WINE AMERICA PERSPECTIVES: Clean slate for a New Year

Jim Trezise

2021 agenda, Covid changes, tax tips

Last year was probably the most productive in WineAmerica's 40-year history in terms of major legislative accomplishments.

-- Topping the list was permanence of the tax reductions under the Craft Beverage Modernization and Tax Reform Act.

--Then the Paycheck Protection Program and other parts of the CARES Act I and II helped cushion the wine industry from the economic effects of the Covid crisis.

-- TTB's new standards of fill made canned wines more economically attractive.

-- USDA kept the Dietary Guidelines for America the same in terms of defining moderate alcohol consumption as two glasses of wine for an adult male and one for a female.

-- And WineAmerica was able to play a crucial role of communication and coordination related to all aspects of the Covid crisis, including conducting industry surveys about the economic impact on wineries.

So are we all done? Not at all. With the new year comes new priorities that we have already begun working on.

First and foremost is additional relief in the pending Covid relief legislation currently being negotiated by the Biden administration and Congress. We are advocating for inclusion of the Restaurants Act which would provide grants for eating and drinking establishments, including winery tasting rooms. Senator Majority Leader Chuck Schumer advised us on (last) Tuesday that there's already $25 billion in the pending legislation.

Immigration reform is another key issue which appears more promising than it has in years, and could help alleviate the shortages of farm workers in many states.

Wildfire and disaster relief is another priority to help our colleagues on the west coast who have suffered so much damage in recent years.

Revising crop insurance in ways more friendly to the grape and wine industry is related.

Tariffs are an administrative rather than legislative issue, but we have long advocated for their elimination altogether, as they distort the market and everyone involve in it from producer to consumer.

The Farm Bill is due for passage in 2023, which means preliminary work has already begun. This is a comprehensive, vital piece of legislation which includes major funding for agricultural research, the Market Access Program for agricultural exports including wine, value added grants, and other key programs.

Finally, there's the unexpected. A year ago, we had no idea how much everyone's lives and legislative agendas would be upended by a totally unanticipated, worldwide health crisis which also sickened the economy. So, on top of an already ambitious list of policy priorities came a new one which eclipsed all the others.

What will the 2021 surprise be? Whatever it is, we're ready.

Meanwhile, the Senate leadership finally agreed on the rules of order. Since there are 50 senators from each party, committees will have equal numbers of Democrats and Republicans, but the chairpersons will be Democrats since they have the majority (with the Vice President as the tie-breaking vote, which first happened at 5:30 a.m. Friday morning on the $1.9 billion stimulus bill). This bodes well for the wine industry's agenda, as three senators who have long supported us are now in key positions: Senator Chuck Schumer as Majority Leader, Senator Debbie Stabenow (Michigan) as chair of the Agriculture Committee, and Senator Ron Wyden (Oregon) chairing the Finance Committee (he was the originator of the CBMTRA years ago). They replace Senators Mitch McConnell (Kentucky), Pat Roberts (Kansas), and Charles Grassley (Iowa), none of whom showed much interest in the wine industry or specialty crops in general.

In D.C. as in statehouses, the real action and power lies with the committees, so having friendly leadership is a big deal.

Covid Changes: Direct to Consumer Soars

In the early 1980s, a brilliant friend often described his vision of the "electronic cottage" of the future, where people would work from home on computers, which I told him seemed far-fetched. So here I am at my computer looking out at Keuka Lake while waiting to go on another Zoom call followed by a webinar.

Covid has changed our lives, often accelerating trends that were already in motion, but slowly. More people were starting to telecommute each year, but then Covid suddenly made it mandatory. Most American wineries previously sold some wine over the internet, but Covid then made it a lifeline.

This week, SOVOS ShipCompliant and Wines Vines Analytics released their annual report on Direct-to-Consumer (DtC) shipments in 2020 based on more than 40 million shipments by 1,100 wineries of all sizes throughout the country. The results are dramatic, and heartening.

The $3.7 billion in sales represented the largest annual increase (27%), despite the largest annual decrease (9.5%) in average bottle price ($36.83). Shipments of wine under $30 rose 41.6% while $100+ wines dropped 2%. The biggest year-over-year volume gains were from the largest (54.7%) and smallest (64.9%) wineries. Small wineries accounted for 42.5% of shipments and 46.1% of value, while large wineries were at 18.2% and 8.0%, respectively.

The 27% sales increase over 2019 dwarfs the average annual increase (10.5%) over the past nine years. The 8.39 million cases shipped totaled $3.7 billion in total value. Interestingly, the "Rest of US" states outside of the west coast, including the east and midwest, performed the best, with a 34.7% increase in volume and 30.6% in value.

The Covid stimulation of DtC arose out of necessity. When the economy was shut down in March and tasting rooms closed, winery owners suddenly had more time on their hands, focused on their customer data bases, enhanced their online presence, and boosted their wine club deals. On the consumer side, "wine country" visits were suddenly forbidden, restaurants closed, stay-at-home orders meant dining in, and since "a meal without wine is like a day without sunshine", many people who had not previously bought wine online turned to the internet.

Bottom line? A new, robust producer-to-consumer connection was created that has remained strong, and probably will in the future. Even when tasting rooms eventually reopen, DtC will remain a marketing priority, not an afterthought.

Despite these impressive results, DtC growth did not fully compensate for the losses in the tasting rooms or restaurants, even with new marketing options like curbside pickup and home delivery are added in. But these sales plugged much of the gap, and likely saved many wineries from going under. Crises cause creativity.

Timely tax tips

Thanks to a connection made by our friends at the Napa Valley Vintners Association, this week we hosted a superb webinar detailing the many complexities affecting taxes related to Covid-related initiatives like the Paycheck Protection Program.

KCoe-Isom is a national accounting and tax firm specializing in agricultural enterprises, and their team of experts spent the hour highlighting and explaining many things that most of us would never know. I took copious notes, but I won't even try to summarize them, other than to say that a lot of wineries could probably save money by educating themselves (and their accountants) in this arcane area.

Fortunately, they have kindly shared both the deck and a video recording with WineAmerica, so our members can get access to those by contacting Tara Good (tgood@wineamerica.org).

Drink Wine, Be Happy. Cheers!

Jim Trezise is president of WineAmerica.

Jim Trezise