Will California North Coast fine wine pass a ‘tipping point’ in 2018?
Two key matters on the horizon for the fine-wine business in the North Coast in 2018 are whether fine-wine sales will continue the strong, steady climb and the possibility of another large direct-to-consumer market opening nationwide.
Some industry analysts have been warning that the wave of wine sales growth the industry has been riding may be subsiding, based on certain sales data and company financial results.
Rob McMillan, founder of Silicon Valley Bank’s Napa Valley-based Premium Wine Division and author of an oft-cited industry report and forecast each Januaryrecently wrote on his SVB on Wine blog that the wine business is at a “tipping point” of decelerating growth in sales of premium-priced wine, generally considered to be retail-priced at more than $9 or $10 per standard 750-milliliter bottle. He was quick to remind his readers and the Business Journal that declining growth doesn’t mean declining sales.
“We went through a fairly good growth period postrecession,” McMillan told the Journal. “Since the end of 2015, we have noticed the growth rate has been growing slower in a lot of (price) segments, not just high-end wine.”
He pointed to store checkout-aisle scan data from Nielsen that shows a downward trend in sales growth for wine since January 2016, from nearly $250 million added that quarter to $50 million in May of this year. Sales in the $9–$12 segment actually declined through the first-half of this year, and the $12–$15 segment just remained in positive territory.
With a month still to go in the key retail period of October, November and December (often shorthanded as “OND”), the best estimate is for 2.5 percent growth in 2017 U.S. wine sales volume overall, according to Jon Moramarco, managing director of BW 166. The Santa Rosa-based industry consulting firm co-publishes closely watched The Gomberg Fredrikson Report and other drinks-business analytics.
“That’s slightly less than the trends over the last 15 years, that have been about 3.5 percent,” Moramarco said. A forecast on December wine sales, and full-year results, is expected to be released in mid-January, followed by a report on official data in late February or early March.
Most of the growth has been driven by wines retailing for over $12 a bottle. There has been some softness in sales for low-priced wines, under $6.
“In general, the market is healthy, especially when you’re talking about the type of wines produced in the North Bay,” Moramarco said. North Coast wines typically have a suggested retail price of $15-plus.
Whether North Coast wineries will have too much or not enough wine from the 2017 harvest to satisfy sales growth will take a few months to sort out, McMillan said. Vintners have told him inventories of wine appear on par with demand, changes could also affect continued strong growth in pricing for choice North Coast grapes and the vineyards that produce them.
“Growth in grape prices in the last five years may have hit a natural apex,” McMillan said. “It would not say they will drop, but we will likely see a flattening. And they likely will for real estate, as well, but that’s partially driven by (merger and acquisition) activity.”
Major wine M&A players have made big buys in the past few years and now are working their prizes into their operations.