February 2014 Issue of Wines & Vines
Fine Wine Sales to Grow But Profits Remain Depressed
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 Winejobs.com 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.
|E-MAIL THIS ARTICLE|