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INTRODUCTION 3
EXECUTIVE SUMMARY 4
ACKNOWLEDGEMENTS 6
GROWERS 7PROFILE OF RESPONDENTS 8RECENT YIELDS PER ACRE 9PLANTING 14FUTURE TRENDS 17
INTEGRATED WINERIES 18PROFILE OF RESPONDENTS 19SALES CHANNELS 22ANTICIPATED PRICING TRENDS 25CURRENT INVENTORY LEVELS 26CHANGES IN COST OF GOODS 27SUPPLY SOURCES 28PROJECTED CHANGES FOR 2015 29PLANNED INVESTMENTS 32
NEGOCIANT AND VIRTUAL WINERIES 33PROFILE OF RESPONDENTS 34COSTING TRENDS 34CASE SALES BY CHANNEL 35INVENTORY LEVELS 37GRAPE SUPPLY, COSTS, AND CAPACITY 38SALES TRENDS 39PROJECTED STAFFING NEEDS 40PLANNED INVESTMENTS 41
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INTRODUCTION
We have one simple goal with our Winery and Grower Benchmarking
Report: to bring you valuable, insightful data and analysis to help you
benchmark your operations against industry leaders. This information will
hopefully help you make more informed decisions for your business.
This abbreviated survey, conducted at the close of 2014, gives growers
and wineries a collective sense of what winery and vineyard managers are
thinking as they gauge the impacts of three consecutive record to near-
record harvests, sales trends, inventory balances, future grape supply,
the economy, and other factors that come into play as they face important
planning decisions in 2015. There are grape contracts and prices to
negotiate, wine pricing, promotional strategies to decide, and integral
decisions on where to best invest company resources.
In all, we had 305 survey participants comprised of growers, wineries,
and negociants based in California, Oregon, and Washington state. We’ve
presented the information by state, by subregions in California, and by
overall winery production.
If you’d like more detailed financial benchmarks, Moss Adams LLP,
Farm Credit, and Turrentine Brokerage have combined their resources
to conduct and produce a more extensive Wine Industry Financial
Benchmark Survey Report about every three years. The most current
available report was completed in 2013 and reflects data from 2012.
Please visit www.mossadams.com/winesurvey for information on how to
access that report.
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EXECUTIVE SUMMARY
The results of this survey conveyed a sense of cautious optimism from
growers, wineries, and negociants. Here’s a brief summary of some of
the most important categories:
Pricing
Approximately two-thirds of participants expected to hold wine
prices steady, while a growing number were holding the line on
pricing discounts with some starting to decrease their use of
discounting and other sales promotions. On the other hand, a
majority of participants expected grape prices to continue rising as
grape supplies are expected to tighten, particularly in some regions
of California, such as Napa and Sonoma, where there is little
additional new acreage available to expand vineyard production.
This spurred an emerging trend of larger California-based wineries
investing in Oregon and Washington state.
Inventory
Inventory levels for most major varietals appeared to be fairly well
balanced, providing encouraging postrecession evidence that sales
are growing and inventories are current despite three successive
large to record-breaking harvests.
Distribution
The continued national trend of distributor consolidation and
proliferation of new wine brands fueled intense competition for
shelf space in the traditional markets and compelled many small
wineries to expand their efforts to sell wine direct to consumers
(DTC).
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Fortunately, more states are allowing DTC sales largely as a result
of the United States Supreme Court’s Granholm v. Heald decision
in 2005. Since then, the number of states allowing wineries to sell
DTC has grown from 14 states to 43 at last count. Larger wineries
continue to dominate and sell through the traditional three-tier
distribution system.
Staff
In terms of staffing, most operations expect to keep headcounts at
current levels; however, when hiring, the emphasis is on sales staff.
Investing
The categories that received the highest degree of “very important”
ratings were production growth, followed by acquisition, investing
in staff, and technologies that drive efficiencies and help offset
labor shortages, particularly in the areas of vineyard and winery
production. Many wineries are currently waiting for bloom and set
to finish in the vineyards to gauge if 2015 has the potential to be a big
harvest before deciding whether to sell bulk wine from prior years
and what prices to pay for 2015 grapes.
We hope you find the following report helpful, and we thank you for
your continued support. Please let us know if there are additional
metrics you’re interested in benchmarking; we hope to provide
expanded regional coverage in the future. We welcome your
comments and suggestions at
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ACKNOWLEDGMENTS
We would like to specially thank those who supported and completed
the survey. We appreciate the time commitment involved in providing
information to us. We wouldn’t be able to put this report together
without your valuable insight and participation.
In addition, we’d like to thank the teams from Moss Adams, the Farm
Credit Alliance, and Turrentine Brokerage for the time spent preparing,
reviewing, and assembling this report.
Jeff GutschNational Practice Leader
Wine Industry
Moss Adams
Bill RoddaVice President
American Ag Credit
Farm Credit Alliance
Steve FredericksPresident
Turrentine Brokerage
GROWERS
PROFILE OF RESPONDENTS 8
RECENT YIELDS PER ACRE 9
PLANTING 14
FUTURE TRENDS 17
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PROFILE OF RESPONDENTSThe analysis in this section includes data from integrated winery and vineyard operations as well as from pure growers. Key vineyard-related operational metrics captured include yields per acre according to region and varietal, vine density, planting trends, and participants’ observed future trends for 2015.
Growers by RegionA total of approximately 100,000 acres were reported by both growers and wineries with vineyard operations.
A further breakdown showed 53 percent of participants grow grapes in the North Coast, while 16 percent grow in the Central Coast, 14 percent from interior regions of California, and 17 percent combined between Oregon and Washington.
Reflecting the regional stratification of participants, 57 percent of growers farm less than 100 acres, 31 percent farm between 100 acres and 1,000 acres, and the remaining 13 percent farm more than 1,000 acres.
GROWERS BY REGION
17%
28%
8%5%7%
4%
6%11%
10%
2%
Napa Valley 17%
Sonoma County 28%
Mendocino, Lake & Suisun 8%
Monterey County 5%
Paso Robles 7%
Santa Barbara 4%
Lodi/Delta 10%
Southern San Joaquin Valley 2%
Foothills 2%
Oregon 6%
Washington 11%
2%
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RECENT YIELDS PER ACREWhile substantial acres were planted in recent years in California and Washington, yields also factored into total production. The following figures provide real grower yields from the 2013 and 2014 crops in relation to long-term expected yield per acre by region and varietal.
NAPA VALLEY
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
CABERNET SAUVIGNON
CHARDONNAY MERLOT SAUVIGNON BLANC
PINOT NOIR ZINFANDEL
2013 YPA
2014 YPA
LT Yields
TON
S
Among top varietals, Napa Valley averaged four tons per acre in the long-term. This average was matched in 2014 but reached 4.5 tons per acre in 2013. One contributor to the regional average increase was sauvignon blanc, which produced nearly seven tons per acre. Cabernet sauvignon was one of the lowest yielding varietals, averaging just 3.5 tons per acre. Not a single varietal listed produced a larger yield in 2014 compared with 2013.
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SONOMA COUNT Y
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
CABERNET SAUVIGNON
CHARDONNAY MERLOT SAUVIGNON BLANC
PINOT NOIR ZINFANDEL
2013 YPA
2014 YPA
LT Yields
TON
S
Between major varietals, the Sonoma County average yield over the long-term was 4.5 tons per acre, which was eclipsed in both 2013 and 2014, averaging 4.9 tons and 4.7 tons, respectively. Similar to Napa Valley, the largest yield per acre in Sonoma County was sauvignon blanc, which produced larger than average yields the past two years. Pinot noir, chardonnay, and merlot had larger than average yields in recent years as well. Similar to Napa Valley, 2014 yields were generally at or below 2013.
MENDOCINO, L AKE & SUISUN
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
CABERNET SAUVIGNON
CHARDONNAY PINOT NOIR
2013 YPA
2014 YPA
LT Yields
TON
S
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The average expected yield between Mendocino, Lake, and Suisun was 4.2 tons per acre, and, while average tonnages were higher, those regions didn’t experience the same bountiful harvests as Napa Valley and Sonoma County in recent years. The year 2013 matched the long-term average across all varietals polled, but the 2014 crop appeared to be below average at just 3.8 tons per acre. The lightest yield per acre was from cabernet sauvignon, which appeared to be over one ton per acre lighter than average.
MONTEREY COUNT Y
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
CABERNET SAUVIGNON
CHARDONNAY MERLOT SAUVIGNON BLANC
PINOT NOIR RIESLING
2013 YPA
2014 YPA
LT Yields
TON
S
Yields in Monterey County have been exceptionally large as of late. Between top varietals, 2013 weighed in at 6.6 tons per acre and 2014 at 6.3 tons; the long-term yield was 5.6 tons per acre. Outside of chardonnay, 2014 yields were all at or below 2013 levels. Sauvignon blanc, cabernet sauvignon, and pinot noir outperformed their average more than any other primary variety during the past two years.
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PASO ROBLES
5.0
4.0
3.0
2.0
1.0
CABERNET SAUVIGNON
MERLOT ZINFANDEL
2013 YPA
2014 YPA
LT Yields
TON
S
Yields of Paso Robles haven’t been as large as those in Monterey County, its Central Coast counterpart to the north. Red varietals produced just more than three tons per acre in 2014. This was the lowest average yield throughout California in 2014.
SANTA BARBARA COUNT Y
5.0
4.0
3.0
2.0
1.0
CHARDONNAY PINOT NOIR
2013 YPA
2014 YPA
LT Yields
TON
S
According to survey participants, Santa Barbara had the lowest long-term regional yield per acre in California. These yields were slightly better in recent years for chardonnay and pinot noir. Pinot noir had 27 percent larger than average harvests in 2013 and 14 percent larger in 2014. Chardonnay yields dipped in 2014 to slightly below average.
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NORTHERN INTERIOR
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
CABERNET SAUVIGNON
CHARDONNAY MERLOT PINOT GRIGIO PINOT NOIR ZINFANDEL PETITE SYRAH
2013 YPA
2014 YPA
LT Yields
TON
S
California delivered a record crop in 2013, driven in part by the yields delivered in Lodi and the Delta. The pinot grigio harvest approached 10 tons per acre on average, while many other varietals exceeded their long-term average yields. Yields dropped in 2014 for all varietals except for cabernet sauvignon. New plantings continue to produce fruit, which have been designed for higher yields.
WASHINGTON
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
CABERNET SAUVIGNON
CHARDONNAY MERLOT SYRAH
2013 YPA
2014 YPA
LT Yields
TON
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After experiencing average yields in 2013, yields exploded in Washington in 2014. They were up 60 percent over long-term yields for cabernet sauvignon, and merlot also was up in 2014 by 47 percent. The only primary varietal that didn’t exceed average yields was chardonnay.
PLANTINGSince 2011, more than 100,000 acres have been planted in California, but the trend is slowing. The first wave occurred in the Central Valley and then migrated to coastal regions. The Central Coast, currently under water sanctions, planted a substantial amount of cabernet sauvignon between 2012 and 2013 while the North Coast never entered a planting fervor due to limited land availability and regulatory restrictions. Instead, the majority of activity in the North Coast involved replanting and grafting to alternative and more profitable varietals. Meanwhile, large wineries have invested in Washington and Oregon, where land is being cultivated for vineyards.
PL ANTING DENSIT Y
900
700
500
300
100
NAPAVALLEY
SONOMA COUNTY
MENDOCINO, LAKE & SUISUN
VIN
ES
PE
R A
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The average planting density as identified by the participants in Napa Valley was 947 vines per acre. This figure was 906 for Sonoma County and even lower at 826 for Mendocino, Lake, and Suisun. The reason for this difference can be tied to growers looking to maximize their return in low-vigor areas with high land values. Newly planted acres appear to be toward higher density.
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2014 NEW AND REPL ACEMENT ACRES
9%
8%
7%
6%
5%
4%
3%
2%
1%
CALIFORNIA CENTRALCOAST
NAPAVALLEY
SONOMA COUNTY
WASHINGTON TOTAL
% Replantings
% New Plantings
% O
F R
EP
LA
NTI
NG
S &
NE
W P
LA
NTI
NG
S
2015 NEW AND REPL ACEMENT ACRES
% O
F R
EP
LA
NTI
NG
S &
NE
W P
LA
NTI
NG
S
9%
8%
7%
6%
5%
4%
3%
2%
1%
CALIFORNIA CENTRALCOAST
NAPAVALLEY
SONOMA COUNTY
WASHINGTON TOTAL
% Replantings
% New Plantings
2.2%2.7% 2.8%
1.4%1.1%
2.4%
0.7%
1.6%1.1% 1.1%
8.7%
1.4%
2.3%
5.2%
2.4%
1.2% 1.3%
3.7%3.2%
2.3%
1.3%
0.6%
6.8%
2.5%
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2015 VERSUS 2014 PL ANTING TRENDS
-5
-10
-15
-20
-25
-30
-35
-40
REPLANTINGNEW
PLANTING
-37%
-40%
% C
HA
NG
E
The graphs above compare the percentage of total acres represented from each region that was replanted to ground that was newly planted in 2014 and 2015. Large yields coupled with newly bearing acres in recent years have stifled the rate of planting in California. The amount of new planting was below 3 percent in 2014, and replacement levels were at an average level at nearly 4 percent. These numbers appear to be trending down in 2015 with a 40 percent drop in expected new planting and a 37 percent drop in replanting overall. While the rate of planting appears to be continuing its slowdown in California regions, Washington is expected to experience aggressive expansion in 2015.
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FUTURE TRENDSGrape prices, primarily in the North Coast of California, continued to increase in recent years despite consecutive large harvests. Optimistic growers believe this trend will continue, and production volumes and grape prices could remain steady or increase in 2015. The costs required to farm and invest in technology could remain steady or increase in the 2015 calendar year as well. Despite rising costs, very few growers and integrated wineries are looking to reduce headcount. In fact, nearly 20 percent are looking to expand their workforce.
PROJECTED TRENDS
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
GRAPEPRICES
PRODUCTION VOLUMES
DISCRETIONARY CAPITAL
SPENDING
HEADCOUNT FARMINGCOSTS
TECHNOLOGY COSTS
Increase
Remain Steady
Decrease
% O
F R
ES
PO
ND
EN
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INTEGRATED WINERIES
PROFILE OF RESPONDENTS 19
SALES CHANNELS 22
ANTICIPATED PRICING TRENDS 25
CURRENT INVENTORY LEVELS 26
CHANGES IN COST OF GOODS 27
SUPPLY SOURCES 28
PROJECTED CHANGES FOR 2015 29
PLANNED INVESTMENTS 32
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PROFILE OF RESPONDENTSIntegrated wineries have their own wine production facilities. They use grapes from their own vineyards and/or purchase grapes from other growers. These wineries comprised 136 of 223 respondents, or 61 percent. As shown in the graph below, the largest share of survey responses came from California’s Central Coast region, followed closely by Sonoma County, Washington state, then Napa Valley, California’s interior, and Oregon. The annual production of the Central Coast wineries averaged just more than 37,000 cases and ranged from 1,000 cases to 195,000 cases.
INTEGRATED WINERY RESPONDENTS BY REGION
12%
26%
13%22%
21%
6%
California, interior 12%Central Coast 26%Napa Valley 13%Sonoma County 22%Washington 21%Oregon 6%
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Respondents’ Wineries by Size and RegionFor this analysis we categorized the participant wineries into three sizes, according to how many cases they produced annually:
• Under 10,000 cases
• Between 10,000 and 100,000 cases
• More than 100,000 cases
For winery survey participants producing less than 10,000 cases annually, output ranged between approximately 1,400 and 3,820 cases. For wineries producing between 10,000 to 100,000 cases, production ran from 13,000 to 46,000 cases; and for wineries with over 100,000 cases, production varied widely from 165,000 to more than 2.1 million cases.
The following graphs show the average production by region for each of these size categories. Note that the California interior region in each graph spans the Central Valley and the Sierra foothills.
BREAKDOWN OF SURVEY PARTICIPANTS PRODUCING UNDER 10,000 CASES
REGION,SIZE CATEGORY
STATENUMBER OF RESPONSES
CASE PRODUCTION AVERAGE
CA interior, under 10,000 CA 3 2,366
Central Coast, under 10,000 CA 11 1,827
Sonoma, under 10,000 CA 10 3,820
WA, under 10,000 WA 8 1,350
Napa and Oregon data for under 10,000 cases was omitted due to the low number of responses.
AVERAGE PRODUCTION FOR WINERIES UNDER 10,000 CASES
8,000
6,000
4,000
2,000
CALIFORNIAINTERIOR
CENTRAL COAST
SONOMA WASHINGTON
2,3661,827
3,820
1,350CA
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AVERAGE PRODUCTION FOR WINERIES BETWEEN 10,000 AND 100,000 CASES
50,000
40,000
30,000
20,000
10,000
CALIFORNIAINTERIOR
CENTRAL COAST
NAPA SONOMA WASHINGTON OREGON
36,95033,006
46,383
19,70026,824
13,000
CA
SE
S O
F W
INE
AVERAGE PRODUCTION FOR WINERIES OVER 100,000 CASES
2,500,000
2,000,000
1,500,000
1,000,000
500,000
CALIFORNIAINTERIOR
CENTRAL COAST
NAPA SONOMA WASHINGTON OREGON
2,177,000
165,833343,838
1,462,4001,140,000
212,750
CA
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SALES CHANNELSmaller Wineries Focus on DTC Wine sales volume by sales channel differed significantly between small and large wineries. The participants from smaller wineries reported making between 40 percent to more than 60 percent of their sales volume through direct-to-consumer (DTC) sales channels. California-based wineries making less than 10,000 cases reported that tasting room sales volume made up nearly half of all DTC sales, whereas Washington participants relied more heavily on tasting room sales with more than 82 percent of their DTC sales coming via the tasting room.
PERCENTAGE OF CASES SOLD BY CHANNEL Integrated Wineries <10,000 Cases
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
CALIFORNIAINTERIOR
CENTRALCOAST
SONOMA WASHINGTON
% of Sales Volume DTC
% of Sales Volume Tasting Room
Total % DTC
% of Sales Volume Three-Tier
27%
61%
39%34%
30%
64%
36%
25%22%
47%
53%
7%
34%
41%
59%
34%
% O
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As the size of participant wineries increased, the percentage of wine volume sold through the traditional three-tier distribution system rose dramatically. The following graph shows that participant wineries producing between 10,000 and 100,000 cases sold 77 percent to 95 percent of their case sales volume through distributors. In contrast, in all but one of the same regions, wineries over 100,000 cases sold 96 percent to 99 percent of their volume through the traditional three-tier system. The Central Coast region was the one exception: It reported 86 percent of case sales through the three-tier system.
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PERCENTAGE OF CASES SOLD BY CHANNEL Integrated Wineries 10,000–100,000 Cases
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
CALIFORNIAINTERIOR
CENTRALCOAST
NAPA SONOMA WASHINGTON
% of Sales Volume DTC
% of Sales Volume Tasting Room
Total % DTC
% of Sales Volume Three-Tier
22%
2% 2%3% 5%
95%
12% 10%
78%
8%5%
13%
87%
16%
7%
23%
77%
20%22%
78%
% O
F S
ALE
S VO
LUM
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The contrasting differences in sales channel mix between small and large wineries as noted in the preceeding two paragraphs is the result of two opposing national trends—distributor consolidation and the proliferation of wine brands—and the Granholm decision in May 2005.
In 1995 there were more than 3,000 distributors in the US and 1,800 wineries, which means distributors outnumbered wineries by more than 3 to 2. Today there are around 675 distributors in the US—they are typically much larger than in 1995—and more than 7,700 US wineries. As such, wineries now outnumber distributors by more than 11 to 1, and most of them are small with nearly 80 percent of US wineries producing less than 5,000 cases a year. Of the larger producers, around 250 wineries make more than 50,000 cases while 53 produce more than 500,000 cases. These opposing developments have made it extremely challenging for many small and new wineries to secure distribution through the traditional three-tier distribution system.
Through pressure brought by consumers and many wineries, the Supreme Court’s decision in the Granholm case required states to allow the same DTC shipping privileges to in-state wineries as out-of-state wineries. At the time only 14 states allowed reciprocal DTC shipments between those respective states. Following that Supreme Court decision, every state developed new laws governing DTC shipments. While this resulted in a burdensome maze of compliance requirements, it did give all wineries expanded markets to sell directly to consumers. Today 43 of the 50 states allow some form of DTC shipments, which has enabled DTC sales in the US to grow and eclipse the amount of wine exported abroad.
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The lack of access to a traditional three-tier distribution system and the opening of more markets due to the Supreme Court decision are compelling many wineries, especially smaller wineries and new, unknown wine brands, to pursue alternative ways to reach consumers. They’re making use of DTC channels such as tasting rooms, wine clubs, and events, while employing e-commerce, mobile technologies, and social media to build brand exposure and increase customer loyalty.
Large-volume, established wineries with decent to good quality wine increasingly dominate the portfolios of the remaining large distributors. Smaller wineries, unless they have established strong brand recognition, often find it a major challenge to get the focus and attention of the distributors’ sales teams—even when they manage to secure distributor representation. Selling through is a difficult endeavor that often requires expensive and undesirable promotional costs for the winery. Those costs can render the traditional three-tier channel a low profit margin option. Regardless, the three-tier system remains an important channel for building brand recognition.
Three-Tier Sales Marketing and sales efforts for small wineries within the three-tier system often are based on a strategy of securing placement in an on-premise account. For example, this might be a restaurant with a beautiful setting and delicious food that’s paired with wines presented by staff members who are knowledgeable about the wine and able to educate patrons. The aim is to create an experience that imparts a desirable first impression about a wine or bolsters the reputation of a wine as being rare, special, or of exceptional quality.
Larger wineries place more focus on off-premise accounts, which typically have much higher sales volumes. These encompass fine wine shops to large-scale retail liquor stores. In the following graph, the survey results reveal respondents from the smallest wineries making nearly 40 percent of their three-tier sales to on-premise accounts compared with 24 percent for larger wineries.
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WINE SOLD ON-PREMISE VERSUS OFF-PREMISE IN THE THREE-TIER SYSTEM
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
< 10KCASES
10K-100KCASES
>100KCASES
On-premise
Off-premise
39%
61%
36%
64%
24%
76%
% O
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ANTICIPATED PRICING TRENDSSurvey participants took a stay-the-course approach to pricing. Nearly two-thirds reported that they held prices steady in 2014 versus 2013, while 21 percent discounted less. This seems to reflect a cautious but growing sense of optimism about the US economy. The weakening of the euro and other foreign currencies and a stronger US dollar have contributed to this because it gives imports a price advantage in the US market and renders US wines less competitive abroad.
DID YOU DISCOUNT MORE, LESS, OR THE SAME IN 2014 THAN 2013?
15%
21%
64%
More 15%Less 21%The Same 64%
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CURRENT INVENTORY LEVELSThe news on current inventory levels concerning major wine varietals was positive overall, especially considering there were three successive large harvests in California. Most varietals showed relatively good balance. Merlot and zinfandel registered the most laggard with “somewhat long” to “very long” inventory levels. Pinot grigio, followed by cabernet sauvignon and pinot noir, logged the highest “very short” to “somewhat short” readings. Chardonnay remained in balance overall.
CURRENT INVENTORY LEVELS BY VARIETAL
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
CABERNET SAUVIGNON
CHARDONNAY MERLOT PINOT GRIGIO
PINOT NOIR
ZINFANDEL
Very Short
Somewhat Short
In Balance
Somewhat Long
Very Long
4% 4%0%1%
52%
11%15%
53%
15%
52%
5%9%
61%
16%
10%
48%45%
7% 5%
17% 18%21%
24%29%
13%
21% 22%
5% 7%10%
% O
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CHANGES IN COST OF GOODSJust more than 50 percent of winery respondents reported their cost of goods went up, 33 percent said they remained the same, and nearly 17 percent reported they went down. Given the option to select multiple answers, wineries cited increased grape prices (66 percent of respondents) and packaging costs (44 percent) as the predominant reasons for changes in the cost of producing wine, while 21 percent cited bulk wine prices. Increased labor costs were most often cited within the “other” category.
PRIMARY REASONS FOR THE CHANGE IN COST OF GOODS IN 2014
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
GRAPEPRICES
BULK WINEPRICES
PACKAGING OTHER
66%
21%
44%35%
% O
F R
ES
PO
ND
EN
TS
Note: Respondents were able to select multiple options.
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SUPPLY SOURCES Survey respondents indicated consistent sourcing of grape and bulk wine supplies for 2013 and 2014. They sourced at least 55 percent of their supply from estate-grown grapes, just under 40 percent from purchased grapes, and the balance from bulk wine.
When asked what percentage of their sources they contracted for grapes and bulk wine before May 1 of the vintage year, 39 percent reported that they secured less than 5 percent, half of the respondents secured 70 percent or more, and 22 percent secured 95 percent of their sources.
SOURCED GRAPES AND BULK WINE
% O
F R
ES
PO
ND
EN
TS
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
ESTATE-GROWN GRAPES
PURCHASED GRAPES
PURCHASED BULK WINE
2013
2014
55% 56%
38% 39%
7% 5%
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PROJECTED CHANGES FOR 2015In terms of supply, the projected change most freqently cited was an increase in tank capacity, followed closely by production costs, then contracted grape and other supply prices. In five of the six categories listed in the graph below, more than half of the respondents expected the supply to remain steady. The increase in tank capacity appears to be due to the shortage of tank storage capacity experienced by wineries after three large harvests and growth in sales.
SUPPLY CHANGES PROJECTED FOR 2015
90
80
70
60
50
40
30
20
10
CONTRACTED GRAPE SUPPLY
CONTRACTED BULK WINE
SUPPLY
PRODUCTION COSTS
CONTRACTED OTHER SUPPLY PRICES (GLASS, BARELS, ETC.)
TANKCAPACITY
PRESSURE FROM
IMPORTED WINE
NU
MB
ER
OF
RE
SP
ON
DE
NTS
Decrease
Remain Steady
Increase
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SALES CHANGES PROJECTED FOR 2015
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
RETAIL PRICES DISCOUNT/PROMOTIONS
ON-PREMISE SALES
OFF-PREMISE SALES
DTC SALES DISCRETIONARY CAPITAL
SPENDING
Decrease
Remain Steady
Increase
0% 1%
63%
18%
5% 6%10%
19%
45%50% 49%
59%
45%
31%
25%
74%70%
30%
% O
F R
ES
PO
ND
EN
TS
Survey participants expected retail prices to remain steady. Current discounts and promotions were the next items most often projected to hold steady, but they were also the leading item projected to decrease. Respondents projected that DTC sales were most likely to increase, reflecting the continued emphasis on expanding DTC sales for wineries.
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STAFFING CHANGES PROJECTED FOR 2015
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
OVERALL CHANGE IN
HEADCOUNT
MARKETING HEADCOUNT
SALES HEADCOUNT
VINEYARD PRODUCTION HEADCOUNT
WINE PRODUCTION HEADCOUNT
Decrease
Remain Steady
Increase
4% 4% 2%0% 0%
81%
19%
70%
30%
91%
5%
81%
17%
63%
33%
% O
F R
ES
PO
ND
EN
TS
The majority, or 63 percent, of wineries expected their overall headcount to remain steady, while 33 percent anticipated increased hiring, and only 4 percent projected a decrease. Of those wineries that expected to increase headcount, the area most often projected to increase was sales staff (30 percent) followed by marketing at 19 percent. Vineyard headcount was the area most projected to remain steady at 91 percent, followed by wine production and marketing, which both came in at 81 percent.
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PLANNED INVESTMENTSRespondents listed staff as the most important item to be investing in, followed by production technology, production growth, and computer systems. Vineyard acquisition surprisingly received the highest “unimportant” rating of the listed investment areas. This may be a result of increased wine inventory levels after three large successive harvests.
IMPORTANCE OF PL ANNED INVESTMENTS
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
PRODUCTION TECHNOLOGY
STAFF COMPUTER SYSTEMS
STORAGE CAPACITY
PRODUCTION GROWTH
FACILITY EXPANSION
VINEYARD ACQUISITION
Unimportant Fairly Unimportant Neutral Fairly Important Very Important
% O
F R
ES
PO
ND
EN
TS
PROFILE OF RESPONDENTS 34
COSTING TRENDS 34
CASE SALES BY CHANNEL 35
INVENTORY LEVELS 37
GRAPE SUPPLY, COSTS, AND CAPACITY
38
SALES TRENDS 39
PROJECTED STAFFING NEEDS 40
PLANNED INVESTMENTS 41
NEGOCIANT AND VIRTUAL WINERIES
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PROFILE OF RESPONDENTSThe analysis in this section includes data from a virtual winery or negociant operation, which is defined as an operation that purchases grapes and/or bulk wine, and has them made into a finished wine at a facility they don’t own. This segment of the benchmarking survey represented 18 percent of total respondents. Key items included the prices of grapes, bulk and packaging costs, sales channels, on- versus off-premise sales, discounting trends, inventory levels, supply needs, and participants’ observed future staffing and investment trends in 2015.
Of the total 305 respondents, 53 represented themselves as either a virtual winery operation or negociant operation ranging in size from 500 gallons to 25,000 gallons of wine produced, and from three tons to 170 tons in purchased grape tonnage.
COSTING TRENDSRoughly 67 percent of respondents indicated that cost of goods were up in 2014, primarily from grape prices and packaging costs. About 19 percent reported no change and 14 percent indicated their cost decreased.
DID YOUR COST OF GOODS GO UP, DOWN, OR STAY THE SAME IN 2014?
14%
67%
19%Up 67%Same 19%Down 14%
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PRIMARY REASONS FOR YOUR CHANGE IN COST OF GOODS IN 2014
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
GRAPEPRICES
BULK WINEPRICES
PACKAGING
68%
21%
36%
% O
F R
ES
PO
ND
EN
TS
Note: Respondents were able to select multiple options.
CASE SALES BY CHANNELThe trend outside of the three-tier system continues to be DTC sales. When selling into the three-tier system, a strong push in off-premise sales was emphasized.
NUMBER OF CASES SOLD BY SALES CHANNEL IN 2014
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
DTC TASTINGROOM
THREE TIER
49,632 15,501
2,540,246
NU
MB
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OF
CA
SE
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IF YOU SOLD THROUGH THE THREE-TIER SYSTEM, HOW MANY CASES DID YOU SELL ON-PREMISE VERSUS OFF-PREMISE?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
ON-PREMISE OFF-PREMISE
26%
74%
% O
F C
AS
ES
SO
LD
There were no dramatic changes in discounting reported in this group from 2014 compared with 2013, although 46 percent reported discounting was largely unchanged year over year. Roughly 24 percent reported more discounting and 30 percent reported less discounting.
DID YOU DISCOUNT MORE, LESS, OR THE SAME IN 2014 THAN 2013?
30%24%
46%
More 24%Same 46%Less 30%
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INVENTORY LEVELS Of the six varietals surveyed, the majority reported that inventories were in balance with the noted exception of cabernet sauvignon. The next noteworthy figures are that of long positions on pinot noir and merlot. Further, those in balance positions were strongest in cabernet sauvignon, chardonnay, and zinfandel.
CURRENT INVENTORY LEVELS BY VARIETAL
Very Short
Somewhat Short
In Balance
Somewhat Long
Very Long
30
20
10
CABERNET SAUVIGNON
CHARDONNAY MERLOT PINOT GRIGIO
PINOT NOIR
ZINFANDEL
NU
MB
ER
OF
RE
SP
ON
DE
NTS
Note: Respondents were able to select multiple options.
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GRAPE SUPPLY, COSTS, AND CAPACITYThe below survey results for future grape and bulk wine acquisitions primarily point toward remaining steady to increasing supply. The results similarly anticipate that costing will remain steady to increasing in 2015. Overall tank capacity appears to largely be in line.
PROJECTED CHANGES FOR 2015
50
40
30
20
10
CONTRACTED GRAPE SUPPLY
CONTRACTED BULK WINE
SUPPLY
PRODUCTION COSTS
CONTRACTED SUPPLY PRICES
TANKCAPACITY
PRESSURE FROM
IMPORTED WINE
NU
MB
ER
OF
RE
SP
ON
DE
NTS
Decrease
Remain Steady
Increase
Note: Respondents were able to select multiple options.
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SALES TRENDSThe survey results show a steady to increasing emphasis in retail sales with nobody anticipating a decrease in this area. Discounts and promotions results were overwhelmingly anticipated to be steady. The wineries felt both off- and on-premise sales are projected to mostly increase. Not surprisingly, DTC sales were mostly projected to increase with discretionary capital spending to remain steady, marginally outweighing the decrease.
PROJECTED SALES ACROSS CATEGORIES
50
40
30
20
10
RETAIL PRICES
DISCOUNTS/PROMOTIONS
ON-PREMISE SALES
OFF-PREMISE SALES
DTC SALES DISCRETIONARY CAPITAL
SPENDING
NU
MB
ER
OF
RE
SP
ON
DE
NTS
Decrease
Remain Steady
Increase
Note: Respondents were able to select multiple options.
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PROJECTED STAFFING NEEDSStaffing levels were overwhelmingly anticipated to remain steady with a slight increase projected for some in the area of sales staffing.
CHANGE IN HEADCOUNT
50
40
30
20
10
MARKETING HEADCOUNT
SALES HEADCOUNT
PRODUCTION HEADCOUNT
NU
MB
ER
OF
RE
SP
ON
DE
NTS
Decrease
Remain Steady
Increase
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PLANNED INVESTMENTSProduction growth was by far the most important planned investment for negociants. This is consistent with what is being seen throughout the industry. Staff, vineyard acquisition, and facility expansion are also top of mind for growing virtual wineries. After production growth and staff, it’s noteworthy that storage capacity and computer systems were the strongest categories to follow on the “fairly important” level.
PL ANNED INVESTMENTS
Unimportant Fairly Unimportant Neutral Fairly Important Very Important
40
30
20
10
PRODUCTION TECHNOLOGY
STAFF COMPUTER SYSTEMS
STORAGE CAPACITY
PRODUCTION GROWTH
FACILITY EXPANSION
VINEYARD ACQUISITION
NU
MB
ER
OF
RE
SP
ON
DE
NTS
