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Most wine industry executives surveyed for a major industry conference last week are expecting sales of California wine to start growing in 2011, with prices rebounding for high-end wines in three to five years. Yet experts at the event said there are signs economic recovery is already starting to emerge.
"It's going to be a bit of a slog," former head of graduate wine studies at U.C. Davis Robert Smiley told the audience at the Wine Industry Financial Symposium in Napa. 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 were 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 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.
U.S. wine consumption increased 0.9 percent in 2008 to 294.7 million standard cases, with sales of imports decreasing 1.8 percent while domestics increased 1.9 percent, according to the Beverage Information Group. Bulk-wine exports of California wine increased 14 percent last year to 43.5 million cases, according to the Wine Institute.