Washington's Satellite Tasting Room Boom

Based on data from the Washington Department of Revenue, there were 233 active satellite tasting room licenses in Washington State as of year-end 2018. The number of satellite's has exploded in recent years, as 134 of these were issued in the past four years alone. Twenty-four Washington wineries now hold multiple licenses.

As you might suspect, Woodinville is the leading destination with 45 licenses, while Walla Walla is close behind with 39. Seattle and Leavenworth also have significant concentrations and Leavenworth led the state in 2018 with eight new licenses. While Washington’s satellite tasting rooms remain heavily concentrated in a few core areas, they are proliferating throughout the state as 26 counties and 52 cities now have active licenses.

The license count may overstate the true number of operational satellite tasting rooms to some extent as some recent licensees may not yet have opened their doors for business while others could have closed but not yet extinguished their license. Nonetheless, growth has clearly been explosive.

The tasting room boom reflects new market realities. The DTC channel represents the only viable expansion path for many smaller wineries that have been shut out of the three-tier-system. Larger wineries, too, have renewed their emphasis on DTC due to both its profitability and strategic role in cultivating brand ambassadors.

New tasting rooms can be a double-edged sword from the perspective of wineries with existing tasting rooms. In some cases, growth within a trade area can stimulate demand for all once a critical mass is reached and the area becomes recognized as a legitimate wine tasting destination. As the concentration grows, it becomes even more attractive to potential visitors.

However, at some point the beneficial effect may begin to wane and eventually even reverse. As the saturation point nears, each additional tasting room adds less to the size of the visitor pie, and the pie can even begin to shrink due to negative externalities such as congestion or parking problems. At this point – new tasting rooms can only take market share from existing tasting rooms.

The satellite tasting room boom has clearly contributed to the state’s strong DTC performance in recent years. Washington’s DTC volume has been growing at an annualized rate of more than 7%. But the number of tasting rooms (both winery and satellite) appears to be growing at an even faster rate, and the 2018 WBM/SVB tasting room survey suggests that average monthly visitor counts at Washington tasting rooms have essentially been flat over the last several years.

The number of satellite's is set to continue to expand in 2019 as more of the 39 tasting rooms that were awarded licenses in 2018 open for business and 11 additional licenses were pending approval as of the end of the year.

Given this, along with a potential dampening in DTC demand growth due to a slowing economy, competition for visitors is likely to intensify in 2019. While opportunities still exist, wineries considering establishing new satellite tasting rooms should be cognizant of the risks and need to take a strategic and data-driven approach in order to make an informed decision. Selecting the right trade area and site will be critical to the venture's success.

The Washington Wine Industry Review & Outlook, scheduled for release in early March, will provide a detailed analysis of satellite tasting room trends, including metrics broken down by city and year issued. This publication delivers a comprehensive assessment of Washington wine industry trends, an overview of broader market and economic developments, and an outlook for the industry in the year ahead. Vintage Economics can also assist wineries with trade area analysis and site selection.