Tough times for small wineries

The Silicon Valley Bank 2009-2010 State of the Wine Industry is an excellent overview of current market conditions for wineries. It clearly articulates the challenges facing small to medium sized wineries. The changes in our economy have had a profound impact on consumer wine drinking habits.

These changes have forced the retail and restaurant industries to rethink their price points and promotional strategies. In general, retailers have reacted more quickly than have restaurants. Distributors, responding to changes from their customers and pressure from their big suppliers, have in some cases stopped bringing on new wineries. They have also dropped smaller wineries, exacerbating the problem smaller wineries already had getting shelf and menu space.

The wine industry, in effect, has “fallen off a cliff,” particularly at higher retail prices, and we can expect a variety of results from this disruptive event. Wineries that have good business plans will fare better. Wineries that are well capitalized are more likely to survive. Wineries that have the ability to adapt to the changes forced upon the industry by wine consumers will perform better than those which are less well prepared. Some of the wineries that are less prepared will end up for sale at “fire sale” prices. Wineries that can survive the “storm” and put in place the building blocks for future growth, which will come, will reap handsome rewards when the new growth does come.

Small to medium sized wineries still need to solve the same key problems. These wineries typically make great wines that represent great values to wine drinkers. They often have no effective way of telling a large number of wine drinkers about the quality and value of their wines. They need to increase consumer awareness of their products and their brands. They need to find ways to attract and retain loyal customers who can “spread the word.”

To be successful, a winery needs to clearly identify its goals for the next three to five years. It needs to evaluate its current strategy and resources available to achieve these goals. It needs to identify “leverage points” that can best accelerate the achievement of these goals. It needs to understand industry “best practices.” Its management team must be clearly focused on the same goals and have the technical and personal skills to achieve the goals.

Management must be able to measure its performance taking the necessary steps to accomplish the goals. Management must hold itself accountable for results. Adequate resources must be deployed. If these building blocks are in place, a winery’s chances of success increase dramatically.

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