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01.31.2014  
 

Wine Industry CPA Presents Survey Results

45% of wineries and grape growers note price erosion or margin compression

 
by Paul Franson
 
 
“wineries”
 
Percents are portion of aggregate sales of 166 respondents.
Sacramento, Calif.—Moss-Adams, a leading wine industry CPA firm, presented a summary of its Wine Industry Financial Benchmarking Survey created with its own Farm Credit and Turrentine grape and wine brokerage mailing lists during the session “Using Data for Better Decision Making” at the Unified Wine & Grape Symposium in Sacramento  this week.

This was the first such survey the CPA firm had conducted since 2009, and results will help wineries compare their own situations with those of their peers.

The highlights of the survey included these conclusions:
• The wine industry has generally recovered from recession;

• Wine companies are encountering increased demand for wine;

• There’s more focus on expansion than in recent years;

• Domestic wine sales for bottles priced $10-20 are booming;

• Direct-to-consumer sales continue to grow at the expense of three-tier distribution;

• Wineries continue to expand social media marketing for brand building and to support DtC strategies;

• Land values in wine regions have increased;

• Growers are focused on increasing production and prices, and they’d like to renegotiate contracts.

About half of the 166 respondents were from integrated wineries with vineyards; the rest were wineries, grapegrowers or virtual wineries. Participants included wineries producing fewer  than 1,000 cases and those with 720,000 in annual case sales. About four-fifths were equally divided among wineries producing fewer than 10,000 cases per year and those producing 10,000-50,000 cases.

Sales data
In aggregate, 72% of revenue came from the three-tier distribution network, 12% from wholesale sales such as to brokers, 6% from tasting rooms, 5% from wine clubs and 4% international.

Operating and financial data was generally collected for calendar year 2012.

By average selling prices (revenue divided by cases), 42% made wines selling for more than $200 per case, 28% for $150-200, 22% from $100 to $150, and 8% less than $100 per case. By location, 68% were from California, 23% from Washington and 9% from Oregon.

Not surprisingly, Cabernet (19%) and Chardonnay (18%) represent the largest slices of the sales pie, with Pinot Noir tying “other white” (Riesling and Moscato mostly) at 13%, and Sauvignon Blanc and Pinot Grigio/Gris at 8% each. Merlot made up only 6% of sales.

Domestic sales in the $10-$20 per bottle retail price category are booming, primarily for leading varieties such as Cabernet Sauvignon and Pinot Noir. However, the under-$10 segment still commands roughly 80% of total sales among major varieties.

Respondents reported that they are being impacted by the soft economy in many ways. Forty-nine percent see increasing direct-to-consumer sales, while 45% note price erosion or margin compression. Forty-five percent have had increased production costs.

Meanwhile, 42% experienced increased on-premise sales, and 39% increased off-premise sales. Thirty-two percent encountered increased supply of wine in the market.

The wine companies intend to react to the challenges by increasing prices (56%), increasing production volume (55%), renegotiating contracts (36%), increasing discounts or promotions (35%), increasing discretionary capital spending (35%), hiring staff (25%), changing channel strategy (23%) and changing overall business strategy (11%).

Concerns for 2014
During the teleconference, viewers were surveyed about what factors will most impact their businesses in 2014; they responded that excess inventory levels are among their biggest concerns, followed by water shortages and prices.

In addition, wineries with sales of more than 100,000 cases per year reported the lowest average case price of $134, while those selling 10,000-50,000 cases annually had the highest per-case price at $297. Those selling less than 10,000 cases per year averaged $270, and wineries producing 50,000-100,000 cases averaged $188 per case. The overall average  price per case was $222.

As might be expected, the biggest wineries are most dependent on three-tier distribution, reporting 85% of revenue from this channel. That dropped to 33% for the small wineries selling less than 10,000 cases per year.

Likewise, 87% of wines sold for less than $100 per case go through distribution, while only 30% above $200 per case do the same. Negociants sell 85% of their wine through the three-tier system, more than the two-thirds for winery-only operations and 71% for integrated wineries with vineyards.

More than 60% of respondents indicated they plan to expand their use of social media to support brand-building and direct-to-consumer strategies during the next three years.

Growers were asked about their plans, and three-quarters plan to buy or sell a vineyard in the next three years, while half hope to develop a succession plan. In addition, 17% of growers intend to buy or sell a winery.

Finally, growers report higher income than wineries or integrated operations, with an average of 21% net income compared to 10% for negociants, the most profitable wine producers. Integrated operations averaged 5% net income. Wineries reported a 3% loss. Boland stated: “A winery with 50 % margins should be profitable.”

The complete 2013 Wine Industry Benchmarking Report is available for $495 at mossadams.com.

Also at the session, Dan Agilar of Silicon Valley Bank presented typical benchmarks from the bank’s recent wine report (see “Bank Forecasts Recovery of Fine Wine Sales”) and Lori Beaudoin, CFO of Duckhorn Vineyards, discussed her firm’s two-year process to integrate all its financial, vineyard, production and sales data.

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