Report: Fine-wine sales to grow 7 percent to 11 percent in 2012

[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.

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