A growing base of wine drinkers trading up after the recession will bolster growth.
Los Angeles, CA (PRWEB) August 19, 2012
The Wineries industry has a growing base of wine drinkers, particularly among the millennial generation. Rising consumption is expected to increase revenue at a rate of 4.6% per year on average in the five years to 2012. During the economic recession, however, demand shifted to lower priced wines, and sales declined. In 2009, revenue fell 2.1%. After rebounding strongly in 2011, revenue is expected to grow at a more moderate rate of 4.4% in 2012 to total $16.6 billion. “Alcohol consumption is expected to decline somewhat during the year, mirroring the improving economy,” according to IBISWorld industry analyst Sophia Snyder. Rising wine prices due to grape shortages will also dampen demand.
Lower price points have benefited the larger players that are able to produce in bulk. “Meanwhile,” says Snyder, “smaller wineries are struggling to cope with consolidation among suppliers, wholesalers and retailers.” Consolidation throughout the supply chain is expected to continue through 2017 as producers try to work with larger wholesalers and strive to meet increasing demand from consumers, particularly for low- to medium-priced wines. As consumers started to “trade up” in 2011, operating profit increased. Profit is expected to decrease in 2012 as producers struggle to pass along all of the rising costs of grapes. And despite the consolidation trend, new wineries are still entering the industry. During the five years to 2012, the number of operators is expected to increase at an annualized rate of 4.3% to total 7,069.
The Wineries industry has a medium level of market share concentration; four producers – E&J Gallo Winery, Constellation Brands Inc., The Wine Group Inc. and Treasury Wine Estates – hold about half of the industry's US market share. Concentration increased during the five years to 2012 as a result of larger corporations acquiring some independent vineyards and wineries, especially in the Napa Valley and Sonoma County. However, since 2008, there has been a noticeable absence of winery acquisitions by publicly traded beverage and consumer companies. This absence is not by coincidence. Industry companies had to engage in a thorough analysis of the profitability of each of their consumer divisions during the economic downturn. This resulted in a decreased willingness to acquire additional brands and divisions. The United States is arguably wine's the most attractive market for producers that aim to establish significant market share. Despite being a highly competitive industry with thousands of wineries, it has a well-developed premium segment and growing consumption. It is also more protected from market entry compared to other geographic markets due a three-tier distribution system similar to that of beer, and a complicated regulatory framework that benefits those with well established distribution networks. So, while easy to become a producer, it is quite difficult to obtain access to consumers for start-ups and up-and-coming importers.
For the moment, smaller wineries are finding refuge in direct-to-consumer wines. Retail and on-premise (i.e. restaurant and bar) sales fell sharply during the economic recession, so many producers turned to selling via the internet and in tasting rooms. Regulations for direct sales vary by state, though, complicating this distribution method. Pending legislation is likely to increase hurdles in the coming years, which could negatively influence industry profit. In another blow to profit, grape prices are forecast to continue their upward climb. While revenue is projected to rise through 2017, profitability is projected to decline over the period.
For more information, visit IBISWorld’s Wineries in the US industry report page.
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IBISWorld industry Report Key Topics
Wineries make a beverage made of the fermented juice from various kinds of grapes, usually containing 10.0% to 15.0% alcohol by volume. Wineries are involved in any of the following: growing grapes and manufacturing wines and brandies, manufacturing wine and brandies from grapes and other fruits grown elsewhere, and blending wines and brandies.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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