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Wednesday, April 27, 2011, 10:10 am

Report: Fine wine sales to grow 11% to 15% in 2011

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    ‘Plenty of buyers’ to purchase or recapitalize ‘remaining wounded winery players’ in the next 18 months

    Rob McMillan

    Rob McMillan

    The fine wine segment of the industry is at the beginning of a “long-term, steady growth phase,” with sales of such wines forecast to grow 11 percent to 15 percent from last year and wineries enjoying “marginally improving profitability,” according to a report released this morning by Silicon Valley Bank.

    “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 the bank’s Wine Division and author an annual report and forecast on the industry. “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.”

    Year Sales growth
    2010 10.8%
    2009 -3.8%
    2008 2.0%
    2007 22.3%
    2006 21.2%
    2005 19.4%
    2004 25.5%
    2003 17.6%
    2002 5.2%
    Source: Silicon Valley Bank research

    Last year, overall sales for U.S. upscale wineries grew 10.8 percent, according to the bank’s research. That’s much better than the previous two years and returns sales growth to where they were in 2002–2003.

    Mr. McMillan’s predictions for fine wine this year and next include:

    • Growth in luxury goods will outpace the rest of the economy.
    • Trading up trend will accelerate in higher priced wine.
    • Producers will gain marginally more pricing power.
    • Baby boomers and Generation Xers will support most of the fine-wine segment recovery.
    • Restaurant sales will continue to improve, especially in full-service, or “white tablecloth,” restaurants.
    • Winery inventories are closer to balanced than most wineries seem to think.
    • Legal threats to direct shipping to consumers will shift.
    • Grape contract pricing will be flat or decline, except for the best properties.

    The wine industry faces “numerous headwinds”, he said. These include:

    • geopolitical 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.
    • threats to direct consumer wine sales from the proposed H.R. 1161 bill being debated in Washington.

    “There is still a lot of risk in the business for investors,” Mr. McMillan said. “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.”

    Mr. McMillan has been preparing the annual State of the Wine Industry report for several years, based on proprietary research and surveys of hundreds of industry professionals. This year, he surveyed more than 600 wineries.

    A recording of a presentation on the report is set to be available Friday, April 29 (link).

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