NORTH COAST -- The high-end part of the wine industry will start to recover by the end of this year, with revenue growth this year for wines retailing for more than $20 a bottle of 8 percent to 12 percent from that of last year, according to an economic forecast released today by Silicon Valley Bank.
The "muted and long process" of economic recovery will come this year as the nearly two-year luxury consumer "trading down" trend to less-expensive wines reverses, distributors halt deep discounts of higher-end wines in the third quarter and trade sales channels restock, according to report author Rob McMillan, founder of the bank's premium wine division.
"Prices have reset to lower tiers, and it will take some time to fully recover to the point which has been built during the previous 15 years," he wrote.
Consumers already have adjusted their levels of spending and are now "trading sideways and bumping along the bottom of a recovery," Mr. McMillan wrote in the 23-page report.
"But as the year progresses, we have every reason to believe the consumer will start trading up again," he wrote, noting that consumers will gradually feel comfortable spending more on wine than in 2009.
Fine wine revenue decreased 3.8 percent last year, compared to 2 percent growth in 2008 and 22.3 percent in 2007, according to Silicon Valley Bank research.
Among the number of factors slowing the industry's recovery are high unemployment that is lagging government-led economic growth in recent quarters, reduced business spending on entertainment, restaurant adjustments to value-minded consumers and larger-scale economic factors, according to the forecast.
Yet barring any secondary economic recession, profitability for family run wineries will continue to be soft through 2013 as grape contracts inked at high prices before the current recession are adjusted to lowered bottle prices, Mr. McMillan said. That will create a challenging sales environment for all but the most sought-after North Coast wine grapes, according to Mr. McMillan.
Read the full report at www.svb.com/Publications/Sector-Trends/Wine-Industry/2010-2011-State-of-the-Wine-Industry-Report-(PDF)/.