The Recovering Wine Market

The recovering market for fine wine

Almost every day, a report seems to surface with a prediction about when the fine wine market is going to recover. No one expects a return to pre-2008 levels anytime soon, but the outlook has been getting rosier in recent months.

Rob McMillan, founder of the Wine Division for Silicon Valley Bank, has come out with his annual forecast on the future of the industry. He sees the beginning of a “long-term, steady growth phase,” and expects fine wine sales to grow 11-15% in 2010 (they were actually up 10.8% in 2010, but that increase was on top of an all-time recent low). While McMillan expects that “the remaining wounded winery players will either recapitalize or sell over the next 18 months,” he sees a steady stream of investors to replace them.

This is good news, since Silicon Valley Bank would be one of the institutions involved in wine country lending. Much depends on the overall state of the economy, of course, and one of the wild cards is how you define “fine” or “premium” wine. Most consumers would say the $20 threshold is critical, but for many Napa and Sonoma wineries the magic retail figure is closer to $50 (anything over that has, in recent years, fallen into the so-called “dead zone”). Restaurant sales are a key factor in this equation, with declining markups allowing customers to experience better wines than before.

McMillan also cites numerous potential pitfalls. Grape prices have been flat over the past few vintages, and are likely to remain so. The baby boomer generation is crucial to this recovery, and much of their disposable income depends (at least psychologically) on the state of their investments and retirement accounts. Then, there are challenges to direct shipping that could short-circuit any recovery in the wine industry. HR 1161, a bill currently making its way through the House, would make it almost impossible for Americans to purchase wine over the Internet and through the mail; if it passes, many smaller California wineries would be forced out of business.

Still, the future looks brighter than it has recently, and many industry insiders are betting on a more savvy and discerning consumer to lead the way.

 

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