Wineries are facing unprecedented challenges, both in terms of immediate operational obstacles such as how to pay employees now that sales have slowed, as well as medium-term threats such as how to hang on to clients that may well be re-evaluating portfolios and reducing numbers of suppliers. Added to all this is the uncertainty about the duration of the “pothole”—the period of quarantine that has closed restaurants and brought travel to a standstill—and of the pace and character of the recovery.
Winery owners and managers may be tempted to wait to act until they have a clearer understanding of how the wine sector will be different going forward, but those who have the courage to act now on the signals already coming from the market will gain weeks and months over those who defer decisions. Right now, wineries need to enact:
A survival plan to meet financial obligations and maintain production for 2-3 months, addressed below;
A set of key changes that will position them for a strong recovery, which will be addressed tomorrow in Part II of this article.
BRIDGING THE GAP
Based on China’s experience and on forecasts for Italy, it seems likely that quarantines will last 60-90 days total (so roughly another month in Italy), a daunting length of time to contemplate selling little or no wine, but nothing near the six months or more initially feared.
Wineries without financial reserves can work to address their cash crunch by:
Implementing creative ways to generate short-term sales. (See below for examples of successful initiatives.) While competitors are reeling from the shock of the new reality, wineries should launch a series of concrete initiatives today to roll out over the next few weeks.
Recovering even 10 or 15% of usual sales combined with a reduction in immediate cash needs (see 2 below) can make the difference between a business bridging the gap or not.
Business gurus point to experimentation as the fount of innovation and value creation. Today’s experiments may grow into a major source of future income—and, for now, the opportunity cost of diverting resources to more experimental strategies is low.
Negotiating with suppliers. Agreeing with suppliers on deferred or temporarily discounted payments reduces pressure on both businesses—the winery’s to come up with all the money due now and the supplier’s to avoid carrying 100% of the A/P. In addition, there may be alternative ways to compensate suppliers for their flexibility, such as giving them a personal introduction and strong recommendation to other potential clients, committing to future purchases or exploring potential co-marketing alliances. Suppliers ultimately want to collect the money they are owed; these are temporary solutions aimed at diffusing a cash crunch for a few weeks or months. However, they may give birth to collaborations that are profitable in unexpected ways, while fostering mutual loss-minimisation.
Wine businesses in Italy and elsewhere report success with the following over the past few weeks:
Launching a special offer, with a deeper-than-usual discount. To minimize uncertainty around the brand, it’s important to explain to clients what’s going on. “The launch of our rosé in March is important because it gives clients their first taste our new vintage and because it provides the winery with money to continue to age and then bottle the previous vintage’s reds. We’ve decided to offer our 2019 rosé at a 30% discount. We hope that even though you are facing financial challenges, you will choose to buy some this year, too.”
Offering a limited number of bottles from older vintages. Some customer segments remain relatively unaffected in an economic downturn. Personalised offers to wholesale or retail customers that have the resources to take advantage of a rare opportunity can catalyse a handful of higher margin transactions.
Direct-to-consumer sales: reaching out to retail customers, followers and fans directly. Transactions that may have been perceived as too time-consuming for the revenue amount involved are being appreciated for what they really are: high margin sales that lower the winery’s risk by enlarging its customer base and building a direct, meaningful connection with those who drink its wines.
Restaurants are setting a strong example of creative compromising by offering carry-out services in order to maintain a percentage of their usual revenues. Wineries would do well to enact some short terms measures now: they will boost morale and provide some immediate cash. And, if quarantines last longer than expected, the value of these initiatives will only grow.
Tomorrow: Part II--Preparing for a Strong Recovery