SVB Remains Optimistic in ‘08
So far, 2008 is looking like an unpredictable year. Some people in the industry think the recession will have little impact on wine, while others contend it will leave a huge stamp on the U.S. wine biz. What about fine wines versus high-volume wines? Will imports manage to power through the recession? And how will the industry bounce back?
Silicon Valley Bank’s (SVB) annual State of the Wine Industry Report addresses all these questions. Researchers use data, experience, knowledge of the wine industry and an extensive survey to help give insight on current conditions and trends as well as a forecast for the coming year.
In the beginning, the report notes that the wine industry is “experiencing both short term cyclical and economic shocks.” Not only are we headed into a recession, but the wine biz has morphed from a small, part-time industry into a $30 billion business with loads of M&A activity. So what does that mean for the future of the industry?
Some of the key takeaways:
1. SVB feels the next 12 months will be generally positive for the wine industry despite downward economic trends.
“Financial performance of the fine wine segment will be marked with moderate growth rates falling from last year’s cyclical highs.”
“Outside of recession fears, the industry is optimistic. While we generally support their optimistic view, we suggest many may be overly optimistic and we offer a note of caution. A recession is upon us and sales growth rates will likely moderate.”
“Yet overall, wine is still an affordable luxury even in a bad economy. So while wine is not recession-proof — like electricity and visits to the doctor — people still continue to consume wine even during difficult times, and our experience is that wine continues to demonstrate volume growth.”
2. Nonetheless, SVB expects to see a small deterioration in the fine wine segments as supply runs low and consumers become more cost conscious.
“For fine wine, we expect 2008 growth rates in the low-teens and slightly lower profits.”
“Concerns in this segment include everything from high costs of sought after vineyard properties, foreign competition, brand proliferation, a weak USD, grape shortages, distribution over-consolidation, regulatory processes impacting free trade, and evolving — yet still inefficient — Internet and consumer sales models. However, in the long term, we expect sales growth to be in the 4-6 percent range for the wine industry as a whole.”
3. High volume wine producers will experience improving trends as the weakening economy forces value-conscious buyers into lower-priced and moderately-positioned price segments. However, low-end producers will likely have a harder time selling their wines in the long term.
“Improved conditions for growers selling into the higher volume segments are expected this year. This is due to a weaker U.S. dollar (USD) slowing bulk imports, lower volumes in the tank from prior harvests, and a strong demand for wines in the $9 - $14 range. However, growers producing grapes destined for wines with price points under $8 will likely find business conditions more difficult in the long term.”
4. Overall consumption of both foreign and domestic wines in the U.S. has reached $30 billion. This is a result of consumer acceptance of imported wines, an increasing number of millennials drinking wine and trading up.
5. As restaurant sales take a hit during the economic downturn, wines will not perform as well on-premise. The NPD Group, a consumer marketing research firm, found that less than 40% of meals purchased in restaurants are currently eaten on-premise. SVB predicts that if this trend continues, the on-premise sales of wine will shift more into direct or off-premise purchases for home consumption.
“Analysts support specific regional weakness in Nevada, Florida, Michigan and California — all four were also among the highest mortgage default rates per household in the country.”
6. The U.S. wine industry has seen an onslaught of imports in recent years. However, domestic producers might get a (albeit short) break as the weakening USD is becoming increasingly troublesome for importers, especially given more cost-cautious buyers.
“Over the long term, if the USD remains weak and nominal pricing of foreign wine continues to climb, the increased cost of shipping may become so great that it will begin to deter imports. That may slow the onslaught of imports temporarily; however, foreign producers continue to make progress in this market at a time when all the signs indicate they should not...It is an opportunity that should not be taken lightly.”
7. Distributor consolidation continues to pose problems for small wineries. SVB found that many wineries producing fewer than 10,000 cases annually are entirely shut out of distributor markets and are going the direct to consumer route as a result.
“Unfortunately, fine wine producers are faced with a mountain of compliance issues to ship direct, and a cold shoulder from the national distribution system.”
To end things on a good note, we leave you with this positive message from the report: wine prices are expected to hold stronger than in past recessions.
“As we review the impact of the changing economy, there is one major difference between the last two recessions and the current one. Supply is currently in balance or short in most major varietals. As a consequence, while we do expect the normal disruption as the venues of wine sales shift, we expect prices to hold better than during the past recessions, and imports will have a more difficult time filling demand gaps because of the weak USD.”
ROBERT PARKER ANGERS BORDEAUX WITH LOW SCORES
U.S. wine critic Robert Parker has angered many Bordeaux producers with B+ or lower ratings of the 2007 vintage.
"There is unquestionably little need to buy these wines as futures, unless dramatic price reductions occur. I don't expect that to happen," said Parker in his annual vintage review, titled "2007 Bordeaux: Who Will Buy Them and at What Price?"
Winemakers in the area claim it’s very hard to sell wine scored below a 90. One Bordeaux wine broker told the AFP that Parker “has assassinated some of the wines."
In total Parker only gave three wines (Chateau Pape Clement white, Haut-Brion and Chateau Climens) 100 point scores, and all three were for whites, in a town best known for its reds. Bordeaux's top five, first growth wines, received the following ratings: Chateau Margaux earning a 92-94, Chateau Haut-Brion a 91-94, and Mouton-Rothschild a 90-94. Chateau Lafite and Chateau Latour both got a 90-93.
ROSEMOUNT DROPS DOUBLE-DIGITS IN U.S.
Foster's Group Ltd.'s wine sales in the U.S. dropped in the four weeks through April 19, signaling that a recovery for the company's American wine division is still some way off, Bloomberg reports, based on the Australian Financial Review.
Wine sales at supermarkets and retailers, which make up about 27% of U.S. sales, dropped -4%, the Review said, citing figures from Nielsen. The Rosemount brand suffered the biggest slide in sales, falling -20.7%.
WSD BRIEFS:
FUTURE BRANDS announced the appointment of Tony Truzzolino to vice president, sales – east region. Truzzolino, a 25-year veteran of the beverage alcohol industry, joins Future Brands from Beam Global Spirits & Wine, where he was vice president, commercial development.
GEMINI SPIRITS & WINE announced that effective May 1st, 2008 it will be handling the U.S. brand building activities for Tortuga rums from the Cayman Islands.
NEWTON VINEYARDS appointed Chris Millard as winemaker yesterday. Newton’s wines include Unfiltered Chardonnay and Bordeaux-style red wines from the estate on Spring Mountain in St. Helena. Millard joins Newton Vineyard from Sterling Vineyards, where he was senior winemaker.
WASHINGTON D.C. COUNCIL IS CONSIDERING A BILL that would let restaurant-goers in the District put a cork in a bottle of wine and take it home. Forty-eight states including Maryland and Virginia already have such laws in place.
TO READ A NOSTALGIC PIECE ON ROBERT MONDAVI by Alan Goldfarb, the last man to interview him, click here.
Until tomorrow, Megan
“Punctuality is the virtue of the bored.”
Evelyn Waugh
--------- Sell Day Calendar ----------
Today's Sell Day: 5
Sell days this month: 22
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Thurs.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
Silicon Valley Bank’s (SVB) annual State of the Wine Industry Report addresses all these questions. Researchers use data, experience, knowledge of the wine industry and an extensive survey to help give insight on current conditions and trends as well as a forecast for the coming year.
In the beginning, the report notes that the wine industry is “experiencing both short term cyclical and economic shocks.” Not only are we headed into a recession, but the wine biz has morphed from a small, part-time industry into a $30 billion business with loads of M&A activity. So what does that mean for the future of the industry?
Some of the key takeaways:
1. SVB feels the next 12 months will be generally positive for the wine industry despite downward economic trends.
“Financial performance of the fine wine segment will be marked with moderate growth rates falling from last year’s cyclical highs.”
“Outside of recession fears, the industry is optimistic. While we generally support their optimistic view, we suggest many may be overly optimistic and we offer a note of caution. A recession is upon us and sales growth rates will likely moderate.”
“Yet overall, wine is still an affordable luxury even in a bad economy. So while wine is not recession-proof — like electricity and visits to the doctor — people still continue to consume wine even during difficult times, and our experience is that wine continues to demonstrate volume growth.”
2. Nonetheless, SVB expects to see a small deterioration in the fine wine segments as supply runs low and consumers become more cost conscious.
“For fine wine, we expect 2008 growth rates in the low-teens and slightly lower profits.”
“Concerns in this segment include everything from high costs of sought after vineyard properties, foreign competition, brand proliferation, a weak USD, grape shortages, distribution over-consolidation, regulatory processes impacting free trade, and evolving — yet still inefficient — Internet and consumer sales models. However, in the long term, we expect sales growth to be in the 4-6 percent range for the wine industry as a whole.”
3. High volume wine producers will experience improving trends as the weakening economy forces value-conscious buyers into lower-priced and moderately-positioned price segments. However, low-end producers will likely have a harder time selling their wines in the long term.
“Improved conditions for growers selling into the higher volume segments are expected this year. This is due to a weaker U.S. dollar (USD) slowing bulk imports, lower volumes in the tank from prior harvests, and a strong demand for wines in the $9 - $14 range. However, growers producing grapes destined for wines with price points under $8 will likely find business conditions more difficult in the long term.”
4. Overall consumption of both foreign and domestic wines in the U.S. has reached $30 billion. This is a result of consumer acceptance of imported wines, an increasing number of millennials drinking wine and trading up.
5. As restaurant sales take a hit during the economic downturn, wines will not perform as well on-premise. The NPD Group, a consumer marketing research firm, found that less than 40% of meals purchased in restaurants are currently eaten on-premise. SVB predicts that if this trend continues, the on-premise sales of wine will shift more into direct or off-premise purchases for home consumption.
“Analysts support specific regional weakness in Nevada, Florida, Michigan and California — all four were also among the highest mortgage default rates per household in the country.”
6. The U.S. wine industry has seen an onslaught of imports in recent years. However, domestic producers might get a (albeit short) break as the weakening USD is becoming increasingly troublesome for importers, especially given more cost-cautious buyers.
“Over the long term, if the USD remains weak and nominal pricing of foreign wine continues to climb, the increased cost of shipping may become so great that it will begin to deter imports. That may slow the onslaught of imports temporarily; however, foreign producers continue to make progress in this market at a time when all the signs indicate they should not...It is an opportunity that should not be taken lightly.”
7. Distributor consolidation continues to pose problems for small wineries. SVB found that many wineries producing fewer than 10,000 cases annually are entirely shut out of distributor markets and are going the direct to consumer route as a result.
“Unfortunately, fine wine producers are faced with a mountain of compliance issues to ship direct, and a cold shoulder from the national distribution system.”
To end things on a good note, we leave you with this positive message from the report: wine prices are expected to hold stronger than in past recessions.
“As we review the impact of the changing economy, there is one major difference between the last two recessions and the current one. Supply is currently in balance or short in most major varietals. As a consequence, while we do expect the normal disruption as the venues of wine sales shift, we expect prices to hold better than during the past recessions, and imports will have a more difficult time filling demand gaps because of the weak USD.”
ROBERT PARKER ANGERS BORDEAUX WITH LOW SCORES
U.S. wine critic Robert Parker has angered many Bordeaux producers with B+ or lower ratings of the 2007 vintage.
"There is unquestionably little need to buy these wines as futures, unless dramatic price reductions occur. I don't expect that to happen," said Parker in his annual vintage review, titled "2007 Bordeaux: Who Will Buy Them and at What Price?"
Winemakers in the area claim it’s very hard to sell wine scored below a 90. One Bordeaux wine broker told the AFP that Parker “has assassinated some of the wines."
In total Parker only gave three wines (Chateau Pape Clement white, Haut-Brion and Chateau Climens) 100 point scores, and all three were for whites, in a town best known for its reds. Bordeaux's top five, first growth wines, received the following ratings: Chateau Margaux earning a 92-94, Chateau Haut-Brion a 91-94, and Mouton-Rothschild a 90-94. Chateau Lafite and Chateau Latour both got a 90-93.
ROSEMOUNT DROPS DOUBLE-DIGITS IN U.S.
Foster's Group Ltd.'s wine sales in the U.S. dropped in the four weeks through April 19, signaling that a recovery for the company's American wine division is still some way off, Bloomberg reports, based on the Australian Financial Review.
Wine sales at supermarkets and retailers, which make up about 27% of U.S. sales, dropped -4%, the Review said, citing figures from Nielsen. The Rosemount brand suffered the biggest slide in sales, falling -20.7%.
WSD BRIEFS:
FUTURE BRANDS announced the appointment of Tony Truzzolino to vice president, sales – east region. Truzzolino, a 25-year veteran of the beverage alcohol industry, joins Future Brands from Beam Global Spirits & Wine, where he was vice president, commercial development.
GEMINI SPIRITS & WINE announced that effective May 1st, 2008 it will be handling the U.S. brand building activities for Tortuga rums from the Cayman Islands.
NEWTON VINEYARDS appointed Chris Millard as winemaker yesterday. Newton’s wines include Unfiltered Chardonnay and Bordeaux-style red wines from the estate on Spring Mountain in St. Helena. Millard joins Newton Vineyard from Sterling Vineyards, where he was senior winemaker.
WASHINGTON D.C. COUNCIL IS CONSIDERING A BILL that would let restaurant-goers in the District put a cork in a bottle of wine and take it home. Forty-eight states including Maryland and Virginia already have such laws in place.
TO READ A NOSTALGIC PIECE ON ROBERT MONDAVI by Alan Goldfarb, the last man to interview him, click here.
Until tomorrow, Megan
“Punctuality is the virtue of the bored.”
Evelyn Waugh
--------- Sell Day Calendar ----------
Today's Sell Day: 5
Sell days this month: 22
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Thurs.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 10:52 AM
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