[caption id="attachment_52822" align="alignnone" width="500" caption="More than three-quarters of West Coast fine-wine vintners are good to strong financially and are expecting a healthy year for sales. (click to enlarge)"][/caption]

ST. HELENA -- After strong sales growth last year, U.S. makers of fine wine could see somewhat moderated growth this year as an improving domestic economy and shrinking supply of grapes and wine may allow planned luxury bottle price increases stick in the marketplace, while global economic problems together with an increasing supply shortage may boost imported wine sales for the next few years, according to a highly watched annual wine industry forecast released Tuesday.

Sales grew 12.2 percent in 2011 for U.S. makers of wine primarily retailing for more than $20 a bottle, up from 10.8 percent in 2010, according to Silicon Valley Bank's annual State of the Wine Industry report, which has a benchmarking index of client financial data. Growth for 2011 was forecast to be 11 percent to 15 percent.

The bank projects fine-wine sales growth this year could ease to a still-strong range of 7 percent to 11 percent, according to lead report author Rob McMillan, founder of the institution's Premium Wine Division. A possible bottoming of U.S. home-sale prices this year combined with more than 20 months of retail-sales growth are encouraging signs that any economic recovery will spill over into spending habits of the important wine-buying demographic of middle-income consumers, he added.

"It's a big improvement from where we were," he said in a webinar with clients about the 29-page report on April 17.

Sales growth for the bank's fine-wine clients plummeted in 2008 from a high of 22 percent in 2007 to 2 percent in 2008 and negative 3.8 percent in 2009.

Profitability has been recovering from 2008, but the effects of increasing grape and wine prices are showing. Pretax profit fell from 16.3 percent in 2007 to 9.5 percent in 2008 and 2.2 percent in 2009 but shot back up to 6.7 percent in 2010 as wine sales rebounded, according to the bank report. Last year though, pretax profit eased to 6.1 percent, mirrored by a slightly moderated recovery in gross margin to 53.2 percent last year from 53.7 percent in 2010.

"It probably will get worse as grape prices continue to rise," Mr. McMillan said.

The slow U.S. economic recovery from 2008 compared with the quick rebound from the recession and grape glut of the early 2000s has hit the finances of small family-owned vintners hardest and made it difficult to reclaim bottle prices of 2007, Mr. McMillan said. 

Good news for smaller wineries, he said, is the shrinking supply for the wine business can help producers reduce bottle price reductions in the marketplace and gain more attention from distributors and wholesalers. And a growing "fifth column" of information technology service providers, ecommerce solutions, fulfillment companies and hybrid wholesaler distributors is expanding greatly the direct-to-consumer sales options these small-scale producers depend on, according to Mr. McMillan.

Among the Pacific Northwest regions reporting they were more long than short were wineries in Mendocino County, which 14.3 percent more saying they had too many grapes than not enough.Based on nearly 500 responses to the bank's survey of wine industry conditions on the West Coast in January, vintners in California coastal wine region say they are already short on grapes, with 16 percent more in Sonoma County saying they were short on grapes than in excess and 8 percent more in Napa County saying they were short than long.

As supply tightens, builders of proprietary and private-label lower-priced brands based on an ample supply of inexpensive bulk wine and grapes not under multiyear contracts will find it more difficult to maintain that model, according to the report. Similarly, as wineries become less motivated to move excess bottled inventory, they will have less use for the number of flash websites and retailers that sprung up since 2008 to sell cases quickly at huge discounts.

The Silicon Valley Bank report is available at www.svb.com/2012-wine-report.Winegrape shortage could last six to eight yearsApril 9, 2012

After nearly 10 years of oversupply and low prices, California winegrapes and bulk wines are suddenly in a position of scarcity. Wineries are scurrying to find grapes and secure vineyard assets, while negociant wineries see their wine sources dwindling. How did we come to be in this situation, and what lies ahead for growers, wineries and consumers? [read more]