Napa, Calif.—Each year, the Wine Industry Financial Symposium presents the results of a survey of wine industry executives conducted by Dr. Robert Smiley of the University of California, Davis, Graduate School of Management. Smiley shares the results of the study, completed with graduate research assistant Nicole Pedro, on Tuesday morning. Smiley and Pedro interviewed 24 executives—most of them winery leaders including Joseph Gallo of E. & J. Gallo and Jay Wright of Constellation Brands—but also a few others including Mel Dick of the major distributor Southern Wine & Spirits and William Deutsch of WJ Deutsch & Sons. Fully 85% of the respondents are from the coastal region, with 58% from Napa and Sonoma counties. Interesting quotes from the respondents (given anonymously, of course) comprise much of the presentation, with numerical summaries included for some topics. Survey results Most respondents are observing grape shortages and dealing with them by paying higher prices for grapes, establishing and/or extending grape contracts with growers, sourcing wines or grapes from offshore and/or utilizing a broader appellation. Some are planting (and buying) new vineyards. Most survey respondents say they are observing margin compression. They are attempting to improve margins by increasing wine prices where feasible, reducing operating costs, improving operating efficiencies and emphasizing their relationships with growers. Respondents have varying opinions about whether consumers will return to buying high-priced wines at the levels seen in 2006-07. Many believe consumers will slowly increase purchases of high-priced brands as the economy recovers with an increased focus on quality and authenticity. However, others feel that the previous levels of conspicuous consumption will not return. Many respondents note that consumers have traded down and may have “reset” their wine preferences at lower price points Nevertheless, some respondents note that they already are seeing improvements in sales of high priced brands. None of the survey respondents claim to be experiencing winery labor shortages, but most respondents are observing vineyard labor shortages. In response, they are increasing wages and benefits to attract employees, using labor contractors and increasing the use of mechanization. Hottest issues for the future The executives’ top concerns (in order) include globalization and competition from imports, government regulations (especially of labor and environmental issues), availability of water and distribution and retail consolidation. Respondents also are concerned about taxes, competition for land, climate change, packaging innovation and supply cycles of shortage and surplus. Among the issues Smiley quantified, 87% of the executives predict improving growth and profitability, a decrease from 92% last year. Many (63%) think consumers are looking for values and deals, while 61% believe consumers like to try new things—varieties, tastes, regions and other brands. About half of respondents find consumers looking for affordable luxury, while 42% see less brand loyalty. Only 40% think consumers are using social media to make purchasing decisions, with the highest impact among the cheapest wines. Top varieties The respondents continue to see strong Cabernet Sauvignon sales, followed by Pinot Noir and red blends; surprisingly, red Zinfandel comes next, followed by sweet reds. Merlot and Syrah trail the pack. Likewise, Chardonnay is strongest among whites, followed by fast-rising Muscats, then Sauvignon Blanc and Pinot Grigio. White Zin is seen as the weakest among white wines. Respondents also believe the strongest growth will be in the $10-$14 and $14-$20 segments, with $3-$7 the slowest growing category. Three-quarters are focusing more on consumer-direct sales, while almost as many are investing in infrastructure, reducing costs of operations and investing in more technology. Two-thirds are increasing grape contracts, while 55% are looking for alternate means of distribution and 34% are buying vineyards. Most don’t find social media very important to their companies. Asked to rate the importance from one to five, they rate Facebook at 2.5, with Twitter and their company blog at 2.27.
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