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Uncertain Futures for Smaller Wineries Post-Covid? Jackson Family Wines | Large producers like Jackson Family have been buying up boutique operations like Oregon's Penner-Ash in recent years. Big wine has been muscling independents out for years in the world's largest wine market – Covid exacerbates the trend.By Kathleen Willcox | Posted Monday, 22-Jun-2020Big wine, like Bon Jovi, may be able to fill stadiums with its fans, but it will never be cool to say you like it.It's all about the scrappy terroir-obsessed indies, even for traditionalists who eschew trends. Wine – like art, film, literature and music – seems more special when it's the antithesis of a manufactured product.When favorite band goes mainstream, knowing that you're sharing your enthusiasm for the White Stripes or that random Rh?ne Picpoul?with the cool label with cheesy frat boys in Minnesota suddenly makes it decidedly less desirable.?And the conglomerates know it. Corporate winemaking companies have (apparently) been responding to consumers' and critics' love of boutique brands by snapping them up and creating an increasing number of tiny, highly specific cellar series, organic single-varietal lines and the like for years and, under coronavirus conditions, actual indies are finding it ever-harder to compete with these big brand-funded indie impersonators."I don’t think consumers generally realize how many brands they perceive as 'boutique' are in fact owned by larger companies," says Cathy Huyghe, co-founder of wine-data tracking firm Enolytics. "That's neither a net negative or net positive in my opinion, more of a logical result of the larger brands not being required to indicate their ownership on public-facing labels or marketing materials. You'd have to be a pretty rigorous, methodical sleuth to keep track of them all, particularly given the robust M&A activity in recent years."Under normal circumstances, when, say, there wasn't a random single-stranded RNA virus with a lipid envelope studded with proteins radically transforming the way we live, work, and recreate – not to mention purchase and consume all manners of food and wine – independent wineries would not be happy with the poseurs, but they'd still be able to move their wine. But these are not normal circumstances, and many producers and observers are concerned about the survival of wineries producing 5000 cases a year and fewer.?Big wine's big gunsThere are a handful of brands that dominate the marketplace, especially in the US, including Constellation Brands, Deutsch Family Wine & Spirits, E&J Gallo, Jackson Family Wines (Kendall-Jackson), Treasury Wine Estates, and The Wine Group. Some are best-known for large-scale industrial wines, like The Wine Group, which produces about 53 million cases of wine a year and owns labels like Franzia and Cupcake Vineyards (though their purchase of Benziger in 2015 signaled a move into the premium category), while others like Treasury Wine Estates, which sells 34.6 million cases of its 70-plus brands a year, is focused on premium brands like Penfolds, Beringer and Ch?teau Minuty.Different patterns of acquisition and interest inevitably emerge for each big brand.Jackson Family Wines, for example, sells about 6 million cases per year with 41 wineries under its umbrella, has focused on estate-grown wines with an organic and sustainable cred, something consumers are increasingly interested in. Since 1986, Jackson Family Wines has purchased estates in Napa, Sonoma, Mendocino, Monterey, Santa Barbara, the Willamette Valley in Oregon, Chile, Australia, France, Italy and South Africa. A snapshot of one region of interest: The Jackson family owns or farms about 300-plus acres of Anderson Valley?today, much of it organic or sustainable, after snagging Edmeades Estate in 1988, and more recently purchasing Balo Vineyards, with its 6.5 acres of organically grown Pinot Noir.As Huyghe points out: "If a smaller brand is in fact acquired by a larger one, it isn't always 'selling out' or doom or gloom. Especially at the ultra-premium level, larger brands sometimes buy well-regarded wineries for the purpose of boosting their premium portfolio, so it is, in fact, in their interest to maintain the smaller brand's personality. Whether that happens is debatable on a case-by-case basis."As with any inherently capitalistic endeavor, turning a profit tops most wine conglomerates' lists of priorities, whether or not they are gauche enough to admit it. Not that they have to: it's obvious. When Randall Grahm sold his cultish Bonny Doon brand for an undisclosed sum to WarRoom Ventures in January, he merrily informed the San Francisco Chronicle that he chose them because "they can sell wine like crazy". WarRoom will increase production of Le Cigare's flagship four wines to 100,000 cases each; previously, Grahm produced 35,000 cases of 15 different wines.?Does big always mean bad?Big Wine’s boutique-buying spree shows no signs of slowing: last year, Gallo snagged more than 30 brands of wine and spirits from Constellation in a $1.7 billion deal, including Sonoma's Ravenswood and Prosser, and Washington's Hogue Cellars. Currently, the top 50 brands in the US reportedly account for about 90 percent of the wine made.If a wine is good, should we care who made it, as long as they're doing the right thing?Not necessarily. "If they're doing the right thing, then that is inherently a good thing," says Peter Weltman, creator of Borderless Wine, a brand created to bring wine from war-torn regions to the consumers around the world. "People are making purchases with ethical considerations, and who could argue with a social conscience becoming mainstream? Some of these bigger companies have the potential to do great good."But the plague, others argue. Legitimately small and independent producers, sans the marketing, advertising and distributing muscle of the bigger houses behind the wee-looking "Ch?teau de"s and "Clos de"s of the world, are concerned that the inherent power imbalance will put truly smaller wineries out of business."These so-called 'boutique wines' that dominate the high-wine market are undermining what we do," says Jane Khoury, winemaker at Elkfield Vineyards, a Ukiah, California-based producer of biodynamic wines. "I am 100 percent direct-to-consumer because I can't get a distributor to take me on. They just tell me no, 'Gallo is doing that for less'."She argues that her brand, unlike many of the wines that define themselves as organic, natural or biodynamic, is more authentic."Our grapes are estate grown, which makes a huge difference because we control every step of the process," Khoury says. "And we don't use the shortcuts in the winery that a lot of big brands do. They create a perception of wine made with precision and passion, but it is really just chasing a trend."Khoury, who hoped to scale up from 3000 cases to 7000 cases this year, is putting those plans on pause. "Our pool of current customers is extremely loyal, but because we can't reach out to new restaurants or taste new people on our wines, we have no way of finding new customers because we don't have the budget to market and advertise like the bigger brands do."A glance at current sales and forecasts for the near future seem to lend credence to Khoury's concerns. About 62 percent of winemakers have slowed production during the pandemic, according to a recent WineAmerica survey of 727 winemakers across 45 states. The average winery has seen visitors drop 90 percent so far, and lost $51,201 in April, and expecteds to lose $134,626 for May.And while wine sales are up off-premise by 24.9 percent year-over-year amid the shutdown, most of the wine being purchased at grocery stores, liquor outlets and online is being put out by big names everyone is familiar with, because the big distributors that dominate the market won't take the indies on. ?"The harvest this year is going to a bloodbath, especially in California," predicts William Allen, winemaker at Two Shepherds in Windsor, California. "We have a perfect storm of events between the coronavirus, overplanting and too much fruit headed toward the bulk market; a lot of the bigger brands are dumping growers already. While we have seen an absolute surge in our DTC orders, that's a drop in the bucket compared to what these big brands churning out $10 bottles for grocery stores are seeing."Allen, who has built his brand from 200 cases to 3200 cases in his tenth vintage and relies on premium, but small and highly specialized restaurants, retail stores and bars – where hand-selling wines is stock-in-trade for moving product – for all non-DTC sales, is concerned that buzzy Manhattan and Brooklyn restaurants that bought "a few pallets a year" from him won't be able to buy more wine this year. (A recent survey of 1400 restaurants by the James Beard Foundation and the Independent Restaurant Coalition showed that only 1 in 5 restaurant owners in shutdown cities are certain they will be able to reopen)."That doesn't matter if you have a big brand backing you, but for me, it's serious," Allen says. "And then I think of the growers I work with. If I renege on a 15,000-ton Carignan contract, where does that leave the grower? Or our Trousseau, the only example of it grown in the entire state of California."??The trickle-down effect of the coronavirus is exacerbating a problem that many have seen looming for years."People think they're drinking an independent winemaker, but it's owned by Constellation," says Sean Fogarty, proprietor of San Francisco-based wine brokerage firm Fog Wine Co, with 21 wineries producing between 500 and 4000 cases pa year under its umbrella. "Sometimes the farm-to-table restaurants who claim to be all about craft are the biggest offenders. They get their rosé from Southern Wine and Spirits, and it's grocery-store quality. I have independent wineries making truly unique wines that they love, but then they don't want to create an invoice for another vendor. That's their actual reason."Stopping the bleedingSmall wineries are wounded: can the blood flow be stopped? Wineries large and small have been swift and nimble in their response to coronavirus, launching virtual tastings and tours, and offering shipping deals for new and old consumers. But many say that simply won't balance the tens of thousands they’re losing in sales on a weekly basis, with no real end in sight.There are ways to apply a tourniquet to the exsanguination.First, get a strong online presence and figure out how to monetize it. (Read: no more freebie, no-strings-attached virtuals)."If this virus has done anything positive for smaller wineries, it's driving the message home that flexibility is important, and so is a strong and responsive digital presence," says Katarina Anderson, a Tuscany-based sommelier and wine consultant. "Use the funds you would have used – however small – to market and put on events under normal circumstances toward a really good website, and start charging for virtual tours and tastings. Have one person dedicated to setting up tastings, and reaching out to new potential consumers online, and do hand-sells virtually. Encourage people to buy before they schedule a tasting."Tourism, which was the bread and butter of wine country around the world, but especially in Italy, must change. "The model of selling to restaurants and at tourism events is dead," Anderson says. "Small family wineries that survive will adapt."Second, band together with other wineries."It's easy to think about the winery down the street as your competition, but in reality, if you're both strong, you're going to lift the region," says Julie Kuhlken, co-founder of Fredericksburg, Texas-based Pedernales Cellars. "Some regions do it better than others. Texas Fine Wine and the Oregonians, I would say, do it better than most. We've learned that working together in an alliance, sharing knowledge, collaborating on events, making sure there is a coherent message about the wines in our region and its terroir has been good for all of us. A rising tide lifts all boats."Third, don't quit your day job."I work as an ICU nurse, which has been both a blessing and a curse during this time," says Khoury. "I leave the hospital and then go to the vineyard. But without that stream of income, I don't know how we'd make it through tough periods like this."Fourth, consider a (very brief) fire sale.When anything is discounted too steeply for too long, its perceived value erodes. But well-positioned online sales vehicles, like Wine Access, with about 1.5 million subscribers in its database and geared toward small labels, can be a boon.On average, grocery store bottles of wine go for $8 a pop, but Wine Access's average offering is $30 and, while they're often sold on discount, it's only until they sell out, which often happens in a day, says Wine Access CEO Joe Fisch."We were founded 15 years ago on the notion that the three-tier system is not invested in selling smaller labels," Fisch says. "If you produce between 500 and 5000 cases, getting a distributor is challenging. And now, under these conditions, without a distributor how are you going to get into the hands of new customers across the country?"Wine Access, and other online outlets like it, take full possession of the wine they plan to sell, and then they market it – with the label’s story – in targeted email blasts. Wineries won't clear the same margin they would in their tasting rooms, but as those facilities reopen, how many visitors will they get?Independent wineries have always been underdogs in a stacked game that consumers don't even realize is being played. The rules of the game have changed: learn them fast, or perish. ................
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