Rob McMillin, founder of Silicon Valley Bank’s wine practice, issued his annual state of the industry report this morning, sharing findings and insights via a webinar/conference call. The report forecasts 7 to 11 percent growth for U.S. fine wine this year.
Here’s a link to the news release and the actual report, which is pretty wide ranging.
The slide below is my favorite one in this report, because it’s a quick snapshot of the financial health of wineries. Rob is with a bank that works with a large number of wineries. He’s got access to some great data.
“We do believe the financial condition of wineries is generally strong,” McMillin said. “The financial condition of wineries gets a lot of play in the press, but really, generally speaking the financial condition of the wineries is pretty solid." He said that to the extent that there is financial weakness, it’s with smaller wineries, which isn’t a surprise, given the difficulties of obtaining distribution for small wineries.
After two short harvests, grape prices are tightening. There’s tension because wineries haven’t been able to raise wine prices yet but growers are demanding more for grapes (modest bottle price increases are forecasted in the report).
“We’re not able to pass on that increase in price to improve the gross margin at the winery level at this point, and it’s probably going to get worse as the price of grapes continues to rise” McMillin said. “That said we saw 12.2 percent growth last year and pre- tax profit of a little more than 6 percent. That’s a big improvement over where we were."
The increased prices and tightening supply will likely lead to a decline in “flash sales” via the Internet, McMillin predicted, though he also said he wouldn’t be at all surprised if 2012 turns out to be a record harvest. He noted that many people are farming for higher yields.
The big unknown is how long the supply shortage is going to last.