The wine industry is transitioning to a period of growth for the first time in several years, according to a report released Thursday by Silicon Valley Bank.
Sales of fine wines priced $20 and up are expected to grow by 6 to 10 percent over the next year, said Rob McMillan, executive vice president and founder of Silicon Valley Bank's wine division.
“That's the first increase we've put in place for three years now,” McMillan said Thursday during an online chat about the state of the industry.
For several years, the bank has accurately predicted declining sales for that segment, but that outlook is changing, he said.
Wine prices will remain stable because wineries are not passing on recent higher costs for grapes and bulk wine to consumers, the report said. However, that reluctance to raise prices will cut into winery profits this year, the bank forecast.
“There won't be a shortage of good wines, so that's a victory for the consumer,” McMillan said.
After two consecutive enormous harvests that broke or nearly broke records, grape prices softened a bit on the spot market toward the end of the 2013 harvest, said Glenn Proctor, partner in Ciatti Company, a wine and grape brokerage.
“There's a little bit of a hangover from last year's crop,” Proctor said.
With the extra grapes, wineries are expanding by starting new lines, Proctor said.
Even so, the financial picture at wineries hasn't been outstanding. Pre-tax profits fell to 5.4 percent last year, down from 6.9 percent in 2012, according to Silicon Valley Bank research. Gross margins fell to 52.6 percent last year, down from 53.4 percent in 2012.
Prices will remain stable in part because of changes to who is buying wine.
The industry may face headwinds as Baby Boomers, who have long been willing to open their wallets for good wine, see their purchasing power decline, the report said. Drinkers aged 50 to 60 buy about half the fine wine in the United States.