Business Environment Perceptions of Wineries in the Sierra Foothills: A Call for a Comprehensive Study

By James A. Downing, PhD and MGMT 454 researchers, California State University – Chico

Wineries and family business go hand-in-hand since most smaller wineries are family owned and operated.  As we know, not all wineries approach the industry in the same way and they are all at different stages of family business concerns.  So, what are the similarities and differences of how family-owned wineries perceive their business environment and challenges.  The family business class at Chico State conducted semi-structured interviews of twenty-two wineries in the Sierra Foothill AVA region. The overall results include shared concerns over local government regulation, the future of the millennial market, and managing work-life balance.  An interesting topic not mentioned was climate change.  However, there are differences among the wineries by size and location in business models, family business concerns, and other environmental factors.  These differences are important for wine business development as well as for economic development.  This preliminary study produces a call for a much larger study of family business perceptions and how local government regulation can impact the wine industry development of regional winery tourism industries.

The students researched twenty-two wineries in eight counties comprising of three classifications:

• Micro- eight wineries with an average age of 12.5 years producing under 600 cases/year;
• Small- nine wineries with an average age of 14 years producing 1,000-5,000 cases/year; 
• Large- five wineries with an average age of 27 producing 10,000-65,000 cases/year. 

The sample did not provide for a medium classification for this analysis.  The results of the interviews provided similarities in how the wineries create value by developing a unique customer encounter, or experience. The encounter is how the customer interacts with the staff and tasting room.  The approach to the customer encounter was different by size of the winery.  Another similarity is the focus on quality wine.  While the micro and small wineries focus on quality artisan wine, the large wineries are concerned with high quality, or premium, wine.  The overall industry concerns are shared with the need for favorable local government regulations and the future of the millennial wine market.  There are differences by location regarding local regulations, which seem to be favorable to small wineries and others that are not.  While there is optimism for the millennial wine market, all wineries are looking at possible changes in the demand as well as how technology can change their direct-to-consumer distribution model.

Chart 1: Family Business Concerns

The family business concerns differed by size.  The micro wineries are cautiously optimistic of growth and with how to include the family in the business.  The small wineries feel good about the business growth but are concerned with the family transition.  The large wineries shared the micro wineries concerns of future growth as bright but iffy.  The large wineries are also concerned about the next generation joining the business but also about cash flow and marketing.  Interestingly, in all three categories, half the wineries have regularly scheduled family business meetings.  The micro and small wineries are concerned with having a shared business model direction.  The micro wineries acknowledge the long hours while the small and large wineries both stress the need for work-life balance with having family time. 

            Chart 2: Approach to a Competitive Advantage

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The competitive advantage for all wineries is consistent with the current research relying on the competitive clusters or strategic groups of wineries (Downing and Parrish, 2018).   Each winery develops a story and an encounter for the customer in different ways.  The overall theme to creating a competitive advantage and interacting with the customer differed by winery size.  The micro wineries relied on working with their strategic groups, minimizing costs, and obtaining quality grapes.  The small wineries are primarily concerned with selling the wine marketing, winemaking knowledge, creating an authentic feeling to the customer and access to top quality grapes.  The large wineries develop a competitive advantage from a winemaking reputation, hiring knowledgeable staff, and educating the customer as a part of the encounter. 

Chart 3: Perceived Business Environment

The micro wineries have a very optimistic perception of the future with slow, steady growth.  The business environment is highly competitive, and the market is good for millennials buying artisan wine.  The perceived factors that could change this perception are local regulatory changes, decline in millennial purchases and an angst of not know how cannabis will impact the industry.  They plan to address potential changes by using social media and bring family into the business. The small wineries are somewhat optimistic of the future with slow, steady growth.  The business environment seems to be holding steady however, they are starting to see more selling of wineries due to lack of generational interest in running the business. While the market is getting saturated there is growth in the market for millennials.  The two factors that can change this perception are local government regulation and change in the millennial market.  They plan to address potential changes with solid business practices, low-cost production, and good marketing. The large wineries are optimistic of the future with increasing growth.  The business environment seems to be changing quickly but the market outlook is good.  The factors that can change this perception are local government regulation, changes in millennial interests, and technology impact on sell direct-to-consumer.  The primary approach to address changes are to hold onto current customer base and establish new ones. 

Overall, family is the number one concern for all the wineries. Of course, they measure performance by breakeven, profit margin and winning awards.  However, the student interviews reported comments of family businesses defining performance to include;

• “Have a good attitude and enjoy what you do.”
• “The quality of the product in our eyes and the customer.” 
• “Are we having fun?”
• “Quality of life, it has more to do with mental health than money.”

Family businesses are not unique to the wine industry yet are unique as a business entity.  The shared perceptions of the business environment are important as well as the unique concerns by size and location. 

The analysis of this study should be considered preliminary due to the size of the sample and the nature of the research design.  The small sample size for the Sierra Foothills AVA does not allow for an accurate representation of the perceptions and concerns of the wineries by size and location.  However, it does provide insight into some shared success factors (e.g., story and encounter) as well as some shared environment concerns (e.g., local regulation).  Interestingly, the topic of climate change was not mentioned. This preliminary study demonstrates commonalities across the industry as well as differences between wineries in size and by location.  It also demonstrates a need for further understanding of the drivers of economic success and family business success for wineries in the Sierra Foothills AVA. 

We propose research to understand the drivers of wineries success and the factors which can impact the perception of wineries with a much fuller study of surveys and interviews.  A more comprehensive research design needs to include a survey and interviews of the wineries in the different counties but also include the auxiliary industries related to wine tourism, such as restaurants and hoteling.  The potential impact of such a study would provide wineries and local governments with those factors and mechanisms to assist in the economic development of their respective wine industries.  The net result of comprehensive research would assist the Sierra Foothills wineries with their bottom line while also fostering their family business goals. 

Reference:

Downing, J.A. and Parrish, D. “Welcome to My House, Do you Like the Neighborhood?  Authenticity Differentiation within Strategic Groups of Wineries.”  In, Managing and Marketing of Wine Tourism Business: Theory, Practice and Cases. edited by M. Sigala and R. Robinson. Chapter 14. 2018. Palgrave McMillian.