Wine Business
Uncertainty Makes for a Gloomy Economic Road Ahead, Yet there’s Still Economic Development Opportunity for Napa
Dr. Robert Eyler spoke about the local economy during a Napa Valley Community Foundation-hosted event on May 1 in Yountville.
Key Takeaways:
Dr. Robert Eyler, economics department chair at Sonoma State University and a Redwood Credit Union Board of Directors member, gave a talk on the future of the Napa Valley economy on May 1. These were his key takeaways from his economic watchlist:
- Assume that costs are going to rise.
- With the tariffs, while American farmers have generally been losing since April 2, US vineyards and wineries may gain as import competition contracts.
- There are structural shifts in play in the wine industry, such as decreasing wine consumers, and Gen Z and others are moving away from alcohol.
- For Napa, a tourism shock may be coming, though it’s uncertain as is the economy. Toursim diversity may help.
- Cooperation rather than competition should be the mindset for sectors/businsess up valley and down valley.
During a May 1 talk on the economic road ahead for Napa Valley with Dr. Robert Eyler, the current state of the economy wasn’t sugarcoated: The national economic picture is gloomy and may have a hard, direct impact on Napa’s two key industries as the possibility of a recession becomes more likely, but not yet pre-ordained by 2026. And while these key industries of wine/food/bev and hospitality still undoubtedly play a significant role in Napa’s economy, further stimulating the local economy by embracing a mix of diverse sectors, like healthcare or technology, might be fruitful, especially as current equity markets may play a role in affecting travel behavior.
The economic talk—titled ‘Reading the Tea Leaves: Napa Valley’s Economic Outlook’—was hosted with Eyler in partnership with the Napa Chamber of Commerce and the Napa Valley Community Foundation at the Yountville Community Center.
The Foundation—in addition to raising scholarship funds and supporting local nonprofits that support the community—hosts informational events for the community around municipal and state strategic planning and urban planning that help shape the city, the county and the state.
Terence P. Mulligan, president of the Napa Valley Community Foundation, emceed the event.
Uncertainty Abounds in the Current Economy
“Is the road ahead more gloomy? Absolutely. What’s driving it is the problem we have in terms of uncertainty,” Eyler said, noting that if the current administration stuck to a certain tariff plan, while it would ‘suck,’ at least one could then plan and prepare around that. With constantly changing policies and plans, it becomes more difficult to plan for the future.
However, he said, “we should assume that costs are going to rise no matter what… Once you set tariffs, consumers are going to feel that pinch.”
Eyler, an economics professor and chair of the economics department at Sonoma State University, said the supposition is that two things happen domestically that drive why we should put tariffs in place. One, we should create more market share for domestic producers, on the margin, and two, more domestic tax revenue if we do it in such a way that does not push counter tariff rates so high that we start pushing consumers away.
Either way, he said consumers are going to take the pinch in “every single scenario you could possibly imagine; it’s an indirect sales tax, it’s rising costs.” That, he said, is likely going to have a real weight on equity markets at least in the short- to medium-term if tariffs stick around. Then the question becomes, will that change travel behavior?
Do people decide to make Disneyland trips based on their portfolio or because of their income if it changes? In Napa, we haven’t really asked this question, Eyler said, noting it’s a question we may want to think about because how many people come here and what they spend may have an impact.
“There are certain places that are heavy tourism places that are going to have different answers to that question, and it does change the nature of how you do marketing and about how you think about your economic development and the diversity locally,” he said.
He shared that for now, assume that costs will slowly rise and that equity markets do play a role in travel behavior.
Bolstering Economic Development
In terms of other industries playing a role in Napa’s economy, Eyler said healthcare may be creeping up on wine as an important part of the economy.
“Wineries/food and beverage manufacturing, hotels, healthcare, government, ag/vineyard, retail—those six industries make up about 70% of the employment in the county now,” Eyler said.
“The other five Industries beyond healthcare depend very much on the wine industry’s movements. You can even say that the Valley’s healthcare also depends on that to a certain extent,” Eyler remarked. “So this is a place that is very much driven by wine tourism, and that has not changed that much, but we have some diversity there in healthcare, which has gotten slightly bigger over time and is forecasted to continue. This is a status quo forecast of 2030.”
He explained that healthcare as an industry is going to continue to grow in perhaps slower, more incremental steps, but if you’re aging as a society and you’re more wealthy than you are 15 years ago, then “healthcare is going to keep coming to take advantage of that market okay, and it’s also going to change the nature of how demand takes place here regionally.”
So, is Napa County diverse economically? He said the answer is sort of—it’s actually more diverse than you’d expect, but could more economic diversity happen? That, he said, is the question of the hour in terms of economic development.
Another opportunity for Napa: more regional cooperation than competition up and down the valley. He encouraged businesses across Napa to talk to each other more often and think about a regional strategy.
To that end, Jeri Hansen, president and CEO of the Napa Chamber of Commerce, announced that the chamber is embarking on an economic development strategy that is the first of its kind from the chamber—it is a business-led private sector, economic development strategy and framework.
“And this is not a report that is going to sit on a shelf in a binder. This is going to be dog-eared, notes in the margin workbook that will be owned by the business community, and in fact, this community in general to do exactly what Terence talked about, and that’s how do we intentionally diversify?”
“I think we do have those twin engines of agriculture, viticulture, hospitality, and we talk about them as sectors, but if you think about it… restaurants, retail, wellness, recreation, things that aren’t necessarily tied to the wine or hospitality industries, are [also] supporting the workers and the community and our visitors,” Hansen said.
With the creation of an economic development strategy and framework, she said they hope to attract new and diverse sectors that support the values that we have here. “We’re not looking to be the Amazon fulfillment center capital of California. We really want to bring in businesses and sectors that suit the community that can support and do vertical on our tourism and wine Industries.”
She added that we need to be able to sit across the table from someone who’s interested in starting a business or relocating a business in Napa and provide them the tools, information and resources they need so that they know the investment they’re making in the community is a good one.
Hansen shared that in the next couple of months, the Napa community will be hearing more about the chamber’s economic development strategy and framework, so stay tuned.