NAPA – Most wine industry executives surveyed for a major industry conference here today are expecting sales of California wine to start growing in 2011, with prices rebounding for high-end wines in three to five years, according to results released today. Yet experts at the event showed that signs of economic recovery are starting to emerge.
"It's going to be a bit of a slog," former head of graduate wine studies at UC Davis Robert Smiley told the audience at the industry Wine Industry Financial Symposium this morning. He's conducted surveys of executives in the business for a decade in conjunction with this annual meeting.
A common theme from in-depth interviews conducted with select executives in conjunction with the survey was conservative spending, such as cutting back on unnecessary expenses and delaying or passing on 2009 grape purchases, Dr. Smiley noted. About half the executives interviewed said they were increasing marketing efforts, and some where launching brands in the segments of the market that are most active, largely wines selling for $7 to $10 per standard-sized bottle.
Out of 412 responses for wineries, grape growers, distributors and ancillary services, mostly in Napa and Sonoma counties, 48 percent predicted a return of high-end prices in three years, 50 percent foresee it in five years and the remainder thinks it will happen in a year. A common theme from the interviews was that more wineries are looking to have more offerings in different price points to reduce the risk to the sales when consumers look for deals amid another dip in the economy, according to Dr. Smiley.
Wineries and growers have been facing the same "inventory-induced recession" that has plagued producers of manufactured goods, as distributors and retailers late last year started radically reducing inventories as consumer sales dropped or shifted to lower-priced products, he continued.
"Unlike other cycles, this was not driven by oversupply," Dr. Smiley said.
After seven years of increases in the number of wine items stocked in grocery stores, the number decreased in late 2008 and into this year, according to said Danny Brager, vice president of client services for The Nielsen Co.
Similarly, about three-quarters of respondents to the survey, which was conducted in late July and early August, expect sales of California wine to show growth in 2010-2011, compared with 2008 sales, while about a third are looking for that kind of growth in the next 12 months.
About as many wine industry businesses said they were "hunkering down," 38.6 percent, as saw opportunities to position their businesses for the next cycle, 37.6 percent. Nearly 29 percent said their businesses were running "good," but they were "nervous."
The industry can be heartened by indications of a nascent turnaround in the U.S. economy this summer and increasing domestic consumption of wine, according to a beverage-industry analyst and a consumer-behavior expert at the symposium.
The national consumer confidence index has been trending upward since February, after falling to unprecedented depths late last year, according to Kaumil Gajrawala of UBS Investment Bank.
"Frozen is defrosting for the consumer," he said, noting that U.S. consumer behavior is resilient.
"Consumer behavior in the U.S. would take a catastrophic event to change, such as war or natural disaster," he said. "If the economy in 2010-2011 improves, consumers will not feel as much pain to change their behavior."
That behavior is trending toward greater wine consumption, as evidenced by U.S. wine consumption reaching a high point last year. However, the shift has been from consumption in restaurants, where wine has been the most impacted by fewer purchases of alcoholic beverages, according to Mr. Brager.
Of the best-selling store categories, "back to basics" items were at the top, Mr. Brager said. Wine ranked fourth with 5.5 percent share of sales, behind canning and freezing items, 17.7 percent, seasonal general merchandise, 8.1 percent, and fresh meat, 6.7 percent.
"Consumers are desperate for value," Mr. Brager said, adding that value doesn't mean just lower prices.
However, mid- to upper-income households dominated the 6 percent to 7 percent rise in purchases of items on discount from last year, and they are greater uses of coupons, he noted.
