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Silicon Valley Bank, a provider of commercial banking services to the innovation sector and the wine industry, released its “Annual State of the Wine Industry Report,” which forecasts growth of U.S. wine for 2014 but a decline in future years.
"Despite news to the contrary in recent months, wine supply is in balance heading into 2014, and we expect the highest rate of sales growth since the recession, despite a tough economy," said Rob McMillan, founder of Silicon Valley Bank's Wine Division and author of the report, in a statement. "News is good for the consumer: Demand is up, supply is in good shape, and pricing is stable. For the winery, however, grape costs and flat consumer pricing means lower profitability."
The firm expects final numbers for the 2013 harvest to reach 3.94 million tons, which is the second largest harvest on record in California after 4 million tons were harvested in 2012, it says. In fine wine, sales growth is predicted to be in the range of 6-10 percent in 2014, which would mark the first increase in three years. Luxury wines and $10-$18 bottles will see greatest growth in demand, it adds. However, increased grape and bulk wine costs are not being passed onto the consumer, which will keep bottle pricing stable but result in winery gross profits being down, it states.
"While this year is ultimately expected to be a healthy one for U.S. wineries, if we peer into the future five to seven years, we believe the headwinds will increase significantly as more baby boomers retire," McMillan said in a statement. "Fifty- and 60-somethings purchase about half of fine wine in the U.S. As they retire and their purchasing power declines, the younger generation can't pick up the slack immediately, due to lower income and [their] proclivity to purchase more foreign wine. Astute fine wine producers will be adjusting their strategies accordingly."
The report is based on a survey of nearly 650 West Coast wineries, offering in-house expertise and ongoing research. It covers category trends and addresses current issues facing the U.S. wine industry. The report also offers unique data and observations that help wine business owners and managers think critically about their business strategies, it says.
To view the report in its entirety, visit www.svb.com/wine-report. To see an infographic with key findings and predictions from the report, click here.