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Silicon Valley Bank Predicts Consumers Will Pay Slightly More for U.S. Wine in 2017

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Premium Wine Sales Predicted to Grow Between 10 to 14 Percent

ST. HELENA, Calif. – January 18, 2017 – Silicon Valley Bank (SVB) released its annual State of the Wine Industry Report today. The 16th annual State of the Wine Industry report combines SVB’s expertise in the U.S. wine business with proprietary research to deliver forecasts and predictions for the year ahead in wine.

Highlights from the 2017 report show strong market conditions overall and identify notable trends that may signal adjustments in consumption patterns and segment prices:

  • Wines sold between $12 and $25 will grow in demand as will high-end luxury wines with an established brand. We expect to see small price increases in these segments, with volume and price drops for bottles priced under $9.
  • Sales growth is predicted between 10 to 14 percent for the premium wine segment. The confluence of better retail conditions, strong consumer demand and good supply will collide to deliver improving industry performance.
  • Overall supply is balanced with shortages of high-quality pinot noir and cabernet, but excesses are evident in certain non-core varietals and for grapes destined for lower-priced wine.
  • Slightly higher per capita consumption can be expected if economic conditions continue to improve despite retiring, wine-loyal baby boomers being replaced by less affluent millennials who are ambivalent about their alcoholic beverage of choice.
  • Winery acquisitions to remain active through 2017.
  • Farm labor supply and costs will be the dominant concerns in the wine business in 2017.

“We foresee a strong year ahead for the wine industry, particularly in the premium wine segment, with small price increases in the $12-25 bottle and luxury wine categories,” said Rob McMillan, founder of Silicon Valley Bank’s Wine Division and author of the report. “However, critical labor issues will be the dominant concern this year. The reality in the wine business today is that the labor force is inadequate in every growing area, which is leading to increased costs and more incentive to mechanize.”

Additional findings and predictions for 2017:

  • Import growth in lower premium price points is expected, due to a strong and strengthening U.S. dollar, available foreign supply, foreign in-country marketing support and willing millennials.
  • Millennials are beginning to affect the lower price range of premium sales. Their presence is most visible in the $8 to $11.99 red blend category, but they will gradually move away from blends and into varietal wines or imports as their incomes improve.
  • Total harvest in California for 2017 is predicted to be 3.95 million tons crushed, 7 percent above 2016.

McMillan is discussing the annual report and the state of the wine industry in a live videocast online today at 9:30 a.m. Pacific time with Amy Hoopes, chief marketing officer and executive vice president of global sales at Wente Vineyards, Dan Leese, president of V2 Wine Group, and Paul Mabray, vice president of social media and reputation management at Avero. A replay of the discussion will be available after the event.

Read the full report here: http://www.svb.com/wine-report/

About Silicon Valley Bank

For more than 30 years, Silicon Valley Bank (SVB) has helped innovative companies and their investors move bold ideas forward, fast. SVB provides targeted financial services and expertise through its offices in innovation centers around the world. With commercial, international and private banking services, SVB helps address the unique needs of innovators. Learn more at svb.com.

Silicon Valley Bank’s Wine Division

Founded in 1994, SVB’s Wine Division offers financial services and strategic advice to premium vineyards and wineries. With one of the largest banking teams in the country dedicated to the wine industry, SVB’s Wine Division has offices in Napa and Sonoma counties and primarily serves clients in the fine wine producing regions along the West Coast of the United States. Learn more at www.svb.com/winedivision

Silicon Valley Bank is a member of SVB Financial Group. ©2017 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB>, SVB Financial Group, and Silicon Valley Bank are registered trademarks.

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1 COMMENT

  1. Wine industry experts predict up to half of wineries will sell in the next five years. This prediction is an important consideration as it denotes growing supply potential. I believe half of these wineries would like to be sold in the next five years, however the harsh reality is that the number of SOLD wineries will be much smaller. Business models are changing and there is a finite, shrinking number of winery buyers, especially for small to medium wineries.

    I talk with winery owners on a regular basis. They are interested in selling, however they are not realistic when it comes to pricing and the exposure required to market a winery for sale. Even confidential winery listings experience some level of exposure.

    A medium to large size profitable winery with historically strong multiples should hire a Mergers and Acquisitions firm (M&A). An M&A firm often requires a one year contract and charges retainer fees in the six figures, plus a portion of the selling price. They can offer a confidential process of approaching qualified buyers.

    Other wineries should benefit from a team of professionals including an experienced real estate broker (generally working on commission only), an appraiser ($5,000-$10,000) and possibly an attorney and/or business advisor. Pricing is critical! Sellers who are willing to make the investment and get a professional “market value appraisal” by an experienced certified appraiser show buyers they are serious. This research gives weight to the asking price. I have been selling winery, vineyard and lifestyle real estate in California for over 15 years and its my opinion that less than 10% of wineries currently for sale are priced to sell.

    If you are considering a sale, involve professionals early in the process and price your winery to get sold before the predicted wave hits.

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