Wine Industry Analysis

Topics: Wine, Wine tasting, Price Pages: 7 (2738 words) Published: March 31, 2012
The US winery industry had a growth rate of 4.7% between 2006 and 2011, and is expected to grow by a rate of 4.9% over the next five years [ (IBISWorld) ]. In California alone an average of 175 wineries have opened every year since 2000 [ (Richard Green) ]. The states of New York and Virginia have been major players in the US wine industry. The data shows that the demand for wine has been increasing at an exponential rate over the past 5 years. Average annual revenue for the wine industry is expected to be estimated at $20.2 billion through 2016 [ (IBISWorld) ]. The growth of the wine industry, particularly over the past 10 years, can be attributed to a few key drivers in the market. Per capita consumption of alcohol has increased consistently and is expected to grow. Wine and spirits in particular have surpassed beer, due to the growing trend in the US towards living a healthy lifestyle. Beer contains high levels of carbohydrates, which explains the drop in popularity in the market. The recent trend in the diet and food industry has revolved around cutting carbohydrates out of the diet. Wine and spirits in small amounts has been proven to actually improve the health of the consumer. The price of grapes over the past five years has dropped making it more attractive for winemakers to increase their supply and stimulate new entrants into the market. As of recently the price of grapes has been on the rise, which is expected to cut into the profits of wineries. The price of grapes is determined by how successful the harvest is, which weather and pests can affect. Typically, the winery will have a contract for a set price on the grapes in order to help stabilize the price, thus preventing unexpected swings in cost. The demand from beer, wine and liquor stores has been on the rise. These stores account for a high percentage of the wine sold in the US. The demand from bars and clubs has also been on the rise. The consumer sentiment index has increased, meaning consumers feel more confident about the future, and as a result spend more on luxury items such as wine. The strengthening of the dollar compared with the euro has cut the amount of wine being exported out of the US. Because of the exchange rate, US citizens have been able to purchase European wine at a cheaper price, thus having a negative effect in the marketplace on domestic producers. The industry is changing from having a few key players such as E. & J. Gallo Winery, Constellation Brands Inc., and The Wine Group, Inc., to being more fragmented across the United States.

The large US wineries benefited during the recession by being able to sell a lower price wine due to economies of scale. With the consolidation of suppliers, smaller wineries have struggled over the past few years. Despite the challenges faced by the smaller wineries, this segment of the market is expected to increase by 5.5% annually on average [ (IBISWorld) ]. During the recession the sale of wine in restaurants was on the decline as people ate out less, although small wineries were experiencing increases in direct to consumer and tasting room sales. Wine sold in restaurants is typically marked up considerably, which would explain the trend. Sales over the internet have also been on the rise due to changes in the laws. Many wineries have tapped into social media networks such as Facebook and Twitter in order to market their product.

The gradual strengthening of the US economy has had a positive effect on the US wine industry. The higher priced wines, which have a higher profit margin for the winery, have been increasing in demand among US consumers. The increase in demand has created more competition within the wine industry. In 2010, the US surpassed France as the world’s largest wine-consuming nation, purchasing nearly 330 million cases [ (IBISWorld) ]. Exports of wine were up 26.6% from 2009, because of the decline in value of the US dollar [ (IBISWorld) ]. Exports are predicted to...
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