As the wine industry grapples with a sustained downturn after more than two decades of expansion, the effects are being felt far beyond tasting rooms, winery cellars and vineyards. They’re touching a wide web of suppliers, contractors and regional economies that grew alongside decades of rising consumption.
For Michael Honig, president of Napa Valley-based Honig Vineyard and Winery, the current moment is familiar territory. He took over the family winery in 1980 at age 22 and has navigated multiple economic cycles since. What distinguishes the present contraction, he said, is how broadly it is spreading across the industry’s interconnected supply chain.
“The decline in consumption is rolling downhill to everybody and impacting not only the wineries, but the suppliers, the distributors, the merchants that sell it, the whole restaurants, and retailers,” Honig said.
After the boom
The winery has responded by deliberately shrinking. Production is down about one-third from its peak during 2020 and 2021, when pandemic-era “pantry stuffing” drove a surge in wine purchases. After scaling up to fill that demand, the winery is reducing grape contracts, scaling back material purchases, and recalibrating operations to match lower demand.
The slowdown is not uniform. The winery’s forte, Sauvignon Blanc, remains a bright spot, Honig noted. “It’s actually one of the only categories showing a little bit of positive growth,” he said. But with success has come a lot more competition.
Still, the overall market and the Cabernet Sauvignon side of vintner’s portfolio has softened enough that the winery is buying fewer grapes, barrels and packaging materials after years of expansion.
In some ways, the contraction aligns with a realization Honig reached even before the downturn. “A few years ago, I looked up and realized we were kind of growing for growth’s sake,” he said. “We can actually be profitable at a smaller size. We don’t have to be as big as we thought we needed to be.”
That shift has produced tangible changes throughout the winery’s supply chain. In addition to fewer barrels being ordered, less stainless steel tank capacity is needed. Warehousing requirements have declined. Even small design choices have been reconsidered. Eliminating decorative foil capsules on bottles saved the winery more than $100,000, and lightweight packaging has been used for years to reduce both costs and environmental impact.
“We’re making wine for the gatekeepers,” Honig said. If such trade buyers seek wine quality over features of the packaging, they can communicate the value to consumers who trust them, he said.
Economic multiplier now working in reverse
Those effects matter because wine punches above its weight economically. Christian Miller, proprietor of Full Glass Research and research director for Wine Market Council, said wine production creates unusually strong ripples once it reaches a certain scale.
“Once state level wine production reaches a certain size, they have a greater multiplier effect than most agricultural sectors,” Miller said. Unlike commodities such as wheat or broccoli, wine is “a branded complex packaged consumer good” that depends on multiple supplier industries, from farming and manufacturing to logistics, hospitality and tourism.
“A decline of 10% in winery sales revenue has more economic impact within the state than a decline of 10% in sales of wheat or broccoli or even ag-derived products such as applesauce.” California, Oregon, Washington and, to a lesser extent, New York have reached that threshold.
The recent downturn follows more than two decades of growth in wine and other alcohol categories. That reversal has disrupted many of the channels that once amplified wine’s economic reach. Restaurants, still recovering from COVID-era closures and labor shortages, are keeping inventories lean, placing smaller orders and offering fewer wines by the glass.
“Wine did not participate in the post-pandemic increase in on-premise sales as people returned to restaurants anywhere near as much as spirits and cocktails,” Miller said.
When trade buyers pull back
Retail sales for off-premises consumption has also contracted, with shelf space tightening and many wine brands and product variations (stock-keeping units, or SKUs) being discontinued as retailers impose stricter performance standards.
Those standards are not likely to loosen. And once a brand loses shelf space in a retailer’s wine aisle, it is difficult to regain.
Wholesale distributors, meanwhile, are still unwinding the effects of pandemic-era overordering, Miller said. Logistics disruptions, tariffs and a spike in consumer demand led to bloated inventories. As interest rates rose, carrying those inventories strained cash flow, resulting in reduced purchases from wineries and importers and further pruning of brands.
Wine tourism has not fully rebounded either. While travel has returned, Miller said direct-to-consumer sales tied to winery visitation have faced a “post-pandemic hangover.” Older consumers, who historically dominate wine tourism, have been slower to return and report less interest in future visits, while younger consumers face higher cost and time barriers.
Economist Robert Eyler, a professor at Sonoma State University and president of Economic Forensics and Analytics, said industry contractions generally behave differently from expansions.
“When an industry is contracting, it is more linear because businesses tend to contract but not go away initially,” he said.
Producers reduce capacity rather than disappear, though supply chain partners can experience deeper pain.
In wine country, Eyler said, outcomes depend partly on how the industry is defined. A “dirt to truck” model — growing grapes, making wine and shipping it elsewhere — has different dynamics than a “dirt to glass” model that includes tourism and tasting rooms. Visitor spending can help stabilize revenues, but it also introduces risk if travel slows.
Overall, Eyler said, wine’s economic multiplier has shrunk as demand channels have narrowed.
“This is why there is a domino effect back to vineyards when consumers contract,” he said.
The impacts extend beyond obvious suppliers to secondary and tertiary effects on schools, nonprofits and general retailers as wages and local spending decline.
When the phone stops ringing for equipment orders
Those effects are increasingly visible among specialized suppliers. Ed Barr owns a Santa Rosa-based group of wine-related manufacturers: P&L Specialties for grape-handling equipment, Tom Beard Company for barrel-washing systems and Revolution Equipment Sales for used systems. He said capital projects have weakened sharply.
“Overall we’ve seen quite a softening in projects,” Barr said. He estimates revenue last year was down 30% to 50% from typical 2023 levels. Demand for used items via Barr’s Revolution Equipment Sales has been “absolutely quiet,” and staffing has been adjusted modestly down to the 28 workers across the three companies. P&L has diversified into wastewater, food processing and architectural features (signs and other home and business items cut with the facility’s industrial water jet). But about 80% of the group’s business still comes from wine.
Barr worries about the long-term loss of specialized expertise.
“My biggest concern is the number of businesses that are specialty businesses to the industry so pockets of knowledge,” he said. “Once knowledge is gone, it’s gone.”
Andy Starr, owner of Wine Tank Broker in Yountville, sees the imbalance firsthand. He focuses on connecting sellers of storage vessels and processing equipment at small- to medium-sized production facilities with buyers.
“Until two years ago whenever I had something to sell I usually sold it,” he said. “Now there are many more things available than buyers for them.”
Older winery owners are exiting rather than riding out another downturn, Starr said, and lenders have been looking to recoup more from repossessed vintner equipment by selling via broker instead of at auction. While demand for used equipment holds up better than new in a cash-constrained market, “demand is not as high as it was.”
By contrast, Starr said, wineries east of the Rockies — in places such as Wisconsin, Virginia and Texas — are still growing, and much of the surplus equipment his company brokers is heading there.
Capital needs in maintenance mode
For Matt Cia, president of St. Helena steel fabrication shop Ogletree’s Inc., the slowdown is most evident in winery processing projects.
“Not a lot of people want capital projects,” he said.
Structural steel and ornamental work remain steadier, buoyed by flame-resistant housing rebuilds after wildfires, but winery upgrades are limited mostly to maintenance.
“It’s been an odd market,” Cia said.
For Honig, the lesson is restraint.
“Part of sustainability is staying in business,” he said. “You’ve got to cut until you start to nick, but never until you start to bleed.”
Jeff Quackenbush joined North Bay Business Journal in May 1999. He covers primarily wine, construction and real estate. Reach him at jeff@nbbj.news or 707-521-4256.
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