Wednesday, January 16, 2008

Wine Industry News - Which consumer are you?

Wine & Spirits Daily

January 16, 2008

Imported Wines Face Big Headaches

Much like spirits, the wine industry looks like it's headed for an interesting year. Strange industry trends tend to erupt when the economy is questionable, and wine is no exception. One trend that's emerging is climbing import prices. This of course can be good news for domestic wines but not so great for importers, particularly importers of smaller brands. The rate of growth for imported wines slowed in the four weeks to December 2, according to IRI scan data. Value of overall wine grew 4% in the four week period, while domestic wines grew 4.8% and imports grew only 1.5%. Domestic dollar share of the category grew 0.6% and imported dollar share declined -0.6%.

Volumes of domestic table wines grew 1.5%, which suggests that consumers were buying more expensive wines. Imports, meanwhile, were down -1.1% in volume. During the four weeks, domestics gained 0.4% of volume share and imports lost -0.4%. November trends seem to bode well for domestic wines. Could this be a foreshadowing of bad tidings for imports? Many in the wine industry, particularly importers and retailers, say prices for European and Australian imports are on the rise due to a declining U.S. dollar and droughts in Australia. As a result, sales are expected to suffer and domestics are expected to look more attractive to U.S. consumers.

EUROPEAN IMPORTS. Many retailers and importers of European wines say they have swallowed supplier price increases during the holidays to drive consumer traffic and help prevent "fickle" wine consumers from switching to less expensive brands. As you'll recall, the majority of wine and spirits sales are made during the holidays.

French imports were down -3.4% in dollar sales in the four weeks to December 2. Volume declined a whopping -8.4%. For awhile it looked like France was posed for a comeback, but perhaps the weakening dollar and continued "freedom fries" sentiment has changed things.

AUSTRALIAN IMPORTS. When it comes to the Australians, however, severe droughts have produced a smaller harvest which may push prices too high - and all this after Australians braved grape gluts and cheap bulk exports for years. Consumers that have come to rely on cheap Australian imports - we're talking price, not quality - may trade in their bottle of Shiraz for a cheap Chilean import or inexpensive domestic wine. Australian wineries face two options. One, they can cut profit margins and keep brands competitive, or two, companies can raise prices and risk losing market share of wine exports.

"Faced with volume shortage (and related grape price inflation) selling price increases will be necessary to protect profits," says Andy Kovacs of Macquarie Research in a note last November

Dollar sales of Australian wines in November declined -3.8% and volumes were down -2.4%. Dollar sales of wines priced $5-$8 were down -6.5% and volumes were down -5.7%. Similarly, sales of wines priced $8-$11 were down -6.6% and volumes were down -9.1% The rate of growth for Australian wines has slowed for the past several months, so will the trend continue or will Australian imports manage to bounce back?

DOMESTICS AND EVERYONE ELSE. Dollar sales and case volume of California wine grew 3.7% and 0.9%, respectively, in the four weeks, but shares were down slightly (-0.2%). Oregon and Washington wine value grew 19.1% and 18.8%, respectively. Oregon volumes were up 7.1% and Washington volumes were up 15.8%. Not too shabby.

South African table wine continues to show the highest rate of growth for imports, up 57.4%, followed by New Zealand, Argentina (29.7%) and Portugal. Chilean wines, which are expected to be big, saw dollar sales rise 3.6% in November, but volumes were down -5.1%. Problems with the peso have reportedly hurt exports. (Sound familiar?)

Dollar sales of red wine grew 3.6%, while volumes were up only 0.6%. Surprisingly, white wines grew 6.1% in value and 3.6% in volume. The winter months usually encourage wine drinkers to reach for a red varietal, but it appears consumers were mainly in the mood for white wine in November.

Major wine varietals experienced the following dollar sales growth or decline in the four week period: Cabernet Sauvignon (5.7%), Chardonnay (3%), Sauvignon Blanc (12%), Merlot (-3.7%), Pinot Grigio (13.3%), Pinot Noir (15.7%), Syrah/Shiraz (-6.7%), White Zinfandel (-4.2%) and Zinfandel (17.3%). Not too bad considering that most the varietals, excluding Merlot and White Zin, showed growth. White Zinfandel has been in the red for some time now, and Merlot seems to still be recovering from the "Sideways" backlash in 2005. French Champagne's value grew 2.9% and volume increased 1%.

When it comes to price segments, super-premium ($15-$20) reigns supreme, jumping 15.4% in dollar sales. Ultra-premium ($20 and up) grew 10.4% and premium ($11-$15) wines increased 9%. The rate of growth for wines priced below $3 to $8 was in decline. It appears that rumors of a recession and failing economy has yet to negatively effect trading up in the wine industry. It's an interesting trend to note since spirits seem to be having more problems in that arena.

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