Wine companies largely are caught between escalating costs of production and mixed perceptions of how much of the rising costs the market for finished wine will bear.
Those are among the topics five of the Bay Area's innovative wine entrepreneurs are set to tackle at the Business Journal's Wine Industry Conference on April 18.
[caption id="attachment_71696" align="alignright" width="162"] Cameron Hughes[/caption]
Cameron Hughes in 2001 co-founded Cameron Hughes Wines, a negociant wine producer. He took advantage of an ocean of wine available for purchase from wineries in bulk after ample plantings in the late 1990s and again as wineries shed inventory after the most recent recession to buy luxury-tier wine and create lower-priced brands.
[caption id="attachment_71692" align="alignleft" width="160"] Tom Klein[/caption]
Tom Klein has led Rodney Strong Wine Estates since his family purchased the winery in 1989. He took production upscale, shifted to Sonoma County grapes and acquired the Davis Bynum winery.
[caption id="attachment_71693" align="alignright" width="160"] Alex Ryan[/caption]
Alex Ryan has been guiding the flight of Duckhorn Wine Co. since 2000 and was promoted to the top spot in 2005, just two years before GI Partners acquired a controlling share. He was key to the launch of estate brands Paraduxx and Goldeneye as well as the launch of the Decoy label.
[caption id="attachment_71694" align="alignleft" width="160"] Christopher Silva[/caption]
Christopher Silva in 2003 became president and chief executive officer of St. Francis Winery & Vineyards, which focuses on Sonoma County chardonnay, cabernet sauvignon, merlot, and "Old Vines" zinfandel.
[caption id="attachment_71695" align="alignright" width="160"] Hugh Thacher[/caption]
Hugh Thacher in 1975 started San Francisco Wine Exchange. Arguably the oldest U.S.-based independent wine marketing company, it has a network of more than 125 regional sales managers, brokers and wholesalers.
They talked with the Business Journal about key drivers of cost and retail pricing, how they and markets are responding, and pricing impacts for exports and alternative sales channels.What's most affecting your costs and consumer prices?
Cameron Hughes: Right upfront is the three-tier system. Its labyrinthine inefficiencies are the greatest contribution to consumer pricing. Next biggest would be grape and bulk wine prices, which have risen unnecessarily high due to a perceived "shortage." We believe it is in actuality a balanced market, not a short market.
Dry goods have not changed much. Glass prices have moderated actually. Though transportation costs have increased significantly in the last five years, probably up 40 percent or more.
Tom Klein: The biggest factor that affects us is raising grape costs per ton on the production side, and on the sales-and-marketing side it is the discounts and allowances to distributors, restaurants and retailers. For consumer prices, the biggest issue has been the desired margins retailers hope to make, and there remains a wide dispersion of targeted gross profit margins across the retail environment.
Alex Ryan: The biggest factors affecting costs are labor and vintage grape-yield variations. 2012 was a high-yielding vintage, following 2010 and 2011, which were two consecutive low yielding vintages.
Consumer prices are driven by a desire to ensure that our consumers are able to get great luxury value in keeping with our competitor’s prices. Consumer prices are also designed to guarantee that each wine hits its appropriate consumer price tier. Decoy resides on the entry-level luxury tier, while Duckhorn Vineyards core wines rest in the mid- to upper-level luxury tier.