By the time a consumer pours the first glass from a just-opened bottle of wine, hundreds of decisions have contributed to its development—choices about rootstock, harvesting equipment, yeast, bottling supplies and shipping companies are just a few. In fact, hundreds if not thousands of vendors have an impact on each and every bottle (or box) of wine that reaches a consumer. For this reason, wine industry vendors have a unique perspective about the health of our industry.

This fall, for the fourth consecutive year, Wines & Vines polled vendors that offer products and services to wineries and vineyards to get their take on the economic climate and how the wine industry is doing.

Holding steady
This September we asked wine industry suppliers to describe the financial health of their wine industry clients. Nearly half (48%) of respondents said their clients’ businesses are stable, while 33% described their clients’ financial situations as “getting better,” and 19% said they were “getting worse.”

Like most respondents to our survey, Buzz Boyanich, owner of Napa, Calif.-based beverage equipment company Key Industrial, described sales in the wine sector as flat. “When times get tight, wine is a luxury item for the consumer, whereas when times are tight, people eat more ice cream,” said Boyanich, who conducts about 25% of his business in the wine industry and also works with the dairy sector. “The dairy industry suffered some, but not as drastic as we’ve seen in the wine trade.”

Boyanich added that clients who sell natural and organic products seem to be an exception in the otherwise static marketplace. “People are getting much more health conscious. Anything attributed to organic or pure or certified is doing quite well. I’ve seen a lot of the manufacturing people experiencing growth in that market,” he said.

Beth Zarnick-Duffy, a State College, Pa.-based sales manager for automation equipment supplier Emmeti USA, said that since the economy has taken a downturn, a lot of her wine industry clients have responded by looking for ways to become more efficient, whether it be through saving energy or investing in products that streamline workload.

Zarnick-Duffy said that energy-efficient equipment is becoming commonplace in Europe, and she is encouraging clients to adopt green practices now rather than wait for them to become standard in the United States.

A look in the mirror
In terms of ranking their own businesses, wine industry vendors on the whole were more optimistic. In 2009 52% of survey respondents said that their companies had seen growth in the previous 12 months. This year that figure was up to nearly 73%.

More than 48% of survey respondents said that during the past 12 months their companies “grew slowly,” and nearly a quarter of respondents said their business “grew rapidly.”

Glen Caster, the Southern California-based sales manager for Swash Cleaning and Sanitization Equipment (a division of ARS Enterprises), said that in the past 12 months his sales finally returned to the high levels of 2008.

He told Wines & Vines that when the economy started going south, his wine industry clients seemed to get scared, even though there weren’t any particularly negative economic indicators within the wine industry. Winery customers started “backing off on buying capital equipment” that year, said Caster, who added that many opted instead for “waiting to see what was going to happen.”

“In times of concern, when capital budgets are being watched carefully, (wineries) said, ‘I’d like to change, but I’m going to wait.’ And we saw a lot of that,” Caster said.

Predicting the future
For the fourth year Wines & Vines asked winery and vineyard suppliers what they expect the wine industry to do during the next 12 months. Nearly 59% of suppliers indicated that they expect slow growth in the industry, and more than 31% of suppliers expect no change in the sector.

Caster, who also is partner at Highlands, a virtual winery based in Napa Valley, is part of the majority that expects a gradual increase in wine industry earnings.

“All indicators suggest that wine consumption is going to grow,” he said. “I don’t expect there to be any kind of break in the curve where it’s going to zoom up or zoom down.”

“Some of it is style, fad, whatever you want to call it. The U.S. overtook France in total consumption, so that’s pretty interesting,” Caster said, referring to a report released earlier this year by Gomberg, Fredrikson & Associates.

Direct-to-consumer fulfillment firms indicated that legislation to open new channels of DtC sales could spur the wine economy.

The total number of respondents that expect the industry to expand (be it rapidly or slowly) is down 13% from 2010 figures. According to one California-based barrel warehousing specialist, “There will be success stories, but much fewer and farther between. Our idea of success, too, has changed with lowering of expectations.”

Meanwhile a Sonoma County wine equipment owner said, “The other states are coming up to par, so California should get with it and lower some prices.”

Obtaining credit
Respondents to Wines & Vines’ survey were asked about the availability of cash or financing to vineyards and wineries. Nearly 65% of those surveyed reported that the availability of credit for wine industry businesses is the same as it was in 2010, but more than 22% of respondents said the availability of financing was “getting worse,” a noticeable difference from 2010, when just 11% of respondents answered the same way.

One Northern California designer and branding specialist said he’d responded to the financial crunch by asking for half-payment up front and half on delivery. “I make this clear up front, and I have not been burned so far,” he said.

Boyanich, who is a small business owner himself with 16 employees at Key Industrial, said, “The banking and financial institutions have turned the screws on lending.

“There is less money to spend, less cash flow,” he said. “Th e tightening up of loans and lines of credit plays a role in the limited growth that we see in the wine industry. I’m just waiting for the turnaround to begin.”

Anticipating costs
For wineries and vineyards that can shore up cash reserves or credit to pay for goods and services, what should they expect from supplier pricing during the next 12 months? In 2010, 29% of suppliers surveyed indicated that they would raise prices; this year that figure jumped to 36%, with 26% of respondents saying that a price increase of less than 3% is likely. Meanwhile, nearly 59% of suppliers said they would be keeping prices the same in the coming year.

Beth Zarnick-Duffy says that Emmeti USA has no plans to raise prices in the coming year. The current economic climate means that “everyone is being more cautious about where and how they’re spending their money, so I think that Emmeti is trying to be more competitively priced,” she said. “Another thing that we have been offering our repeat customers is a goodwill discount, which is pretty significant.”

For some of the wine industry suppliers raising prices (more than 9% of vendors surveyed plan to increase costs by more than 3%), the decision can be tied to the cost of materials such as stainless steel, the price of which fluctuates frequently and is often accompanied by a hefty surcharge.

Caster relayed that materials costs have been a factor in pricing at Swash, the cleaning and sanitation equipment company, as have exchange rates for the euro. Still, the firm rolled out a new high-end product earlier in 2011, and it plans to keep prices fixed in the coming months. “We feel like, with our raw materials costs, we’ll be able to hold the line,” Caster said.

Some suppliers told Wines & Vines that they have focused on increasing services available to their customers as a way to keep business moving. “We are trying to bring more technology-based processes and equipment to the wine industry, which will allow for cost savings in the cellar,” Boyanich said. And while the Napa-based supplier is not yet seeing exponential growth in those product lines, he contends that the effort is worthwhile. “It’s something a little over and above what our competitors might offer, and it gives me a little more identity.”