Wines & Vines surveyed hundreds of vineyard and winery suppliers during the late summer to gauge their impressions about the availability of credit, the health of their own businesses and the future of the wine industry as a whole. We found in our third annual supplier survey a slightly more optimistic forecast than last year. For example, 4% more suppliers believe the wine industry will grow during the next 12 months compared to those answering the same question in 2009.

Among other results, the majority of suppliers believe that credit availability will hold steady for vineyards and wineries, and nearly half of respondents said the decrease in wine sales is affecting their customers’ ability to spend.

Nearly 375 wine industry suppliers answered the confidential survey. Here’s what they had to say.

Slow growth for suppliers
First up, suppliers were asked to characterize the performance of their companies during the past 12 months. Nearly 44% of respondents answered that their businesses grew slowly, a positive change from the survey conducted in 2009, when just 32% of respondents answered the same way.

According to Paul Sturgis, account executive for Ben Franklin Press & Label Co. in Napa, Calif., growing business during an economic downturn is about working with customers. “Business has been better this year than last year. I think things are rebounding. Because we have tried to be cost-conscious and supportive of our customers, we’re doing OK,” he said. “When companies are producing less, the cost per unit goes up. We’ve been sensitive to our customers’ need to hold costs.”

Bruni Glass Packaging of Benicia, Calif., supplies bottles to companies both inside and outside the wine industry, and according to sales representative Marilyn Gapp, wine isn’t bouncing back as quickly as some other food and spirits items. “It grew slower than we had anticipated,” she said of wine industry sales.

Respondents who said they were least likely to see business grow were those in the winery services industry. Whereas 10% of the total respondents answered that their businesses had retreated during the past year, 20% of winery services respondents answered the same way.

The industry’s future
On a more optimistic note, 65% of respondents said they expected the wine industry to slowly expand during the next 12 months, and just 4% indicated that the wine industry would retreat.

Gil Owens, who owns Carolina Wine Supply in Yadkinville, N.C., with his wife Angie, believes the wine industry is still fairly new and novel to East Coast consumers. From his perspective, business is only going up.

“I think most of that business is driven by local tourism, and I don’t think we’ve come close to maxing that out yet,” Owens said. “Consumers understand there is a wine industry here, but a lot of them are just discovering it. People in Charlotte are still figuring out that there are wineries within a day’s driving distance.”

Back in California, Sturgis echoed the importance of spreading the word about wine. “People slash marketing budgets and ad budgets hoping that will be the key to balancing their budgets. But if consumers are used to seeing you out there, and all the sudden you aren’t, they’ll ignore you.”

The pricing puzzle
More than 63% of wine industry suppliers told Wines & Vines that they plan to hold their prices steady during the next 12 months, while 29% expect to raise prices. Sturgis says being open to new ideas has provided several avenues for clients to save money. For example, some high-end wineries have created less expensive labels to sell off inventory, embracing inexpensive packaging and labeling options. There are a lot of costs associated with starting a new label, he said, “but it’s better than taking a $48 bottle of wine and selling it at $24.”

For small-production wineries, Sturgis often recommends his clients print multiple vintages at once to save on setup fees.

For Owens, external factors play a big role. If manufacturing prices don’t go up, he is able to keep winery supply prices the same. Similarly, with the euro creeping up, the wholesale price he pays for overseas commodities increases as well. It is the economy driving prices, he says, “but it’s the economy driven in a roundabout fashion.” Still, he adds, “I am vigilant about watching my competitors.”

Calm after credit crunch
In 2009, 15% of wine industry suppliers told us they planned to tighten credit terms, making it more difficult for wineries and vineyards to apply for credit, and holding customers to stricter payment plans. This year, by comparison, 11% of suppliers said the availability of credit was getting worse for vineyards and wineries, and 16% said it was improving.

Since wine packaging takes place months or years after harvest, one might expect that packaging suppliers are still in the thick of an economic recession, but Gapp, the sales representative from Bruni Glass Packaging, said she didn’t know of any customers defaulting on payment. Instead, she said, some wineries began putting more expensive wine in less expensive bottles starting in 2009.
The good, the bad and the ugly
Finally, Wines & Vines asked suppliers about the biggest challenges facing their companies. The answer is one that started in the hands of consumers, was passed along to wineries and ultimately trickled down to all industry suppliers: wine sales. More specifically, the amount consumers spend on wine translates into the amount wineries can spend on equipment and services. And since consumers are being careful with their money, wineries and vineyards are following suit.

All told, 42% of wine industry suppliers we surveyed said their No. 1 challenge was wine sales affecting customers’ ability to spend. Meanwhile, 73% of cooperages cited the same problem. Indeed, Wines & Vines has followed the trend of wineries choosing less-expensive neutral barrels and oak adjuncts instead of premium new oak barrels (see Oak and the Economy in the April 2010 issue).

So, if the majority of suppliers are holding prices steady, and credit conditions are expected to stay the same or improve, what are business owners to do?

“I think the wine industry will be fine,” Sturgis said of consumers spending their money on wine. “It’s going to be gradual. There will be people who do much better than others, but I think overall we are going to see people come back.”