 09, 2021

Great article Eric. Thanks for sharing your knowledge of our industry at this critical time.


May 15, 2020

Thank you for your great comments, Todd! I agree with your sentiment that wineries and growers need to work together. Tactically, for high-end wines that sell through well and produce great margins everything you say remains true in this time. Generously though, that might be 10% of wine in the market (tops). It may apply 100% to certain growers and certain wineries though. Hopefully you are fortunate to be in that camp. After you move below the top echelon of wines though, fruit sourcing becomes far more flexible (both who wineries choose to buy fruit from and who growers choose to sell fruit to).

Yes, it should be about building mutually beneficial relationships still, but ultimately there are still "transactions"…


Todd Hansen
Todd Hansen
May 15, 2020

Erik, I think you missed the boat regarding fruit sourcing. Winemakers and growers need to work as partners. If the relationship is viewed as transactional it will never reach the synergy level needed to make great wine.

I'm a grower. If a winery cuts me out this year it is unlikely they will ever see my fruit again, and, while I won't say anything, every other grower will know how they treated me.

When a winemaker works with the same block(s) in a vineyard over a series of vintages, they know how to farm and process that fruit to make the best wine they can. All that investment is lost and they will be starting from scratch. Additionally, the customers…


Mark Cohen
Mark Cohen
May 06, 2020

USA and Europe can go into vintage knowing there is a huge problem ahead, knowing tourism and hospitality wont open up. I feel there will be ill guided opening up of social distanced local wining and dining, but this will not work out, as to run hospitality you need many people to cook serve and clean effectively, and volumes of guests to give the turnover a boost. So on premise is going to look pretty dismal for the foreseeable future under these conditions, and many restaurants will close. International travel is not going to happen in the near future either. Europe will have a billion litres of excess bulk wine they say, and distillation into ethanol is no solution either.…


May 05, 2020

Common sense and practical thoughts, especially on wind down. We all will need to think out of the box. Thanks for your perspective Erik!

bottom of page