Wines & Vines Home
Welcome Guest
February 2014 Issue of Wines & Vines

Fine Wine Sales to Grow But Profits Remain Depressed

by Paul Franson
svb fine wine report
Santa Clara, Calif.—On the heels of a good year for wine production and sales across much of North America, wine industry executives can look forward to continued growth, according to Silicon Valley Bank’s Rob McMillan. Releasing SVB’s annual State of the Wine Industry report in January, McMillan predicted that fine wine sales would grow between 6% and 10% this year—up from 4% to 8% in 2013.

The report, based on a survey of nearly 650 West Coast wineries and other research, indicated that winery profits and margins slipped in 2013, yet three quarters of wineries reported they were in good financial shape. Silicon Valley Bank, which focuses on smaller, fine-wine producers, found that wine supply is in balance. “Inventory is tight on the most expensive wines, while high-volume and very small estate producers report modest inventory surpluses,” McMillan said.

That means good news for the consumer: “Demand is up, supply is in good shape and pricing is stable,” he said. For the winery, however, grape costs and flat consumer pricing mean lower profitability. Based on SVB’s survey of premium wineries, profits dropped 1.5% on average in the first nine months of 2013.

Bottle pricing stable
The report indicates that 78% of wineries plan to hold the line or increase wine prices, but the bank forecasts that it will be challenging to raise prices.

McMillan stated, “Many wineries believe they can increase bottle prices this year, but bottle pricing will remain stable…. The wineries will likely be unable to pass increased grape and bulk wine costs along to consumers except in some higher priced luxury wines.” He added, “This will depress winery gross profits.”

Without raising the prices of individual wines, some of the predicted 6% to 10% growth in value will come from increased volume at the higher price points, and bottles in the $10 to $18 range are a good example, McMillan said. IRI data on off-premise sales tend to support this point if they continue as they did in 2013. Domestic wines at $5-$7.99 grew only 4% in value, while those at $11-$14.99 grew 15%.

2013 harvest total
The SVB report predicts that the 2013 harvest will total 3.94 million tons when the final numbers are in, making it the second-largest harvest on record in California, behind the
4 million tons harvested in 2012. The two recent harvests have left tanks full and inventory close to balanced. McMillan predicted that grape prices have reached a peak and could soften.

Nat DiBuduo, president of Allied Grape Growers, stated, “While the coastal regions are probably down in crop size, the interior regions are estimated to be as big as, or bigger than, in 2012. More new acreage has come into production this year, mostly in the interior.”

McMillan said that grape planting is restrained, however, compared to prior periods when supply was in balance. The SVB report found that wineries and growers are planting or replanting 21,500 acres to fine wine grapes in California. The total acreage of these premium grapes is about 135,000 acres of the 460,000 total acres of wine grapes.

Both Oregon and Washington also experienced record harvest years. The Oregon Wine Board reported that the 2013 harvest appeared to be larger than 2012—with a percentage increase possibly reaching the low double-digits. One knowledgeable winegrower believes the yield could top the 2012 record harvest of 50,000-plus tons by as much as 20%.

Washington wineries also brought in more grapes than they did in 2012, a record year with 188,000 tons. If local sources are correct in predicting 2013 production was up at least 10%, the Washington industry may have crushed 210,000 tons.

Industry metrics positive
Another view of the wine economy comes from Wines Vines Analytics’ Wine Industry Metrics for 2013, which were all positive.

Domestic wine sales grew 7% in both off-premise and direct-to-consumer channels. Retail sales grew from $6.8 billion to $7.3 billion according to IRI, while direct-to-consumer sales grew from $1.47 million to $1.58, million, based on numbers from ShipCompliant and Wines Vines Analytics.

Even more impressive was the 27% growth seen in the Winery Job Index, reflecting a growing and confident U.S. wine industry.

M. Shanken’s Impact Databank stated that the U.S. market for all wines grew nearly 5 million cases in 2013, a slight slowing in growth to 1.5%, from 1.7% a year earlier. It reported that the volume was 329 million 9-liter cases, compared with 324 million cases in 2012. The slower growth appeared to stem mainly from slow restaurant and bar sales, according to Impact.

Print this page   PRINTER-FRIENDLY VERSION   »
E-mail this article   E-MAIL THIS ARTICLE   »
Currently no comments posted for this article.

Wines & Vines Home
866.453.9701 | 415.453.9700 | Fax: 415.453.2517
65 Mitchell Blvd., Ste. A San Rafael, CA 94903
Wine Industry Metrics
Off-Premise Sales
IRI Channels »
Month   12 Months  
October 2015 $604 million
$8,267 million
October 2014 $572 million $7,790 million
Direct-to-Consumer Shipments » Month   12 Months  
October 2015 $288 million
$1,919 million
October 2014 $284 million $1,751 million
Winery Job Index » Month   12 Months  
October 2015 179
October 2014 139 226
MORE » Released on 11.13.2015


Direct To Consumer
Wine Shipping Report
Download full report »

Practical Winery & Vineyard Library
Search the PWV archive »

  • December 2
    2015 UC Davis Grape Day
  • December 3
    North Coast Wine Industry Expo
  • December 5-6
    Holidays in the Vineyards
  • January 13-14
    DtC Wine Symposium
  • MORE »

Article: How to Remarket Unsold Wines »
I'm not sure why the issue of brand value destruction isn't addressed here. When a...
Reader: Guest
Article: How to Remarket Unsold Wines »
Great points here. Getting the wine in the hands of consumers is key...especially if the...
Reader: Dave Shefferman
Article: Kronenberg Leaves Legacy of DtC Opportunities »
This is amusing. While I do not quarrel with Paul's many contributions over the years,...
Reader: Guest
Article: Kronenberg Leaves Legacy of DtC Opportunities »
Wow! This this a re-writing of history! As a founder and namer of Family Winemakers...
Reader: Guest
Article: Can Wine Grapes Be Grown Without Chemicals? »
It sounds like your problem is with semantics, not with the application of products to...
Reader: Carol Collier

2016 Directory/Buyer's Guide
The Wines & Vines Directory and Buyer's Guide
Wines & Vines Magazine
Digital Edition Now Available!
Wines & Vines Digital Edition Now Available
The Wines & Vines Online Marketing System
The Industry Standard winery marketing application
Latest Job Listings
 Warehouse Lead
 Cottage Grove, OR
General Administration and
 Tasting Room Associate
 Healdsburg, CA
DTC, Tasting Room and Retai
 Bottling Maintenance M...
 Lodi, CA
Cellar, Lab and Production
 Guest Service Associat...
 Rutherford, CA
DTC, Tasting Room and Retai
 Geyserville, CA
 Vineyard Manager
 Sonoma County, CA
 Tasting Room Associate...
 Santa Barbara, CA
DTC, Tasting Room and Retai
 Sales Consultant-
 Charleston, SC
Sales and Marketing
 Sales & Hospitality As...
 Sta. Rita Hills, CA
DTC, Tasting Room and Retai
 Wine Club/Ecommerce Co...
 Lompoc, CA
Sales and Marketing
More Job Listings >>
Follow Us On:

Home  |  About Us  |  Editors  |  Subscribe  |  Print Edition  |  Digital Edition

Advertise  |  Site Map  |  Contact Us  |  Privacy Policy
Copyright © 2001-2015 by Wine Communications Group, Inc. All Rights Reserved.
No material may be reproduced without written permission of the Publisher.
Wines&Vines does not assume any responsibility for any unsolicited manuscripts or materials.