Wineries dealing with costly grapes and labor in 2012 tried to raise prices on their finished product, but most weren’t able to do so, according to a new report issued today by Silicon Valley Bank.
While many wineries think they may increase prices in 2013, executives at the bank warn that will prove difficult.
“It’s another good-news, bad-news year in fine wine,” Rob McMillan, founder of Silicon Valley Bank’s wine division and author of the report, said in a statement. “While we are quite optimistic about the future prospects in the U.S. wine business, a combination of events will continue to hold back robust growth in 2013.”
The financial condition of the wine industry is improving at a slow and steady pace, he said, but economic uncertainty, lack of economic leadership worldwide and aging Baby Boomers are among the reasons that growth is expected to be good, not great.
The group that had the toughest time raising prices were smaller wineries producing bottles in the $20 to $29 range, the report said.
At Bottle Barn in Santa Rosa, prices increased among among the larger brands, but not across the board, said wine buyer Ben Pearson.
“If you’re a big brand like a Beringer or a Kendall-Jackson, you have clout with your distributor,” Pearson said. “Smaller wineries, they can speak, but the wholesalers don’t necessarily listen.”
The store’s wine sales grew significantly in 2012, but not in the high-end category, Pearson said.
Across retail categories, luxury consumers reined in spending in the second quarter of 2012 but regained some confidence in the third quarter, the report said. Restaurant sales of fine wines slowed for all of 2012, a trend that accelerated toward the end of the year, it said.
Even so, some limited production, high-end North Coast wineries successfully found ways to raise prices. Kosta Browne Winery in Sebastopol, which produces about 15,000 cases of pinot noir and other varietals that sell for $58 to $78 per bottle, raised prices by about $6 last year, said Tony Lombardi, director of brand management and public relations for the winery. The vast majority of its wines are sold directly to consumers through wine clubs, and he was nervous about making the change.
“It actually went without a bump,” Lombardi said “We had a higher conversion rate and acceptance than expected.”
Amapola Creek, a Sonoma Valley winery that produces 3,000 cases per year that sell for $35 to $90 per bottle, didn’t raise prices in 2012 but was able to control input costs by growing most of the fruit it crushes into wine, said Richard Arrowood, proprietor.
“Even with some of the rising prices … you’re probably not going to be able to pass them along, because it’s still a buyer’s market out there,” Arrowood said. “Which is fine, but it would be nice, as our expenses and everything else rise.”