Bank: Fine wine sales to improve in 2010

<p>While the fine wine industry is suffering from slow sales, modest growth should return next year as the economy improves, restaurants restock their cellars and wineries lower prices.</p><p>Those are the preliminary findings of a new report issued Wednesday by Silicon Valley Bank, one of the largest lenders to the wine industry. The report gives a sneak peak at the bank’s influential “State of the Wine Industry Report,” due out in the spring. </p><p>Sales in the fine wine industry, defined as wines above $20 a bottle, were down between 4 and 11 percent at mid-year, but have improved slightly since then, according to the report. By year end, total sales will probably drop between 2 and 8 percent. </p><p>The slight uptick in sales in the second half of 2009, combined with other trends, convinced the bank that 2010 should be a brighter year for high-end wineries, said Rob McMillan, who founded the bank’s wine division and authored the report.</p><p>“We are seeing improvement in both luxury sales and fine wine even now, which leads us to predict positive growth in the business in 2010,” McMillan wrote. </p><p>A return to the double-digit growth rates the industry has enjoyed for most of the past decade, however, is nowhere in sight. The past 15 years of growth in the luxury goods market was an “aberration,” and wineries would be wise to adjust to the new reality, the bank said. </p><p>“‘When will the market return to normal?’ The answer is not very soon,” McMillan wrote. “Defining a new normal is more prudent than waiting for the old normal.” </p><p>Some financially weaker wineries have already run out of cash and were quietly bought out, and that trend will likely continue, McMillan wrote. </p><p>Others have adjusted by renegotiating contracts with growers, lowering farming costs, discounting the prices of their wines, and blending higher-quality wines from reserve programs to boost the quality of lower-priced wines, McMillan wrote. </p><p>Some of the most affluent consumers remain unaffected by the economy. But most, including the “aspiring affluent” consumer and Baby Boomers, have sharply pulled back their spending, some permanently. </p><p>By one estimate, the net worth of Baby Boomers has fallen 45 percent between 2004 and 2009. </p><p>“For many Boomers, a $50 bottle of wine is now permanently outside of their budgets and the fine wine industry will need to give more attention in marketing to the under 40 consumers,” according to the report. </p><p>But 2010 should be better in part because one factor that aggravated the 2009 drop is now over, McMillan said. Individuals, restaurants and distributors have actively trimmed their inventories over the past year, prompting them to temporarily scale back purchases of new wine.</p><p>“The de-stocking phase of this correction is largely complete, so producer level sales will improve slightly, even if there is no real change in consumer demand,” McMillan wrote.</p>