2010 - 2011 State of the Wine Industry Report

Last year we knew our observations and forecast would not be pleasantly received in the village. There was a fair amount of bickering in the realm over just who killed whom, or oddly from some readers, if anyone had been injured at all. Ours is a business that taketh not kindly to naysayers. We nonetheless girded our loins, dressed in our best armor expecting an incoming barrage of spoiled produce and forecast:

“Flat growth from depressed restaurant sales, higher unemployment levels (exceeding 10 percent by yearend), higher foreclosures, and depressed consumer spending through the year as we seek a bottom. The economy will not return to the market experienced during the past decade. Price points below $35 are selling but wines between $50 and $125 are in a ‘dead space,’ with only established labels selling. Some wineries will trade hands this year at bargain prices. Distribution has all but ended as a viable sales channel for small wineries.”

Many said at the time we were far too pessimistic to predict no growth, yet in hindsight we were pretty accurate on not only that, but most of our prognostication. Where we were not accurate, we have conveniently left that out of this record to maintain our dignity. Specifically to the growth forecast, we show final 2009 sales ended in a range of 3 percent positive growth to a 4 percent decline, depending on the source cited.

For 2010 we shalt not make thee truly merry as in days of yore, but do bring some cheer so we doth not expect spoiled produce to soil our armor:

“We are forecasting improving conditions in the fine wine business. The tradingdown trend will end this year. It’s a completed trend that will gradually reverse on itself. Growth in $20+ price points will develop momentum and end the year in a range 8%-12% higher year over year. Revenue growth in higher priced wine will outpace the growth rate in lower tier wine segments though the best opportunity is still favoring large scale production of modestly priced wine given the National economy and consolidation in the chains and distributors. The forecast is supported by improving prospects for luxury buying from the affluent, slight improvements in corporate spending and emerging improvement in restaurant sales – notably in the white table cloth segment which has been the most impacted in the correction. In addition while there will continue a prominent level of discounting into Q3, we expect improving distributor purchases for the year as depleted wine is reordered. We further believe we will see continued positive results and measured momentum in the adoption of direct-to-consumer sales tactics. Large farming operations should also fare well with improved water shipments, though the continued increase in imported bulk wine as a replacement for traditional domestic sourced fruit from the Central Valley is a concern.

There are many obstacles still to overcome. We expect persistent financial and economic hurdles nationally which are too numerous to give anything but the shortest of attention to in this report. We do not believe the improving consumer climate will catapult fine wine sales to the high point of the past decade anytime soon. We expect continued downward price pressure in all but those wineries selling on allocation, large scale producers, or established brands in wide distribution. Wineries selling sizeable production above $50 will again find 2010-2011 a difficult time. Producer profitability in family wineries will be negatively impacted again this year as the higher price paid for grapes from purchases made before the crash are sold in a post-crash market that is still discounting.

There is still slightly too much wine at the producer level and distributors have some SKUs that have received no sales attention for some time. Those wines will be moved at deep discounts through the first two thirds of the year to clear the decks. The impact of higher inventories at the producer level means growers supplying fine wine producers will get less for their grapes on expiring contracts, except in the pinnacle of the quality range"

Read the complete 2010-2011_State_of_the_Industry.pdf

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