Wine sales ended 2011 on a positive note

Survey: Two-thirds had higher Q4 sales, 86% see growth through '15

By Jeff Quackenbush March 12, 2012
North Bay Business Journal
Sales of California fine wine ended 2011 on the upswing, and vintner margins are improving, according to a recent industry survey and new data on California shipments.

Estimates by Woodside-based industry consulting firm Gomberg Fredrikson & Associates of California table wine shipments revealed about 8 percent volume growth last year both in the $7- to $14-a-bottle mass-market segment and in the over-$14 segment.

Sales in the premium and superpremium price tiers were driven by hot-selling red wine blends and sweeter wines, particularly made from moscato grapes and a continued shifts in consumer demographics toward drinking wine, according to Jon Fredrikson.

For ultrapremium wines, largely retailing $14 to $25 a bottle, sales growth comes after more than a year of heavy discounting to bring back sales lost in 2008 through most of 2010 when trade buyers stopped buying and fine dining revenues were weak, he said. For example, grocer Safeway has been running a 30 percent wine sale with another 10 percent off when buying six standard-sized bottles, and alcoholic beverage chain BevMo offers basically a two-for-one wine deal.

"People can buy great wines at discounts, and that's certainly spurring sales," Mr. Fredrikson said. "In spite of tough times, enough people are drinking wine."

And ultrapremium vintners have been moving a lot of wine via cyberselling, he said. In addition to offering their email subscribers price and shipping discounts, wineries are increasingly turning to the ever-growing list of flash-sale websites, such as newly launched Last Bottle of Napa.

In the smaller market for wines retailing for more than $25, discounting that encouraged a big uptick in purchases in 2011 gradually reduced toward year-end, according to Mr. Fredrikson.

"These are people who have been pretty much unaffected by the downturn and were playing along with the general idea of not being ostentatious," he said. "There's still plenty of dealing going on."

The new Gomberg Fredrikson figures dovetail with results from a recent survey of 207 wine industry professionals by accounting firm Burr Pilger Mayer. Almost all survey respondents were from California, and 57 percent were from Sonoma and Napa counties. Seventy-one percent were grower-vintners, and 63 percent produced fewer than 10,000 cases a year.

Sixty-nine percent of the respondents said fourth-quarter sales dollars increased, and 67 percent sale case sales grew in that period.

Eighty-eight percent of respondents said their fourth-quarter gross margins were the same or better than those of a year before. Fifty-five percent said margins improved, and 30 percent of that group said they increased by more than 10 percent. Five percent said margins fell more than 10 percent.

"We were pleasantly surprised by how positive the results were in the fourth quarter, and the outlook in the next three years is very positive in sales and gross margins," said Steve Jannicelli, Burr Pilger Mayer senior manager for private company services and a business adviser in the firm's Winery & Vineyard Industry Group.

Eighty-six percent expected case sales growth in the next three years, 55 percent projected growth will exceed 10 percent and 9 percent expected no change. Gross margins will increase through 2015, according to 73 percent, but 22 percent foresaw no change.

The survey also found a direct correlation between financial planning and financial performance, he said. All the respondents who have been in the wine business for less than three years have crafted fiscal forecasts, but only 45 percent of those who have been in the business longer have.

"We're starting to see links between how long they have been in the industry to how well they're doing," Mr. Jannicelli said.

Another finding of the BPM survey was that a quarter of the respondents were planning to sell their wineries, 69 percent in more than 10 years, 20 percent in five to 10 years and 11 percent in less time.

Forty-three percent plan an internal transfer the business to a family member, 27 percent don't know how they'll get out, 23 percent anticipate selling to an outside party, 4 percent expect to close down and walk away and 3 percent foresee an internal transfer to someone not in the family.