Moss Adams' Wine Industry Benchmarking Survey will be available for purchase next month.

Napa, Calif.—Acquisitions and grape supply, plus direct-to-consumer wine sales and the consolidation of sales channels were hot topics earlier this week, when the 26th annual Wine Industry Financial Symposium was held at the Napa Valley Marriott.

More than 300 executives and professional attended, one-third of them from wineries, as the event made its debut under the new management of Wine Communications Group, which also owns Wines & Vines and Wine Business Monthly.

Wine Industry Financial Benchmarking Survey
One session focused on the 2017 Financial Benchmarking Survey conducted by Moss Adams. Senior business consultant William Vyenielo presented some results from the study, which analyzed 2,106 results from 80 wineries (not all Moss Adams clients), designed to help winery and vineyard management compare their operations with peers.

Among its finding were that 61% of wineries hoped to raise wine prices, which has proven difficult in practice, while 46% intend to increase wine volume.

One-third of growers hope to raise grape prices and volumes, and the same number are looking to increase mechanization.

Almost two-thirds of wineries intend to increase their sales budgets, and almost as many their marketing budgets. A quarter want to buy a vineyard.

The whole study will be available to participants next month, when others can buy it for $495. Vyenielo said the accounting firm welcomes additional participants in future studies.

Mergers and acquisitions

WIFS Annual Executive Survey
 

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This year, Ray Johnson, executive director of the Wine Business Institute at Sonoma State University, and Dr. Liz Thach, MW, distinguished professor of wine and a professor of management at SSU, took over from long-time presenter Dr. Robert Smiley from the University of California, Davis, to present The Wine Industry Financial Symposium’s Annual Executive Survey, which will be summarized in an upcoming story.

After two years of record deals, mergers and acquisitions activity this year has been fairly light. Matt Franklin, partner at Zepponi & Co., said: “There have been no deals over $100 million this year. Last year there were six of them.”

He also pointed out that there aren’t many mergers in the wine business, just acquisitions.

Franklin counted $820 million in deals in 2015 and $2,370 million in 2016. The last time the industry saw such high activity was in 2007, with $1,490 million and $600 million in 2008, just as the recession hit.

 The total rose to $510 million in 2011 but was only $280 million in 2014 and $250 million so far this year.

Many of the deals involved geographic expansion, mid-size players (smaller than E. & J. Gallo Winery, Constellation Brands and the Wine Group) building scale and premiumization.

The biggest deal, Gallo’s acquisition of Stagecoach Vineyard, joins recent trends of wineries adding vineyards to ensure grape supply. The Stagecoach deal eventually will affect the 100 wineries that have been buying its premium grapes.

Labor issues
Most speakers mentioned problems with labor availability, and most wineries and growers are looking to mechanization as a partial solution.

Most agree that today’s mechanical harvesting is equal to or even better than hand-picking, and automatic sorting on a harvester or in the cellar can surpass hand-sorting and save significant labor costs.

Likewise, pre-pruning and leaf pulling are proving popular. Steve Tamburelli, CEO of Napa-based producer Clos du Val, said that the possibility of mechanical harvesting is part of the winery’s new planting regimen, even though they aren’t yet using mechanized harvesters.

Moving upscale
Most of the wine industry is looking to move upscale — often by buying wineries, but also by introducing new brands and trying to raise prices or increase direct sales to consumers.

Two sessions focused on premiumization looking at both the upsides for wineries and the accompanying downsides—namely rising grape and vineyard prices and tight fruit supply.

Cyril Penn, editor of Wine Business Monthly, led a session with Bob Torkelson, CEO of Trinchero Family Estates; David Bowman, executive vice president of estate strategy at Jackson Family Wines; and Corey Beck, president and director of winemaking at Francis Ford Coppola Winery—all companies rapidly moving up market.

Penn noted that a decade ago, asset-light brands were in vogue, but now wineries are buying vineyards to secure grape sourcing. Even Coppola — long focused on brands for the three-tier system and visitor amenities—has bought 100 acres this year for its direct-to-consumer wines.

Trinchero farms about 9,500 acres, while Jackson’s appetite for land is legendary, yet it still buys 30% of its fruit. It’s been betting heavily on Pinot Noir, for example, but doesn’t farm any of its own Pinot Gris.

A session on the negative effects of premiumization focused on rising grape and vineyard prices and highlighted wineries’ moves to source fruit from cheaper areas.

One aspect of this is the growing popularity of brands over location, which could weaken the hold of regions now demanding premiums for their grapes and wine. Blends also obscure both place and variety, the traditional differentiator for luxury wines.

Likewise, the big wine companies are taking market share, and smaller companies are having trouble finding fruit to grow.

Politics and the economy
Two panels focused on political climate and the economy, but with little resolution due to the gridlock in Washington, D.C.

Andrew Prior, director of PricewaterhouseCoopers’ Washington National Tax Services Legislative and Regulatory Practice, presented an overview of political, economic, budgetary, procedural and fiscal deadlines but admitted it was unsettled, given that no one knows what will happen with taxes.

Bobby Koch, president and CEO of the San Francisco-based Wine Institute, discussed the organization’s state, national and international public policy and how the group’s advocacy efforts are impacting the wine industry. He outlined the proposed measures that might affect the wine industry, notably immigration policy and changes in taxes; but no one is sure what might happen in D.C.

In another session, Russell Miller, associate with RBC Capital Markets, predicted “lower for longer” growth for the U.S. economy.  The consensus, he said, is that nation isn’t looking at a recession or boom, but slow and steady growth for the foreseeable future.

However, George Coope, senior director of strategy & analysis at Zepponi & Co., warned that growth is slowing at all price points in the wine business.” He added, “It’s the eighth year of expansion. The stock market is at historic levels and may be ready for a correction. The Fed is raising interest rates. There’s great political instability.”