Will the coronavirus destroy smallest wineries?
This article was written by Esther Mobley, and published in the San Francisco Chronicle on May 11, 2020. Original post here.
The past few years have been kind to Miriam and Juan Puentes. In 2017, after running their Honrama Cellars wine label for nearly a decade, they finally bought a ranch of their own in south Napa, where they planted a vineyard and renovated the dilapidated Spanish-style house they now share with their three children. Last year, they opened a tasting room in Sonoma, and revenue suddenly grew by 30%. Their bootstrapping business finally looked like it was taking off.
Now, the coronavirus crisis is making the Puentes family wonder whether they’ll lose it all.
“Everyone has that question on their mind right now,” Miriam said. Before the coronavirus, their only sales channel had been their tasting room, plus a couple of local restaurants such as La Calenda. All are now closed. They still have overhead costs to pay — rent on the tasting room, mortgage on the ranch, wine storage fees — but zero revenue.
As shelter-in-place orders are extended in the Bay Area, wineries such as Honrama are shifting from emergency response mode to long-term planning mode. “I’m expecting it to be at least two years before things are back to normal,” Miriam said.
Restrictions will eventually ease, but will tourists return to Wine Country? Moreover, will the typical business model for the small California family winery even make sense anymore?
“Look at all we could do because business was good,” said Juan, gesturing around the ranch, a colorful oasis on a side street near the bustling, industrial Highway 29, just north of American Canyon.
Though the young vines are just barely peeking out, the place is teeming with life: The family keep pigs, goats, sheep, even a bull, and agave plants line the pathways. There’s the barn they built for their 10 horses along with the arena for charreada, or Mexican rodeo, in which Juan competes. They wanted their ranch to feel like old Mexico, Miriam said, and even tracked down 19th century horse-drawn carriages at antique shops to complete the look.
“Now, are we going to foreclose?” Juan said. “Who’s going to give us a loan? Are we going to lose this beautiful place?”
The Puentes family’s situation is emblematic of what many of their peers are experiencing right now. While the coronavirus appears poised to hurt all sectors of the American wine industry, it will damage the smallest wineries most severely.
Of the 2,077 wineries in Napa and Sonoma counties, 74% produce fewer than 5,000 cases of wine annually, according to Wines Vines Analytics. (Honrama does about 1,200 cases in a normal year.) On average, American wineries of that size are expected to see a 57% drop in revenue in 2020, said Jon Moramarco, managing partner of the industry analyst bw166. By contrast, he said the largest wineries, those producing 500,000 cases or more, are on track for a mere 4.7% decline.
That’s because bigger wineries are more likely to rely on retail, like grocery and liquor stores. Revenue from those channels is expected to grow by $1.3 billion this year, Moramarco said. Meanwhile, smaller wineries tend to sell their wine through restaurants and tasting rooms — precisely the sorts of venues that the coronavirus crisis has fundamentally changed. U.S. wineries’ tasting room revenue will decrease $3 billion this year, Moramarco estimated.
If grocery store wine brands are at one end of the spectrum, Honrama Cellars is at the other. Juan and Miriam do most of the work themselves, from farming to winemaking to marketing, with help from three employees. To drive customers to their tasting room, they have relied on word-of-mouth referrals and cultivated relationships with tour drivers. They feel that the business’ personal nature is an asset: “People want to go to wineries that feel more intimate,” said Juan.
They do have another business, Puentes Wine Co., a bulk wine provider for private wine labels, that has been able to operate relatively normally during shelter-in-place. “If it weren’t for our other company, we probably would have already shut down,” Juan said.
But Honrama is more than just a business to them. The wine label is named for Miriam’s late father, Honorio Ramirez Mata, a farmworker who always dreamed of owning his own winery.
When Miriam was young, her family moved from Mexico City, where she was born, to Bakersfield. Her parents “worked all the crops available,” she said. Every fall, her father would bring a crew up to Napa Valley to pick grapes, which paid better than some other crops. One vintner, Charlie Wagner of Caymus Vineyards, took an interest in Ramirez Mata and hired him full time. He learned English and eventually became Caymus’ cellar master. When Miriam was in high school, she started babysitting for the Wagner family, and after high school she got a job doing payroll at Caymus. She said the Wagner family paid for her tuition at Saint Mary’s College.
Her father died of cancer in 1998, and she met Juan the next year. Born in Winters (Yolo County) to Mexico-born parents, he was working for Pacific Bell in Sacramento when he met Miriam. After Juan lost his job, she persuaded him to apply for cellar work in Napa even though he knew nothing about wine. Her hope was that together, eventually, they could start a winery and finally realize her father’s dream. Juan worked his way up and learned winemaking.
Their big break came in 2008, when the recession caused grape prices to drop. Suddenly, Juan and Miriam could afford to buy some high-quality Napa wine grapes. They started Honrama Cellars in that vintage, working out of custom-crush space in Napa.
It wasn’t easy. In the early years, before they opened their tasting room, they poured wine for free everywhere from hotel lobbies to wine festivals, in the hope that customers would take notice. They didn’t feel they could afford to sign on with a distributor, because wholesalers and retailers take a cut of the wine price.
Still, slowly, the business grew, and “last year Honrama had its best year yet,” Juan said.
After Gov. Gavin Newsom ordered all California tasting rooms to close on March 15, Miriam individually emailed every customer she’d ever sold wine to — a last-ditch effort to move some inventory.
Moramarco, the industry analyst, sees this as a potential turning point for many U.S. wineries. “This is going to change consumers’ buying habits,” he said of the coronavirus. “Every winery, for the next 12 months, needs to be back in startup mode. They have to be more entrepreneurial. How do they find new avenues to the consumer?”
“Unfortunately,” Moramarco continued, “the wineries that are undercapitalized may not have the cash to survive.”
For now, like so many small-business owners, the Puenteses are waiting — to see what course the coronavirus takes and how long shelter-in-place restrictions last. But the most urgent question they face won’t be answered anytime soon: When this is all over, will it still be possible to be the sort of winery that depends on personal interactions in a tasting room to sell wine?
“Yes, we’re scared,” Miriam said. “But we grew up with nothing. We’re going to leave with nothing. We try not to get too attached to anything we have now.”