Crisis Management for Wine Country

I'm not alone when I say that I've never been through anything like this and didn't see it coming. I had no way of imagining such a circumstance: a world-wide pandemic that closes down the US and World economies? While I've seen shelter-in-place orders for regional issues, it's beyond comprehension that this would ever take place in as many countries as we're seeing now, or in the entirety of the State of California and the growing list of other states and regions that have similar orders.

After the string of directives this past week from state, federal and local governments that pounded down our prior realities, I spent time surveying the wine industry landscape and talked to as many people as possible to gain a sense of where we stand. 

Good Thing I Didn't Stop Drinking

Airplane Wrong Week To Stop Drinking GIF from Airplane GIFs

To gain a true perspective on this problem, you have to accept the tenet I raised last week in this blog: Wine consumers won't abstain from drinking because of a virus. Abstinence didn't take place during Prohibition or during the Great Recession, and it won't happen now. So you have plenty of consumers ready to buy your wine. The real question revolves around how you will reach the consumer in today's economy. 

                          You need to find new communication paths to let consumers know you have the wine they want. 

If consumers didn't know you existed before, that process is more difficult, but finding new consumers is always a good idea. If you've developed good data hygiene and have contact lists for both tasting room and consumer club activity, that's where you can find the low-hanging fruit and you will have more options.

Where we Stand Today

Crisis management has to start with an understanding of the current state. While the true picture of our current business is still difficult to see at best, it is starting to come into focus.

We are experiencing a massive channel shift with the closing of tasting rooms. For most small wineries, that means we need to find new ways to find the consumer where they are - both physically and economically during this crazy period.

Not wanting to spend too much time on the obvious, here is a shortlist of the hurdles we are dealing with:

• With sheltering-in-place, closed restaurants and shuttered hotels, consumers are finding the wine they want through grocery and online retailers. Those channels are seeing increased sales.
• Wineries are quickly reacting on the sales and marketing side to come up with new ideas. (See Last Week's Blog: Selling Wine in a Pandemic.)
• Restaurants and hotels are closed. Restaurants typically deliver about twenty percent of total wine sales. The wine sent to restaurants is shipped through both direct-to-trade and wholesale channels. 
• Restaurants are being given new rights to deliver to-go meals and sell bottled and sealed wine with meals that means in some cases, restaurants could be a new path to the consumer.
• Canceling activities like professional sports, corporate events, cruises, and travel reduces occasions to consume, and that will hurt short term demand. 
• The bulk market is moving a little, but this demand shock on top of an already oversupplied grape market has pushed back the progress we were seeing earlier this year in narrowing the gap between buyers and sellers of grapes. It's going to be a tough season for growers who don't already have established contracts.
• Tasting rooms are closed. For the average winery that represents 28.2% of total sales as noted in the headline chart. That is money small wineries won't see again.
• Not to be morose, but we are also about to see millions of first-time unemployment claims this week and for several weeks following. Unemployment will impact the price consumers are willing to pay for everything.
• On the other hand, spring releases seem to be going better than expected. 

For most family wineries, this past week contributed to substantial declines in expected receipts; declines which would be unbearable if this situation lasted into the fall. For those wineries in wholesale with grocery exposure, the news was much better. One winery I know who has wines in the $10 - $20 range and sells 100% through grocery is seeing dramatic sales increases. Still - that's an outlier. Last week showed lower overall sales year over year for 99% of wineries. We need to catch a break no matter where you sell wine.

Leadership in a Crisis

Its ATwister Crazy GIF from Itsatwister GIFs

      People

Maybe the most important thing for leaders to hold on to today is a sense of humor. It's easy to be caught up in the negative stressors, but look for positives as much as possible.

Regarding staff decisions, the easiest thing to do is to cut the hourly employees who were handling the tasting room jobs. While I recognize some wineries will have to make that difficult staff cut to survive, we have to remember that 60 days ago one of the largest issues faced by wineries was finding competent staff.

If you agree with my scenario plan below that suggests a June 1st restart, then cutting staff for 60 or so days now may not provide any real relief, particularly if you have trailing benefits or severance to pay. You also have to get employees to come back when you need them again. But if they go elsewhere, then you have rehiring and training of new employees to deal with and that will make your restart less effective.

On the emotional level, we are each managing a crisis today on three fronts: personally, professionally and socially. As a leader, people will be watching you for clues. If you show fear, those around you will feel that and react in less productive ways.

If you wander too much into your personal crisis management, your employees will do the same. But you can't ignore the human component of this tragedy, so you have to make accommodation for others to manage their own lives while we find our business balance again.

We and those around us are reacting in different ways to the threat or reality of a loss. Many of us woke up last Monday in disbelief. I've noticed that some have been frozen, some angry or depressed, and some have been pretending this isn't happening. Some cope by trying to control things, which explains hoarding. I have to confess that I have been hoarding wine (I call it a wine cellar). That's the only thing I've hoarded though, which means toilet paper is in short supply at my house sadly. That was another thing I didn't see coming.

      Pace

Speed is as critical as anything to manage during a crisis. Some decisions need to be thought through. Other decisions have to be made now and can't wait. You know the difference intuitively, but my advice is if a train is going to hit you, get off the tracks. (It's free advice and you get what you pay for.) I witnessed both decision-making approaches this past week.

Almost everyone reacted this past week by doing something immediately. It was simple. Triage, then take action. Some used a process that included gathering data, creating a plan, and executing on that at week's end. Others took a seat-of-the-pants approach. They collected a little information, slept on it, then made the decision. All are needed approaches in a crisis.

Communication was also on full display with the best management teams pulling together and having regular meetings to triage and discover new information. Even I am being forced into video chat with social-distancing the current directive. That kind of universal change will evolve communication styles when this crisis ends. (I'm probably too late to buy stock in Zoom.)

One caution in decision-making during a wide crisis: check yourself regarding your own emotional state. Nobody is bullet-proof and emotional quick decisions in a panic are often sub-optimal. Are you processing things in a reasoned manner, or are fear and emotion clouding your decisions? If you can be honest about that, get some feedback from advisors as a check using short focused conversations. Don't get hung up spending excessive time emotionally decompressing with others when there are decisions to be made. That is something that's also important but lingering and sharing common experiences can sap your time. After you believe you are processing in a realistic manner, trust your instincts.

Speed will be enhanced and people around you will grow if you remember to delegate. This past week I've seen episodes of both people who control and hoard a decision, and those who build teams and delegate. I'm convinced the latter will yield the best returns and results in the final analysis.

      Perspective

One thing has become clear to me after talking to so many people last week:

Experienced, positive and clear-thinking leaders are making the biggest difference.

Strange as it sounds, close to half of today's workforce has never experienced a business crisis. That means teams need an experienced voice with perspective to be part of the dialogue. To paraphrase Yogi Bera, nobody is teaching experience anymore, so that kind of perspective is a rare commodity too!

Leadership still means defining a vision, mission, strategy, and then moving that to a point of action, but that is very difficult with so many unknowns. People who have held management roles for decades can add perspective and accelerate effective decision-making. They can also add confidence to staff who are looking for answers and seeking something or someone trusted to bring a level of clarity to a state of confusion.

So the first bit of advice from me is to leverage the folks out there who have been through a couple of recessions. Bring them into the discussion and enhance your crisis management by coming up with a wider and inclusive vision of what the rest of this year might look like.

Rob's View of What's Next:

Saved Story GIF from Saved GIFs

Scenario Planning

(...I know this is long, but it's just getting to the most important stuff so hang in there!)

Of course, I realize it's very difficult to create a scenario that will prove accurate because there are so many variables, but you need to start somewhere or risk standing still and reacting late. So let me offer you my current thinking in the hope that it will improve your own perspective on the future.

1. We are still in the beginning stages of dealing with this pandemic in the US so still in the fear-of-the-unknown stage. Given the lack of availability of early testing, all health care professionals expect to see increasing reported numbers of cases over the next several weeks. That will be a point of focus for the press because that's what the press does. Without proof that we are making progress on this disease, there is no near-term end to the business conditions that have tasting rooms and restaurants closed. That's a hard fact to hear, but it's likely going to prove to be true.
2. Critical Government fiscal policies that are being debated and approved now, will be slow to take effect and likely miss their intended mark. We'd all like better, but if the delivery of testing is an example of government execution, we should expect the same for fiscal policies. That means the money that is needed by wineries and their employees today will be frustratingly slow and much of it may be full of caveats and paperwork once it becomes available.
3. At some point in the next 6 weeks, the efforts we are taking to shelter-in-place and practice social distancing will bear results and we will flatten the curve. That will bring hope for an end to this crisis (...and I promise this will end). We will then move away from the fear that is driving current reactions and decisions, to the next phase of the news cycle where the future will be clearer and we can start planning a reboot of our economy.
4. Timing of an end is the most difficult to predict, but I have a current operating guess. 
• The CDC has worked with Major League Baseball to predict a tentative date for the opening of the Baseball Season and has come up with May 10th. Obviously, that's not set in stone.
• While I know this virus is different compared to the common flu (See Johns Hopkins comparison of the two), there are many similarities. The CDC also reports that flu season normally peaks between December and February, with activity at times lasting as late as May. 
• Finally, we are seeing South Korea and China having success flattening their curves and they are now restarting their economies. Both went through a period of about 4 months to work through this, and if that holds true for the US, that would put us in May when we do the same. So for scenario planning, I am coming up with the end of May as the expected case date for improving conditions, and June 1st as the date we open again.
5. Fear is something that people remember and it makes them cautious so:
• We will see a delayed return to a normalized business situation and a slow return of customers to the tasting rooms. That has to be factored into the cash budgets.
• People will be anxious to get out of town by the time summer comes, but almost all American's won't be going on a cruise or traveling to Europe or Asia this summer. There will be a lot of staycations taking place in 2020.

If that is True, What Should I Plan For?

      Crisis Cash Budget

With sales being cut by forty to sixty percent for most family wineries until we resume tasting room sales, the first thing everyone has or is presently doing is coming up with emergency strategies to add to and conserve cash.

The expense-saving decisions being made are painful and varied - too much to cover here, but those are the first decisions being made. The next most important activity to take on today though is creating an expected case crisis cash budget for the next 120 days that captures all of your decisions and makes them time-bound.

You can't just think about this as a point-in-time cash budget. Remember, the goal is to get through this short-term business trough alive, and then restart your business. So you have to put a timeline to your emergency strategies. That will allow you to make better decisions currently and over the next several months. Once you do that, please revisit that crisis cash plan regularly to update it.

      Pulling in Others 

After meeting with your team, get a vision for tomorrow. Make a best guess of the timing of this crisis then sort out what you are going to do in each segment of your business - marketing, farming, grape purchasing, production, direct to consumer sales, national accounts, etc. Come up with 180-day plans for each, execute, track and adjust as needed.

In addition to cutting your expenses, working with your payables and receivables, deferring capital spending, and addressing staffing levels, talk to others important to your business including bankers, attorneys, CPAs, marketing associations and your insurance companies.

• Hopefully, some of these losses are covered under a business interruption policy, though I haven't checked on this. Perhaps someone can share that in the comments below?
• Your CPA might have some tax advice and perhaps some ideas about getting refunds in hand. That has been part of the playbook from prior disasters. They might have some business advice if they are wine business specialists and they also might be best equipped to create a 120-day cash budget for you.
• Your banker is a critical part of your business at times like this. I can only tell you that my bank is reaching out to every single borrowing client to help them with discussions on ideas and strategies, covenants, reporting, and cash-flow considerations. I have discovered in talking to my colleagues at other banks that the volume of requests has spiked beyond what any of us have dealt with. At the same time, most are working remotely as are others like attorneys, appraisers and title companies. The take-away here is turnaround times are going to be slower than normal for banks. 

Looking to Tomorrow

Good Luck Leslie Nielsen GIF from Goodluck GIFs

I have seen in every one of the past demand crashes that on the backside, there is an uptick in demand. As I've noted, people haven't and won't stop drinking wine. 

There is no question this crisis will end, and my guess is we will open up tasting rooms on June 1st. But no matter when we reopen, we need to plan for reopening and hiring ahead of that date if you were one of the many wineries who laid off staff.

While it may seem strange to put a reopening plan together now, it's a critical part of your business plan. Waiting until the day someone says you can open means you will have a slower restart and won't maximize the opportunity coming out of this.

Recognize that when we do reopen, there will be a lot of wine-loving consumers who will not be traveling to Europe or getting on a cruise. Those consumers will be looking for somewhere to go and something to do and wine country is going to be high on the list for many. 

With that in mind, I am encouraging all the Marketing Associations to begin to create media and messaging to release to your region prior to reopening.  The messaging would probably connect us as people, noting that we've all suffered and family wineries have been particularly hard hit. The announcement has to include a clear ask for consumers to come to wine country and help support the family wineries who've been hit so hard this year.

What's Your Opinion?

• Yes, we know everything sucks so let's not start there. Do you have any suggestions for others that might help at this unique time?
• How are you handling this crisis? What changes are you making?

Please join this site on the top right-hand side of the page, and offer your thoughts below. I respond to everyone.

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