Issue link: http://winesandvines.uberflip.com/i/197145
S U P P L I E R S U R VEY Highlights • ines & Vines' sixth annual survey of W industry vendors and suppliers shows industry health and slow but steady continued growth. • Lines of credit for winery and vineyard equipment and improvement projects still feel tight, said 61% of respondents. • ith purchases from customers improvW ing, and to catch up on their own rising costs, 98% of suppliers are going to hold or raise prices in the next year. "It is true that the industry in general is seeing industry growth and therefore expansion. However, there are two factors that mitigate this and affect the availability of capital," Motto explains. "First, while the industry is growing overall, individual winery results are quite variable—perhaps more variable than ever. In other words, not everyone is sharing in the growth. Some wine companies have strong growth, while others are still struggling to grow. "Related to that is that growth in sales is harder to translate into growth in profits. As the industry has grown in the number of producers, it has become more fragmented and therefore more competitive. We have lower margins, higher operating expenses and therefore lower and/or more variable profits for some wineries. "More variable profits and less predictable profit trends change the risk profile Clients' Access to Financing Which statement best describes your clients' ability to find cash or financing to pay for your products and services? Staying the Same 55% Getting Better 39% Getting Worse 6% for banks, so bank underwriting becomes more stringent. While banks are aggressively competing for winery business, credit is harder to get because the underwriting is more stringent. "The good news is that credit is cheap. The bad news is that it's harder to get." Motto observed that the global economy still shows uncertainty after five years in decline, with extremely slow recovery. A very small percentage of wineries have failed or gone bankrupt in recent years, and in spite of how few have failed, risk-averse banks are affected by it and will keep underwriting tight until the general outlook is stronger. Orders continue to be strong With orders coming in from wineries and vineyards, 86% of suppliers expect growth to continue in the next year. Respondents to the survey spoke of stability, healthy slow growth and positive changes (though no dramatic ones). Orders for many products and services already are in place for 2014 and 2015. At Bergin Glass Impressions in Napa, Calif., Mike Bergin says packaging season normally winds down in September for a couple of months, and in November, the company begins personally contacting each client to determine order levels and design changes for the next bottling season. "This year," Bergin says, "the 2014 orders are already coming in early September, with clients calling to bump up the volume." Dustin Hooper at Vintage Nurseries, one of the largest nurseries in California, is taking orders for 2015, 2016 and 2017. "On the vineyard side, we see a lot of careful and long-term planning, whether for new development, grafting over to new varieties or replanting strategies," he reports. Dewitt Garlock is a California vineyard management consultant with more than 20 vintages under his belt, who says that planting is robust on the Central Coast, with larger wineries and partnerships still buying new properties to plant winegrapes. Water issues are still plaguing the Paso Robles area. "Vineyards in the Central Valley of California are being removed, as the price for Thompson and other varieties has nosedived this year," Garlock said. Hooper agreed, adding that Thompson has been pulled out steadily for about four years now and is being replaced with Fiesta, Colombard and Muscat vines. Both vineyard experts reported strong pest pressures in California's North Coast vineyards up until harvest 2013 but few late-season challenges such as mildew and botrytis. Red blotch disease is spreading, and all parties from scientists to nurseries to vineyard managers are carefully testing and evaluating rootstocks and vines for leafroll virus, young vine decline and other latent diseases. Tony Bugica of Bacchus Vineyard Management (Windsor, Calif.) believes the debate over hand-labor vs. mechanization has only grown stronger since the economic downturn, and he believes it will likely be the biggest issue in premium winegrowing in the next few years. "Winemakers prefer hand-tended vines and hand- picked grapes, but the push to mechanize may overcome objections." In the winery, Nathan Williams of Santa Rosa Stainless Steel saw tank orders up again this year—both from winery expansions and new builds. "We did a project for Honig Winery (Rutherford, Calif.) where they gutted a building of old tanks and replaced them with new, increasing their total capacity. We also did the new Tamber Bey Winery (Calistoga, Calif.) and Steve Kistler's new winery (Sebastopol, Calif.), which is all new construction. I'd say it's about 50/50 new builds and expansions." Tank designs and add-ons affected by winemaking quality decisions included more seed screens and racking screens for pump overs, tanks with sloped floors for easier cleaning and an increased demand for conical tanks for high-quality red wines. Pricing confidently Another indicator of confidence in business growth from our survey results is that suppliers are continuing to plan at least modest price increases for their products and services in the next year. Twenty percent Industry Health in the Next Year Based on your orders and knowledge of the wine industry, what do you expect the industry to do in the next 12 months? Expand Slowly 72% Expand Rapidly 14% Remained Unchanged 12% Retreat Slowly 2% Win es & Vin es NOV EM b er 20 13 43