Ted, your last two posts on Napa Valley have offered some of the most thoughtful and incisive commentary I’ve seen on the state of the Napa Valley wine industry. Your candor—grounded in strong data—brings a much-needed reality check to the conversation.
What is so confounding is that despite this reality, dozens of dreamers open new wineries each year. They bring deep pockets, big egos and a delusional sense that their 'story' is somehow more special. It's killing the OGs. Policy change is warranted.
One of the basic problems is that the new entrants have no source for an realistic integrated industry overview. This analysis is a first attempt at informing the market. Some will continue to be egos and dreamers, but many are smart business people.
To what extent are the economics of wineries dependant on tourism, and to what extent on retail product distribution? Do eager investors create new wineries for visits or for national distribution?
The vast majority of wineries in this category rely on direct to consumer sales which is a combination of traditional on-line, direct marketing via social media, mail and visitation. Tasting experiences are a primary method for acquiring new customers. Fewer have representation through distributors into conventional retail and restaurants.
Good question. None of the industry associations takes on the task of providing an integrated assessment of supply, demand and market conditions in the Napa Valley. The County does not maintain the production and permitted capacity information in readily accessible form. So, one of the reasons that the industry has misjudged its current condition is that the information is not available. There is no feedback loop and no one is accountable. Too many have just assumed that demand would be there if they built a facility or launched a wine. The result is a massive overshoot.
We were asking for this kind of market information as far back as APAC in 2015. Our trade organizations focus on tactical assistance, not strategic overviews. As a result there is a large vacuum.
With a lot of hard work, I have pieced together fair estimates on most of the components.
I've enjoyed your last two posts on Napa Valley. You point out that there's an oversupply of tasting experiences, while I've also heard that there's an oversupply of accommodations, with many hotels at only around 60-70% occupancy rates (I've also heard that some hoteliers deliberately limit occupancy to avoid hiring additional staff). Doesn't this suggest that the supply of tasting experiences could be brought into better balance if more overnight visitors could be attracted?
For most of recent history there has been a shortage of hotel rooms in the Napa Valley – especially upvalley. Since COVID, hotels have significantly raised prices and this has depressed the number of overnight visitors. Hotels are not restricting their occupancy except in the very short term because of staffing costs. They are all anxious to have higher occupancy and prices are now adjusting accordingly, albeit slowly. The net effect has been to increase the role of the daytripper, who has less time to casually visit estate wineries, and increasingly gravitates to the urban tasting rooms.
Ted, you are on a roll! Your Mckinsey & Co. background is showing. The Vintners Association needs to distribute this piece to all its members. I don’t have a solution for our predicament at this point, but until facts like these are known to industry players (and they’re not)— a solution will not be found. We need more info and more data before we can turn this thing around. This article is really helpful in that regard.
In some ways the prevailing Napa model was built on scarcity of access, but the next phase feels like it’s about creating an abundance of connection. Perhaps the shift is from tasting rooms as places to what they are actually meant to do, create relationships, wherever a winery can matter to someone. That reframes the challenge from filling tasting room slots to reimagining how and where customer connection happens in the market today.
I've been a fan of wine for many decades, but for several reasons I just don't partake very often. I've been to many wine regions in California and elsewhere, though never made it to Napa. Good wine is good wine, great is great as long as it's made properly and honestly - and I'm open to offbeat places. And find it all enjoyable.
We were in Santa Barbara, doing a day trip with limited time as a cruise ship stop. We had time for exactly one winery before we had to be back on the ship. Walked right in sat at the tasting bar, it was mom and pop operation. Frankly, we'd prefer to support the smaller operators. Great wine, money well spent, great time and conversation about wine with the server. We'd never heard of the winery till we got to SB and looked at a local tourist map of the city.
How offbeat do we like it? Colorado. Arizona. New Mexico. Mexico, Baja. Arkansas. Kansas. South Dakota. South Carolina. Utah. North Carolina. Hungary. Sardinia.
We live very close to the Yadkin Valley appellation of North Carolina. About 45 wineries, plus more in the blue ridge high country. There are a few that accept reservations but most you can just show up. There is one that is pretty amazing, it does the curated long tasting experience. But only one. There are a few large commercial winery operations, all do wine very well. But it's the mom and pop places we favor the most.
Outstanding!
Ted, your last two posts on Napa Valley have offered some of the most thoughtful and incisive commentary I’ve seen on the state of the Napa Valley wine industry. Your candor—grounded in strong data—brings a much-needed reality check to the conversation.
What is so confounding is that despite this reality, dozens of dreamers open new wineries each year. They bring deep pockets, big egos and a delusional sense that their 'story' is somehow more special. It's killing the OGs. Policy change is warranted.
One of the basic problems is that the new entrants have no source for an realistic integrated industry overview. This analysis is a first attempt at informing the market. Some will continue to be egos and dreamers, but many are smart business people.
To what extent are the economics of wineries dependant on tourism, and to what extent on retail product distribution? Do eager investors create new wineries for visits or for national distribution?
The vast majority of wineries in this category rely on direct to consumer sales which is a combination of traditional on-line, direct marketing via social media, mail and visitation. Tasting experiences are a primary method for acquiring new customers. Fewer have representation through distributors into conventional retail and restaurants.
Thank you, Ted, for leaving your flashlight on.
Thank you for doing the math!
Now we need the industry to behave in concert with the facts.
Watch for my long essay on Sunday morning. I address this question directly.
My follow-up question is: do we have the same data available to us regarding permitted production (i.e. gallons) of wine ?
Acreage, grape supply, permitted wine production, actual wine production, and wine sales would be an interesting chart to look at over time.
Good question. None of the industry associations takes on the task of providing an integrated assessment of supply, demand and market conditions in the Napa Valley. The County does not maintain the production and permitted capacity information in readily accessible form. So, one of the reasons that the industry has misjudged its current condition is that the information is not available. There is no feedback loop and no one is accountable. Too many have just assumed that demand would be there if they built a facility or launched a wine. The result is a massive overshoot.
We were asking for this kind of market information as far back as APAC in 2015. Our trade organizations focus on tactical assistance, not strategic overviews. As a result there is a large vacuum.
With a lot of hard work, I have pieced together fair estimates on most of the components.
I've enjoyed your last two posts on Napa Valley. You point out that there's an oversupply of tasting experiences, while I've also heard that there's an oversupply of accommodations, with many hotels at only around 60-70% occupancy rates (I've also heard that some hoteliers deliberately limit occupancy to avoid hiring additional staff). Doesn't this suggest that the supply of tasting experiences could be brought into better balance if more overnight visitors could be attracted?
For most of recent history there has been a shortage of hotel rooms in the Napa Valley – especially upvalley. Since COVID, hotels have significantly raised prices and this has depressed the number of overnight visitors. Hotels are not restricting their occupancy except in the very short term because of staffing costs. They are all anxious to have higher occupancy and prices are now adjusting accordingly, albeit slowly. The net effect has been to increase the role of the daytripper, who has less time to casually visit estate wineries, and increasingly gravitates to the urban tasting rooms.
Or, you can book into the El Bo!
😉
Excellent piece.
Nicely done!
Finally someone among the Napkins Tells the Truth. It's in the title of Mr. Hall's journalism.
Ted, you are on a roll! Your Mckinsey & Co. background is showing. The Vintners Association needs to distribute this piece to all its members. I don’t have a solution for our predicament at this point, but until facts like these are known to industry players (and they’re not)— a solution will not be found. We need more info and more data before we can turn this thing around. This article is really helpful in that regard.
Randy Dunn once said to me, “anyone can make wine, selling it is the hard part.”
In some ways the prevailing Napa model was built on scarcity of access, but the next phase feels like it’s about creating an abundance of connection. Perhaps the shift is from tasting rooms as places to what they are actually meant to do, create relationships, wherever a winery can matter to someone. That reframes the challenge from filling tasting room slots to reimagining how and where customer connection happens in the market today.
I've been a fan of wine for many decades, but for several reasons I just don't partake very often. I've been to many wine regions in California and elsewhere, though never made it to Napa. Good wine is good wine, great is great as long as it's made properly and honestly - and I'm open to offbeat places. And find it all enjoyable.
We were in Santa Barbara, doing a day trip with limited time as a cruise ship stop. We had time for exactly one winery before we had to be back on the ship. Walked right in sat at the tasting bar, it was mom and pop operation. Frankly, we'd prefer to support the smaller operators. Great wine, money well spent, great time and conversation about wine with the server. We'd never heard of the winery till we got to SB and looked at a local tourist map of the city.
How offbeat do we like it? Colorado. Arizona. New Mexico. Mexico, Baja. Arkansas. Kansas. South Dakota. South Carolina. Utah. North Carolina. Hungary. Sardinia.
We live very close to the Yadkin Valley appellation of North Carolina. About 45 wineries, plus more in the blue ridge high country. There are a few that accept reservations but most you can just show up. There is one that is pretty amazing, it does the curated long tasting experience. But only one. There are a few large commercial winery operations, all do wine very well. But it's the mom and pop places we favor the most.