Wine executives bullish on future

NAPA — Despite the sluggish economic recovery and ongoing pressure to cut prices, wine executives are more confident about the future today than at any time in the last four years, according to a survey released Tuesday.

The survey, conducted by UC Davis, found that 53 percent of wine executives believe their profits will increase this year and 74 percent predict profits will grow in 2012.

Overall, 71 percent said the health of the wine industry is improving, a level of confidence not seen since 2007, said Robert Smiley, dean and professor emeritus at the UC Davis Graduate School of Management.

The yearly survey was released Tuesday at the 20th annual Wine Industry Financial Symposium in Napa, which drew more than 250 attendees from wineries, vineyard operations, banks and institutional investors.

Smiley said the supply of wine grapes has tightened in California, with the 2011 crop expected to be 10 percent lower than normal. Wine executives believe the short supply will continue for several years, he said.

While executives predict that demand for grapes will outpace supply, most believe that wine discounting will continue. Wine consumers have grown accustomed to finding good buys, and retailers have found that discounts draw shoppers into their stores.

"We're optimistically coming out of this recession, but people still enjoy a deal," Smiley said Tuesday. "Everyone's optimistic that prices will start to firm up, but there are definite fears of a double-dip recession."

John Gillespie, president of the Wine Market Council, said cash-conscious consumers will continue to "trade down" from higher-priced to lower-priced wines.

Sales of wines priced at more than $20 per bottle have grown recently, but some of those consumers used to be purchasing $50 bottles of wine, Gillespie said.

In addition, recent college graduates are losing ground on wages, leaving them with less disposable income, Gillespie said. He found that consumers in the 26- to 34-year-old age group are drinking more wine — and drinking it more often than their younger counterparts who are of drinking age.

Exports to growing markets like China are a potentially lucrative opportunity for California wineries, but vintners have much work ahead to develop brand recognition, several speakers said.

"There are over a million millionaires in China, and they like to spend conspicuously, but unfortunately they spend money pretty much on French wines," said Tom Selfridge, winery consultant and president emeritus of Hess Collection. "So I think that's our challenge, is to work our way into that category."

Consumer awareness of California wines in China is low, and a popular perception is that California wines are too expensive or lower in quality than French wines, said Dennis Barnett, president of LS2 Wines International.

Barnett called the Chinese market a huge opportunity for the California wine industry.

"We have some work to do," he said.