State of the Wine Industry 2013
Silicon Valley Bank’s “Crystal Ball”
Each year, we look forward to Silicon Valley Bank’s State of the Industry Wine Report. Last week, they presented their 2013 findings with a webcast hosted by Rob McMillan, founder of Silicon Valley Bank’s wine division and author of the report, Paul Mabray of VinTank, Tony Correia of The Correia Company and Mary Jo Dale of KLH Consulting.
Throughout the discussion, the panelists provided detailed statistics and figures for retail trends, data on consumer behavior, as well as projections for how sales might shift and recommendations for how businesses can keep up. The wine report is a must-read for anyone in the wine industry, and the webcast is a must-see, as it helps contextualize the data and provide actionable suggestions for how wine businesses can leverage these finding to make better informed decisions in 2013.
High-level findings from the report include:
- The perfect harvest: a perfect growing season produced a rarity, very good yields AND great quality. It’s no exaggeration to call this vintage perhaps the best ever for the West Coast as a whole.
- We have entered a period of domestic economic stagnation that should reset our view of growth, business returns and prices for years to come still.
- SVB’s prediction of sales growth in fine wine will drop fort he fourth consecutive year to a range of 4-8 percent, but it’s still growth.
- The general financial condition of the wine industry is improving at a slow and steady pace and there is a strong belief that 2013 will be seen as a good, but not a great year financially.
- Gross and net profit of wineries will be negatively impacted in 2013 due to higher grape costs.
- The euro will lag the U.S. recovery and the currency will weaken, leaving an opportunity for more bottled imports and additional pricing competition.
- Grape planting will be restrained compared to prior periods when supply was in balance.
- Higher price point wines report particularly short inventory positions.
- There are broad expectations in the wine business that bottle price increases can be taken. We believe increases will prove difficult, particularly early in the year.
- Wineries that expressed having the most difficult year were often in smaller production models with average retail pricing in the range of $20-$29.
- For those wineries that purchase grapes, there is a majority view they will purchase more tonnage in 2013 at about the same price per ton. We believe the purchase volume of wine grapes and pricing will largely be flat versus the end of 2012. Some lower priced bulk will be available early in the year because of the high yield.
- Harvest was quite large estimated at 3.7 million tons by most, though we at SVB suspect it was a record yield approaching 4 million tons.
- M&A and vineyard acquisitions will continue at a record pace in 2013.
- Massive bulk imports will continue to dominate the lowest price point wine categories.
- Direct-to-consumer sales will continue as the largest growth channel for most wineries.
- Fine wine producers were unable to pass on higher costs to consumers or recover higher pricing from prior periods.