How wineries can survive a recession

While other companies were hurting during the Great Recession, Delicato Family Wines grew at double digits. Felicity Carter finds out how they did it.
 

Chris Indelicato, CEO, Delicato Family Wines
Chris Indelicato, CEO, Delicato Family Wines

The economic news is grim: Europe’s economy contracting and US unemployment figures soaring, while the Bank of England expects the UK economy to shrink by as much as 30% by June. The pandemic isn’t just deadly to people, but to economies as well.

Yet while some wine companies won’t survive the recession, others will come out in better shape than when they went in.

Delicato Family Wines of California, which has a portfolio of popular brands, knows this from experience. During the Great Recession, from 2008 to the end of 2011, the company grew an average of 30%, year-on-year.

How did Delicato do it – and what lessons does their experience hold for other wineries?

Good value

Chris Indelicato, president and CEO of Delicato, is both a third-generation family member and a qualified and experienced public accountant. He says in the last recession, people still wanted to drink wine – but they wanted to pay less for it.

“Everyone traded down a price point,” he says. “Everyone who was drinking at $15.00 started drinking at $12.00. People who were at $10.00 drank $5.00.”

The impact on the market was remarkable. “People learned there were really good products available at those price points,” says Indelicato. Not only did people not abandon the cheaper wines when good times returned, but “people began to drink at multiple price points and brands,” behaviour which is common in other markets, but which was less usual in the US at the time.

Indelicato says that up until that period, American consumers had typically been very brand loyal, choosing something and sticking with it. He does concede that consumers were becoming more confident wine drinkers at the time, and it’s possible that they were ready to start exploring. But US consumers willing to ride a rollercoaster from low to high prices, depending on the occasion, was something new – and the behaviour has stuck. Now, “people have weekday, Friday night and celebratory wines at different price points,” he says.

As for the current crisis, Indelicato says he’s already seeing some evidence of consumers trading down – but he doesn’t want to predict how they will behave once it is over. “In the past, downturns were driven by financial changes, and this one is driven by a health-related issue,” meaning the recession that’s coming will be unlike any in living history.

Indelicato does, however, has some advice for what wineries should do, right now, to prepare for what’s coming.

Stay focused

“First and foremost, I would focus on your key brands. Focus, focus, focus on your strengths,” he says. “You’re not going to be able to work on every small brand in your portfolio in this period.”

Equally important: maintain standards. “Do not cut any corners on wine quality. Put the best wines you have into your products. That’s one thing that never changes no matter whether it’s a downturn or when things are on fire – wine quality always wins the day.”

As it happens, American consumers can soon expect a quality wine bonanza, thanks to the current glut in California. As high-quality grapes once destined for premium wines go into big brands and cheaper wines, consumers will get a lot more value for their money. This means that anyone wanting to compete in the US market must offer an outstanding price quality ratio. 

Next, focus on getting cases out of the warehouse. “Quickly put together a concise strategy on how to move your inventory,” says Indelicato. “Inventory is going to make or break wineries.” If that means taking a financial hit, so be it. “Take your lumps and live for another day.”

Marketing 101 advice says not to discount products, because it sets a bad precedent and devalues brands and products. In this crisis, however, Indelicato thinks discounting is a perfectly acceptable short-term strategy. “You can’t do it for years, but the consumer can’t afford to pay right now,” he says. 

Be decisive and do whatever’s necessary to keep the business going. However, if a business is going to cut hours, lay people off or make other painful choices, Indelicato says it must be done “while maintaining your culture and doing the right thing by your people and relationships.”

At a time when so many people are suffering, ethical behaviour must be a top priority. Do not, for example, create any marketing messages that “could be perceived as tone deaf, inappropriate or opportunistic,” says Indelicato, including making a big noise about charitable efforts.

Marketing in a recession

Companies are always advised to maintain their advertising and marketing spends during recessions. Because other companies will be pulling back, advertising that’s done in bad times will be noticed more and will generate more sales and stronger growth. But in hard times, it’s more important to focus on brand building and customer loyalty than promotions.

Indelicato says that Delicato has done an audit of all of its brand messaging and marketing initiatives and used social media to “listen to how consumers are impacted”, to better target their messages. “We redeployed funds from postponed or cancelled marketing initiatives and moved them over to items that are winning today, like e-commerce retail channels.”

All of this advice is based on the assumption that the business was in good shape before the pandemic hit and doesn’t carry huge debt. Indelicato says that, for that reason, California’s prospects remain good, even with the current grape glut.

“I don’t see a wave of bankruptcies happening,” he says. “The industry was healthy before we went into this and this is not a financially driven problem.” Californian wineries learned from the mistakes of the 2008 recession and have “been living within their means. People’s balance sheets are better. The other thing is that people are taking this opportunity to remove poorly performing vineyards, so this oversupply will correct itself quicker.”

To sum up: maintain focus, keep wine quality high, listen to the consumer, maintain marketing efforts, clear the warehouse and behave decently, come what may. And when things look bleak, remember: although the overall economic picture is gloomy, wine sales are up.

Felicity Carter

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