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Napa Valley wineries navigate industry uncertainty as production continues
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Wine Industry

Napa Valley wineries navigate industry uncertainty as production continues

From the Coronavirus roundup from the Napa Valley Register, St. Helena Star, and The Weekly Calistogan series
mobile bottling lines

Wine bottles are lined up on a production line where they are labelled and inspected before stored in boxes. The pandemic has thrown even wine production into uncertainty. .

Wine production may be essential business, but it’s not immune to volatility in a pandemic. An uncertain market, industry members say, has left wineries debating how best to move inventory – and facing hard deadlines by which they must decide.

Spring and summer are bottling season for wineries. Following harvest and crush, bottling is the logical next step in the production of a vintage – but now some producers are hesitating to move forward with it, according to Thomas Jordan, whose company, Peregrine Mobile Bottling, is based in Napa.

About half of Peregrine’s customers have balked at the idea of bottling, according to Jordan, who reopened his bottling line for business on Tuesday following a voluntary shutdown in mid-March. (He spent the time figuring out how to implement social distancing among employees, procuring protective equipment and installing curtains to separate work stations.)

“The smaller the business, the more the owner is looking at cash flow,” Jordan said, noting that Peregrine’s 50 or so customers range from mom-and-pop producers all the way up to 40,000- or 50,000-case-per-year wineries. “The question has come up: is (bottling) really the best way for us to use our available cash right now?”

It seems a strange question, almost a paradox: bottles are the face of wine, and the way most wine finds its way into the hands of consumers.

But with tasting rooms closed and revenue slashed, there are other options for wineries to consider, according to Glenn Proctor, partner at Ciatti Global Wine and Grape Brokers, whether that’s to delay bottling for the moment or look into other ways to move inventory.

One of the most prevalent alternatives, according to Proctor, is to sell wine on the bulk market. Though the industry in 2019 found itself dealing with a glut – an oversupply of both grapes and wine – the bulk market has unexpectedly perked up in the wake of the pandemic, showing the most movement it has in almost 18 months.

“We’ve seen an affirming of that market, because wineries with a good retail distribution have seen gains in their off-premise sales,” Proctor said, noting that selling to the bulk market is an option almost exclusively available for larger wineries. Boutique wineries could see their profit margins slashed for years to come by selling their product that way, because the bulk market often mandates a deep slashing of prices.

Wineries struggling to sell their on-premise brands (wine sold in exclusively in tasting rooms) might bring some of that inventory to the bulk market, where it would be snapped up by a better-suited winery. Producers with well-positioned labels in grocery stores and other functional outlets are experiencing spikes in sales – at least short term – and are turning to the bulk market to procure supply that can meet that demand. Off-premise sales were up 66% and 27% for the third and fourth week of March, respectively, according to Nielsen.

Producers and analysts alike say they aren’t sure if that jump in off-premise sales will hold into the future; it could be a temporary phenomenon, the same trend seen in purchases non-perishables and toilet paper. In that case, even larger wineries could see sales decline substantially in coming months, and that could lead to a stiffening of the bulk market once more, Proctor said.

“People are hesitant when it comes to their long-term need – they’re going to delay those decisions,” he added. “We don’t have what the implications are for consumer consumption trends. I would say at this point that taking a somewhat conservative path (when it comes to decision making) is appropriate.”

For Laura Swanton and her husband Michael, who own Calistoga’s Laura Michael Wines, the decision not to move forward with bottling as usual was as much motivated by concern over health as it was finances. They were scheduled to bottle their 1,600 cases in early April, Laura Swanton said, but cancelled their appointment with their mobile bottling service as headlines flashed and information about the spread of COVID-19 became increasingly concerning.

“We could not guarantee physical distance within the truck itself,” Swanton said, referring to the semi-trailers out of which mobile bottling lines normally operate. “Implementing social distancing would have slowed the line down by almost two-thirds, so instead of the process taking 8 hours, it would have taken three days.”

The cost increase to bottle their cases would have then been significant, Swanton said. And ceasing bottling meant they wouldn’t immediately need to pay for the raw materials or the labor involved, which costs them about $50,000.

“My thought process was—‘If we stop everything, we’d also be able to save some money that we need to get through the summer,’” Swanton added, wondering aloud when tasting rooms would be allowed to reopen even on a limited basis. “It’s like – we could have afforded to do it now, but what happens to us in July and August?”

Storage space is a competing problem for Laura Michael Wines. Their 2018 and 2019 vintages, some of which were scheduled to be bottled this month, are sitting happily in barrels and tanks. That leaves little room for the coming year’s crop, especially with a looming harvest season. Swanton is considering renting out an additional tank for storage space, she said, but her first choice is to quickly and safely bottle just one of the winery’s labels to make room for 2020’s crop.

Some of Jordan’s customers have also asked to bottle at only partial capacity, simultaneously opening up room for this year’s harvest and artificially decreasing their inventory until their long-term positioning becomes clearer. (Experts had already recommended wineries cut back production in the wake of the glut).

That kind of dip in production isn’t harmful in the short term, according to PJ Pedroncelli, whose eponymous mobile bottling company works with wineries in Napa and Sonoma. But if every winery suddenly pulls the trigger on bottling the rest of their wines in August or September, they may find themselves at the mercy of over-booked bottlers, he said.

“We’ve been telling customers who are worried and want to cancel that we understand, and that it’s their call,” Pedroncelli said. “As of right now, though, there is no room (for additional appointments) in June, July, August or September. Even normally, those are our busiest months, and we already run seven days a week all the way through.”

Swanton wasn’t immediately able to rebook an appointment with her mobile bottler in September, she said. Her bottler didn’t want to have to commit and potentially de-commit once more, and wanted to see how the summer played out.

Adding to the volatility is that so much depends on the timeline of the shutdowns and the ensuing recovery period for the economy and for tasting room sales – looming questions to which no one really seems to have the answers. Proctor, for one, said long-term projects appear entirely up in the air right now. The company’s California Report for March (an industry-focused monthly briefing) seems almost entirely irrelevant today, he said.

“As does everyone, I wish we knew more. I think wine is well positioned in the long term – in the short term, it’s a little more about survival,” he said. “That’s the way the world is working right now.”

Editor’s note: Because of the health implications of the COVID-19 virus, this article is being made available free to all online readers. If you’d like to join us in supporting the mission of local journalism, please visit napavalleyregister.com/members/join/

You can reach Sarah Klearman at (707) 256-2213 or sklearman@napanews.com.

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Wine Industry Reporter

Wine industry reporter at the Napa Valley Register.

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