Business owners in the Napa Valley area of California woke up today to the after-effects of the 6.0 magnitude earthquake that struck the region on Sunday. The Napa Valley was very close to the epicenter of this earthquake and we all know and appreciate what this region’s most important commercial product is, namely great wines with global brand identity.
Reports indicate that the wine industry may have suffered some significant damage as a result of the quake and its aftershocks. A report produced by business network CNBC features video and reports of damaged wine caskets and bottled inventory among growers and distributors, some of very expensive varieties. According to a report by CNN, the damage was isolated, some wineries being hit very hard, others not so. Wine producers and wholesalers are in the process of assessing overall damage along with trying to save stored aging wine. Wine within damaged barrels will need to be transferred to other safe, secure, temperature-controlled facilities and the challenge is securing both additional barrels and available controlled storage that was not damaged. While insurance can compensate for lost inventory, exquisite wine cannot be replaced, and the harvesting and aging process must begin anew. Larger producers may be in the position to sustain losses than smaller, specialized producers. That may well leave a hole in future revenues or cause a supply and demand imbalance, depending on the varietal product. The market for wine itself has its own challenges and is very much dependent on variety and brand.
Last week, we ran across a a syndicated AP published story regarding the bourbon industry. Similar to wine making, it is an industry where long-term bets are made concerning current and future market demand. Distillers fund inventory aging for millions of gallons of product over a 2-5-10-15 year horizon. Super premium brands, currently the most popular, can often fetch large profits, but have to age 6 years or more. The overall market for bourbon is booming, and distillers and distributors are banking on the continued boom in international demand to continue over the longer-term horizon. Imagine your supply chain’s overall inventory averaging over multiple years. We observed that dynamic when earthquakes impacted the parmesan cheese producing areas of Northern Italy in June of 2012.
Wine and spirits supply chains feature unique challenges in long-term inventory management and associated supply and demand pricing strategies. Risk is an inherent factor, and major supply chain disruption caused by a natural disaster can be devastating to short and longer-term business results. They also add a new and far different aspect of product demand management challenges.
Napa wine producers will continue to recover from this natural disaster and hopefully, all producers, large and small, will be able to recover. However, our community has yet another reminder of the fragile nature of today’s industry supply chains which can be significantly disrupted by a single natural disaster or event.