Frank, Rimerman
Frank, Rimerman
Frank, Rimerman
Frank, Rimerman

Wine as an Economic Indicator?

February 14th, 2012

Here we are, back again after a very long and extended break from writing here.  To say my colleagues and I in the valuation and wine business services groups have been busy this past year would be an understatement.  That being said, people all over the country and even the world continue to struggle with low real estate prices, high unemployment and huge amounts of debt.  And in spite of all that, I do see some pockets of optimism.  Despite an uncertain and volatile economy, there are signs that the worst is behind us.  The wine industry appears to be one of those industries that is getting back on track.  The following are my personal observations:

1. Local tasting rooms have been packed on weekends, even in February!  Several I visited in Napa and Sonoma had no tours or tasting appointments available over the weekend.

2. Restaurants are busier – Sante in Sonoma and Bottega in Yountville both had no open reservations for dinner throughout the weekend (I tried making them on Thursday and Friday, but still…).

3. People seem to be starting to trade up in wine price – I even saw a guy buy a bottle of Cristal at Bottega a few weeks ago on a Sunday night.  On a Sunday night!

  1. I have also seen fewer people in general bring their own wines into restaurants in recent months, which may indicate people are starting to feel comfortable spending money on wine again (as opposed to the past few years).  If that is the case, I have a wine for you!

4. Value wine sales also appear to be increasing as Sutter Home, Gallo and The Wine Group’s sales are all reaching or at all-time highs, the majority of which come from wines under $10 per bottle.

5. Americans continue to drink more wine, consuming more than 3.7 billion bottles of vino in 2011, more than any other country in the world (according to Vinexpo and International Wine and Spirit Research).  Sales of wine over $10 per bottle grew 15% in 2011.

6. According to the recent USDA’s grape crush report California grape prices rose to a record high of $588.96 per ton for all varieties, up 9.5% year-over-year (YoY) from 2010.  Red wine grape prices increased 12% YoY while white wine grapes rose 8%.

  1. Grapes from Napa County, with the state’s highest grape prices, had an average price of $3,407.56 per ton, up 5% YoY.
  2. Part of the increase in overall grape pricing is likely due to lower yields; however, it also shows that wineries are back to buying grapes from growers and out on the spot market.  That would seem to indicate that wineries are starting to get more optimistic about the future demand for wine.

7. U.S. GDP grew 2.8% in Q4 2011, the 10th consecutive positive quarter-over-quarter (QoQ) increase and the largest since Q2 2010.

8. Wine auction prices appear to have recovered and have trended upward in recent months as well.  The Liv-ex Fine Wine 100 Index closed January with a rise of 1.4% QoQ (the majority of which were First Growth Bordeaux wines), its first increase since June 2011.  The Liv-ex Fine Wine 100 Index is the industry’s leading benchmark.  It represents the price movement of 100 of the most sought-after fine wines for which there is a strong secondary market and is calculated monthly.

9. Relative to 2008-2010, winery valuations and multiples increased in 2011, primarily for those wineries with strong operating margins and a solid tasting room/direct to consumer presence.

Now I’m not saying everything is all roses (except for today maybe), but from a somewhat basic quantitative and qualitative standpoint it seems like there are some strong tailwinds in the wine industry, which should continue driving increased wine sales.