Despite consumers "trading up," the rising cost of grapes will likely cause declines in profit
Los Angeles, CA (PRWEB) June 19, 2013
The Wineries industry is enjoying a growing base of wine drinkers, particularly among the millennial generation. Rising consumption has increased revenue at a rate of 3.6% per year on average over the past five years. The industry has not been without its troubles, however; during the economic recession, sales fell and demand shifted to lower-priced wines, causing rapid revenue growth to stall in 2010 and contract 1.4%. Nonetheless, revenue rebounded in 2011 and grew strongly in 2012. “Mirroring the improving economy, wine consumption is expected to increases further in 2013, allowing revenue to rise a moderate 3.2% to total $17.3 billion,” says IBISWorld industry analyst Doug Kelly. Although operating profit increased in 2011 as consumers started to “trade up,” profit is expected to decrease in 2013 as producers struggle to pass along the rising costs of grapes. Lower price points have benefited the larger players that are able to produce in bulk. However, smaller wineries are struggling to cope with consolidation among suppliers, wholesalers and retailers. Despite the consolidation trend, new wineries are still entering the industry.
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 continue growing through 2018, profitability is projected to decline over the period.
The Wineries industry has a medium level of market share concentration; the top four producers hold about 49.6% of the industry's US market share. Concentration increased during the five years to 2013 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. According to Kelly, 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. There is much anticipation within the industry that 2013 and the following five years will see a noticeable increase in acquisition activity as the economy improves. Small to medium sized wineries will be acquired by larger operators, which benefit from greater economies of scale and scope. For more information, visit IBISWorld’s Wineries in the US industry report page.
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IBISWorld industry Report Key Topics
While this report primarily focuses on wine production, it also includes firms that produce brandies and ciders. Wineries in this industry grow grapes and manufacture wines and brandies; manufacture wines and brandies using grapes grown in other vineyards; and blend 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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