s
s
Sections
Sections
Subscribe

NORTH COAST – Barring a worsened U.S. economy, the sales environment for North Coast fine wines could brighten further in 2011 after showings early signs of improvement this year.

"2010 results look good, compared with very weak results from 2009 and the second half of 2008," said industry analyst Jon Fredrikson of Woodside-based Gomberg Fredrikson & Associates.

Heavy discounting of wines originally selling for more than $25 a bottle, a "backbreaking" situation for hundreds of North Coast growers and producers, has boosted volume this year, he said. The likely smaller 2010 winegrape crop could boost demand for North Coast grapes in 2011.

Consumer spending and confidence to do so has been recovering this year from a plunge in the past two years. A key metric for a good portion of fine-wine sales, the National Restaurant Association's industry performance index, reached its highest level since September 2007, showing growth in same-location sales and traffic.

"Traffic, more than trading down to lesser-priced wine or from bottles to by the glass, was the issue," said wine marketing expert Christian Miller.

A big factor in that is the recession has hit the baby boomer generation, which has been the stalwart of luxury-wine purchases, proportionately harder than the Millennial and Generation X, Mr. Miller noted.

But it will continue to be tough getting wine through distribution channels to restaurants, stores and wine shops, according to Mr. Miller, owner of Full Glass Research and a founder of St. Helena-based market research firm Wine Opinions. The latter regularly polls trade professionals on industry conditions and their outlook.

"Wholesalers' sentiment regarding inventory and cost-cutting has improved versus 2009," Mr. Miller said. "But on balance, most tiers of the trade still reported higher inventories than lower in our early 2010 survey."

There are early indications that distributors still think they will have too much wine to sell in 2011, Mr. Miller added.

The wholesale tier of wine distribution has been consolidating rapidly for more than a decade, creating a "funnel" or "hourglass" in the flow of wine brands to market. Thousands of brands have to go through a few major wholesalers to reach a number of retail or on-premise venues.

Yet that bottleneck narrowed dramatically in 2009 as cost-conscious distributors "rationalized" their inventories, pushing inventory back on wineries or leaving a number of smaller producers without trade representation.

This will put even more pressure in 2011 on North Coast wineries to develop direct-sales revenue from tourism to tasting rooms or shipments to consumers' homes, according to Mr. Miller.

And the direct sales channel has been busy, according to Mr. Fredrikson.

"We have gotten reports from client wineries that the last couple of months have been strong in tasting rooms," he said. "People are out and buying again. If they have not been buying for a couple of years, people's cellars are run down, so they are restoring their inventories."

A few years ago, wine shops with heavy Internet-driven direct-shipping ventures were low on the Wine Market Council survey of where "core" consumers make purchases, according to Mr. Miller. Such "bricks and clicks" retailers were nearly even with wineries' websites last year and are growing in prominence.

It remains to be seen whether the increasing number of Internet-only wine stores will cause wineries to channel more sales toward them, Mr. Miller said.

The far-reaching effects in the wine business on the North Coast of just-in-time inventory strategies, such as opting to keep wine in bulk as long as possible before bottling or opting for bulk wine purchases over grape contracts, is a variation of the several-year business oversupply-shortage cycle, according to Steve Fredricks, president of Novato-based Turrentine Brokerage for bulk wine and grapes.

The Novato-based wine and grape broker has been busy since November fielding calls from buyers seeking wine to bottle in the next few months.

Whether wine buyers will be willing to pay more for bulk wine or start signing more grape contracts depends on how well wine sells in the fourth quarter of this year, Mr. Fredricks said.