A good-news, bad-news forecast for the domestic wine industry from wine lending giant Silicon Valley Bank contains mainly good news for restaurants. Flat prices, good quality and a flood of bulk wine imports should enable operators to hold wine prices steady across most price points in 2013, keeping restaurant wine program profits intact.
That’s the gist of the Silicon Valley Bank’s annual State of the Wine Industry report, as viewed from the restaurant operator’s perspective. The bank bases its analysis on “its in-house expertise as one of the largest bankers to the West Coast wine industry for nearly 20 years, a proprietary database of more than a decade of wine industry financials, ongoing research and a survey of 450 West Coast wineries.”
It’s a unique data set that only a lender could compile. The report’s author, Rob McMillan, founder of Silicon Valley Bank’s wine division, sees the results as a mixed bag for wine producers.
“While we are quite optimistic about the future prospects in the U.S. wine business, a combination of events will continue to hold back robust growth in 2013,” he says. “Economic uncertainty, slowing domestic GDP, lack of economic leadership worldwide, aging boomers, and a heavy 2012 harvest provide headwinds against forecasting higher growth.”
Here are some the top-line conclusions from the SVB report.
Raising a glass to American-made wines
• The general financial condition of the wine industry continues to improve at a slow and steady pace.
• 2012 produced the rarest of events: large yields coincident with outstanding quality across all Western US growing regions.
• Sales growth in fine wine is predicted to be in the range of 4-8 percent in 2013, which is a lower rate of growth than in the previous three years.
• Wine businesses expect to increase bottle prices slightly; however, SVB believes that will prove difficult in 2013.
• Winery gross and net profit will be negatively impacted in 2013 due to higher grape costs.
• Inventory is balanced; yet grape planting will be restrained compared to the same point in prior cycles.
• The purchase volume of wine grapes and grape pricing will largely be flat compared to 2012.
• Mergers and acquisitions of vineyards and wineries will continue at a record pace in 2013.
• Massive bulk imports will continue to dominate the lowest price point wine categories.
• Planting in grape growing regions is and will continue to be more restrained versus prior cycles.
• Direct-to-consumer sales will continue as the largest growth channel for most wineries.
The best news going forward may be the amount and quality of grapes West Coast winemakers harvested last year. Restaurants operators will be smiling when it’s time to pop the cork on 2012 vintages that features “large yield coincident with outstanding quality.” In a flat pricing environment, that’s as good as it’s going to get.
