Wine America Perspectives: Restaurant renaissance, DTC lessons

Jim Trezise

Few if any sectors have been harder hit by the Covid crisis than the restaurant industry, devastated first by the shutdowns a year ago, and followed by the uneven reopening regulations since then. But finally there are positive developments which warrant optimism – and a renewed appetite for dining out.

Restaurants are now open at some capacity in all 50 states. The latest Labor Department report showed a record level of new jobs, with the "leisure and hospitality" sector leading the way by far. And the RESTAURANTS Act will provide much needed relief to businesses hurt by the pandemic, including winery tasting rooms.

This week Senate Majority Leader Chuck Schumer held a press conference at The Thirsty Turtle Bar & Grill in the Finger Lakes region to discuss the newly created restaurant revitalization fund at the Small Business Administration (SBA). The $28.6 billion in new money was included in the huge American Rescue Plan, which passed on a party line vote, but the RESTAURANTS Act had, and still has, strong bipartisan support.

The new grants may be used in conjunction with the SBA's Paycheck Protection Program (PPP), Economic Injury Disaster Loan program (EIDL), and the Employee Retention Tax Credit (ERTC) to help vulnerable businesses survive the rest of the Covid crisis and get on a path to recovery. In addition, grants may be spent on eligible expenses from Feb. 15, 2020 through Dec. 31, 2021.

Those expenses include payroll and benefits, mortgage, rent, utilities, maintenance, supplies (including protective equipment and cleaning materials), food, operational expenses, covered supplier costs, sick leave, and any other expenses deemed essential by the SBA. That agency is working hard to launch this program as soon as possible so eligible businesses can submit their applications for relief.

The $28.6 billion, while seemingly a lot, is considered a "downpayment" for another $120 billion still being sought for the program. The restaurant industry alone has a huge impact on the American economy, supplemented by bars, tap rooms, winery tasting rooms and other eating and drinking establishments. All of these businesses operate in all 50 states, from small towns to big cities, and have an enormous multiplier effect on the overall economy.

This new money brings multiple benefits to American wineries and other sectors. Eligible wineries will be able to restore their tourism-focused businesses. Restaurants will begin restocking their wine cellars. Wholesalers will increase their distribution from wineries to restaurants. And governments at all levels -- federal, state, and local -- will reap benefits from more excise and sales taxes spurred by increased economic activity rather than higher tax rates.

In short, this is a win-win-win-win situation, and the government's investment will provide handsome returns.

WineAmerica continues to work on this and several other issues vital to the American wine industry. For a full report on WineAmerica's 2021 Government Affairs agenda, go here.

Covid silver lining: DtC surge and lessons

In 2019, Direct-to-Consumer wine shipments increased 4.7% over 2018. In 2020, they jumped 27% over 2019.

A webinar by SOVOS ShipCompliant yesterday contained some intriguing information about the impact of the Covid era on DtC shipments, and how wineries may take advantage of this silver lining in the future.

As we all know, restaurant sales disappeared a year ago, spurring channel shifting by consumers to both off-premise outlets (e.g., grocery stores) and internet sales (DtC). Both channels experienced huge jumps in April, with strong sales continuing throughout the year. In addition, many new consumers patronized these outlets who had not done so before – new business!

One difference was that consumers consistently paid more than before for off-premise wines, and less for DtC wines. The trading up in grocery stores probably reflected the fact that consumers were still paying far less than for the same wine ordered in a restaurant. In the case of DtC sales, $30 was essentially the breaking point affecting sales volume, with those above that price decreasing and less expensive wines increasing. It may be that the new DtC customers were not used to paying the higher prices of pre-Covid shoppers.

Not surprisingly, west coast wineries which already had a robust DtC tradition did very well, especially Sonoma and Oregon, but the big surprise was that the "Rest of U.S." (mostly east coast) fared exceedingly well, accounting for 35% of the volume and 30% of value (CORRECTION) growing by 34% in volume and 30% in value year over year. This is most likely because limitations on travel forced millions of consumers to discover the "wine country" right in their own backyard, and the quality of wines produced there.

In short, Covid forced new patterns of behavior among consumers (shifting channels, and discovering "local") and many producers (upgrading their internet skills, resources, and marketing). Now the key is for wineries to use and expand all they have learned during Covid and keep those customers virtually engaged.

Jim Trezise is president of WineAmerica.

Jim Trezise