Wine Executives See Industry Headed for Steady Growth, Survey Finds
September 26, 2005
The wine industry has emerged from the economic slump of the early 2000s and now is entering a new period of stable growth, according to a recent survey of top industry executives conducted by Robert Smiley, professor in the Graduate School of Management at the University of California, Davis.
Smiley will report on his survey findings, as well as results from a broader survey of more than 300 wine industry professionals, at 8:30 a.m. Wednesday, Sept. 28, during the Wine Industry Financial Symposium to be held at the Napa Valley Marriott.
"Perhaps the most important finding of the survey is that 74 percent of the CEOs contacted believe that the industry has entered a new cycle of growth, but one that will be quite different from the boom-and-bust cycles of the past," said Smiley. "They expect the past volatility of the industry to be tempered by globalization of the wine business, environmental and political impacts on the domestic market, and slower growth in the supply of wine grapes."
Survey of Wine Executives
In his seventh annual survey of wine industry executives, Smiley interviewed the heads of two dozen key wine operations, ranging from growers to producers to distributors. These executives noted that:
- An anticipated drop in prices, which would normally occur after an upswing, will not be as severe as in past years because increased planting costs, tighter zoning regulations, limited water availability and environmental concerns will discourage excessive planting of new vineyards. Such overplanting traditionally leads to oversupply of wine grapes and a drop in prices. Many wineries are also signing longer-term contracts with growers that tend to keep prices steady.
- Globalization of the wine industry is expect to continue, with more competition emerging from producers in Argentina, South Africa and New Zealand. Mergers and acquisitions are expected to at least hold steady and possibly accelerate.
- The big issues for the industry in five years will be environmental challenges, global trade, wine marketing, the appearance of wine as a commodity, tax issues, wine style and vineyard pests.
Smiley's industry survey also found that:
- There is little agreement on strategic directions.
- Some wineries are capping their growth.
- There is a growing movement toward using synthetic corks as a precursor to screw caps.
- The industry continues to experience distribution challenges.
Survey of Wine Professionals
The survey of wine professionals, now in its 12th year, included wine producers, wine grape growers, distributors, retailers and lenders. It is the largest of its kind in the wine industry. With most of the respondents generally upbeat about the future of the industry, the survey revealed industry expectations on profitability, case volume growth, business strategies for ensuring growth, changing popularity of wine varietals and consumer acceptance.
In fact, 77 percent of the wine companies represented in the survey said they expected to be more profitable this year than last. Surprisingly, lenders were the most optimistic about winery profits, while distributors and retailers were the least optimistic about their business profitability.
On pricing, the wineries in the Central Valley, as well as in Mendocino and Lake counties, appear to have suffered most in the past several years.
In projecting surpluses and deficits among red wine varietals, 52 percent of the respondents expect to see a shortage of Pinot Noir. Among white wine varietals, there is a greater expectation for a shortage of Sauvignon Blanc and Pinot Grigio this year, while expectations for a surplus of Chardonnay fell significantly from last year.
When asked what they see as important factors in securing a winery's future success, respondents from large wineries identified, in decreasing order of importance: controlling costs, maintaining and attracting good employees, dealing with distribution issues, maintaining and developing consumer loyalty, keeping a consistent grape supply and investing in marketing.
Smaller wineries said the two most important strategies for success are controlling costs, and maintaining and developing consumer loyalty.
More information on the two-day wine symposium, which begins Tuesday, Sept. 27, is available online at http://www.winesymposium.com.
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