Slow and Steady

Slow and Steady

What does the wine industry hold for the year ahead?

Silicon Valley Bank, a provider of commercial banking services to the wine industry, released its Annual State of the Wine Industry Report for 2011-2012 via live webinar on Wednesday, April 27.

Based on a survey of nearly 600 wineries, SVB predicts that the fine wine segment is at the beginning of a long-term, steady growth phase. Sales growth in 2011 is forecast at 11 to 15% higher year over year, and wineries will experience marginally improving profitability.

This forecast is supported by a number of factors, including inventory analysis that suggests supply is more balanced than many believe; improving luxury consumer trends; greater purchasing power among Gen X and Baby Boomers; improving white tablecloth restaurant sales; and stabilization of the national economy, which is leading consumers to trade up and purchase higher-priced bottles.

"After several years of doom and gloom in this business, it feels good to be past the bottom of the cycle and headed up again," said Rob McMillan, founder of Silicon Valley Bank’s Wine Division and author of the report. "While we aren’t expecting the business to return to the halcyon days before the financial collapse anytime soon, we are predicting a slow and steady climb up that should span several years, leading to improved prospects for the wine business."

However, SVB also points out numerous headwinds that will challenge the industry: geo-political and national economic hurdles; crop prices that have reset lower compared to the fixed costs in producing grapes; continuing distribution challenges; low adoption rates of social media and digital best practices that could make wine businesses more efficient; and threats to direct consumer wine sales from the proposed HR1161 bill being debated in Washington.

"There is still a lot of risk in the business for investors,” McMillan added. “That said, there are plenty of buyers so we expect the remaining wounded winery players will either recapitalize or sell over the next 18 months."

Published on April 27, 2011