Winemakers look for high-end turnaround

NAPA — Many wine industry executives are hopeful that "frugality fatigue" has set in with wine drinkers, who traded down from luxury bottles to lower-priced wines during the recession.

But a sluggish economic recovery and shifting retail trends have led many executives to question whether consumers will open their wallets for higher-priced wines the same way they did before the economy soured.

The themes of optimism and economic uncertainty peppered conversations Thursday at the annual Wine Industry Financial Symposium in Napa, where the theme was "Thinking Positive — A Bright New Day for the Wine Industry."

"While certain economic aspects have improved, we're still operating against a background of uncertainty," said Danny Brager, vice president of the Nielsen Co., which tracks consumer spending trends. "With all of that consumer uncertainty, consumer confidence is low. Even over the past six months, it really, if anything, has declined."

Wineries and retailers are again raising prices in the vast majority of wine categories, but at the same time, promotion levels remain high, Brager said. Discounting continues in wines priced from $9 to $12 a bottle, and among those priced over $20 a bottle, according to Nielsen data.

"That's great for the consumer," Brager said. "Probably not so good for the supplier."

Consumers are still dealing with problems in the housing and job markets, and are paying more at the grocery store due to inflation, Brager said. Wine sales in restaurants and bars are growing, but the pace of growth softened in the second quarter of 2012, in part because of rising gas prices, he said.

Meanwhile, demand for wine continues to rise, even as the dynamics of how wine is sold are changing.

Chain stores are increasingly entering a market that was long dominated by independent retailers. Today, wine is sold at 172,000 retail outlets in the United States, according to Nielsen data. Over the past five years, the largest number have been added by Walgreens, Dollar General, CVS and 7-Eleven.

With more retailers offering wine, and more competition for space on their shelves, holding the attention of consumers is increasingly difficult. Craft beer is taking off. Wine growth is strong, but not as strong as the growth rates in the beer and spirits categories, Brager said.

The competition between wine companies "is as fierce as I've ever seen it," said Bill Cascio, vice president and director of winery relations at Glazers, a wine distributor. "I think the good news is that it's raising everybody's game."

Wine executives are reporting optimism about the future, said Robert Smiley, former dean at the UC Davis Graduate School of Management, presenting results of an annual survey of wine industry executives.

"We're going to move back, but slowly, and not all the way back for a long time," Smiley said. "We may not return to previous levels of conspicuous consumption."

(You can reach Staff Writer Cathy Bussewitz at 521-5276 or cathy.bussewitz@pressdemocrat.com.)