What really is the state of the global economy? How does it affect the wine industry? How is consumer sentiment currently? How large and how late was this year’s harvest? What are some of the strategies of wineries in increasing prices? How can lower cost wines build a brand?
These were some of the most important questions discussed at last week’s Wine Industry Financial Symposium at Copia in downtown Napa. The symposium was presented by Wine Business and attended by financial and management executives and those who support them. These are my takeaways from the sessions attended.
Global Economic Reality
“We are in a much better place than we could have been” is one of several points Callum Williams, Senior Economic Writer for the Economist, made about the global economy during this data-packed session. Notably, the GDP has rebounded remarkably quickly since 2020, propelled by government incentives and the substantial savings accumulated throughout the pandemic. Despite a downward trend in consumer sentiment, Williams pointed out that the inflation rate has reached its peak. Although consumers remain cautious in their spending habits, there is a still notable accumulation of available funds. Additionally, there is considerable optimism regarding emerging advancements like AI, while the domestic manufacturing industry is poised for revitalization as production needs return home from overseas.
Pricing Strategies for Wineries
As the cost of goods and services has increased, the need to raise prices is widespread among wineries today. A panel of experts shared their knowledge and experience in passing on some of the higher costs associated with the DTC channel. They highlighted diverse approaches, including selectively raising prices solely for new brands rather than across vintages. Appellations are becoming more important, and wineries can increase prices based on the source of the grapes. As more consumers read labels, certifications, such as sustainable, organic, and so forth, are becoming more important. Acknowledging the need for a phased implementation, wineries are advised to anticipate potential volume losses when introducing price adjustments.
Harvest Challenges and Surprises
Glenn Proctor from Ciatti explained that an extended, damp winter followed by a foggy summer caused a delayed harvest this year, spanning about 3-4 weeks longer than usual, except for Mendocino, Lake, and east Napa County, which experienced relatively normal timing. Late August rains unexpectedly boosted the crop size, resulting in a compressed harvest schedule. Proctor’s estimates suggest a potential crop of 4.1-4.2 million tons, surpassing the earlier prediction of 3.7-3.8 million tons made in August, whereas the 2022 crop size stood at 3.5 million tons. Consequently, the grape market, already constrained, weakened further this past year, leaving wineries with surplus fruit due to decreased demand. The bulk market stagnated with declining prices over time as buyers refrained from purchasing until necessary, given the ample inventory available.
Exciting Labels at Lower Price Points
At the afternoon session, panelists delved into diverse strategies aimed at crafting compelling, affordable wine labels, including exploring grapes from untapped regions, analyzing profit margins, and developing brands that resonate with both emerging and established wine enthusiasts. Moderated by Michelle Staines from La Rochelle Winery, the panel featured insights from Aaron Fishleder of Cakebread Cellars and Jessica Beckhart of Vina Concha y Toro USA. Jessica highlighted the successful revitalization of Casillero del Diablo through innovative approaches such as introducing a new brand, enlisting Chilean-American actor Pedro Pascal as their global brand ambassador in 2021, and establishing ties with the Manchester United soccer team. Aaron discussed the inception of Bezel, a newly launched Cakebread Cellars brand designed for older millennials and younger Gen Xers, focusing on fruit-forward wines tailored for off-premise distribution while sourcing grapes from Central Coast AVAs instead of Napa.
The symposium provided a different perspective of the global economy, and underscored a cautiously optimistic economic landscape for the future. Insightful discussions highlighted innovative strategies and reminded the industry of their history of resilience and adaptability in navigating economic shifts.
