Issue link: http://winesandvines.uberflip.com/i/210765
w i n e B U S INE S S pockets— but my take on it, and my distributors have told me that when times were tough, people drank brands that they knew and depended on or could trust. We are not inexpensive, so people continue to drink our wines through the difficult times, just not as much. ■ Yes, the more premium luxury, if it is $30-$100, is coming back solidly. There is a solid future for that category. Consumers have not abandoned that completely. We do see a shift back into that price-point. ■ There is a new product burn-out, particularly for the contrived brand that really does not have any substance. It is a clever imitator, but the wine is just relatively ordinary and unsophisticated, and we have seen that from retailers who are putting the brakes on new products that really do not have a position. Because of that, we are going to start seeing fairly traditional brands make a resurgence. ■ It will come back. The difference is you have to have a reason for that luxury. What got wounded in this last crash was frivolous luxury. People will still buy luxury, but there has got to be a real reason for it, and people are going to dig deeper into it. Q: What do you think will be the hottest issues over the next five to 10 years? Doing business in California will not get any easier, as it relates to regulation and some of the things that we are faced with now as we try to expand — not only vineyards, but production and infrastructure. ■ Grape sourcing, especially in Cali fornia. U.S. market growth is going to outstrip our ability to plant more grapevines, especially given the concerns over water and alternative crops, like nuts. ■ It will be climate change. It is a halfdegree warmer on average in 2013. Extreme events, like never before, or that type of thing. That will be one big topic. The other issue is automation in vineyards, and that ties in with how the vineyards are laid out, what materials are used for the infrastructure, and how you are treating the vines to combat climate change can also make the vineyards as efficient as possible. ■ The strength of the U.S. dollar is very critical. As the U.S. dollar becomes strong, and I see it becoming stronger; U.S. exports become less attractive, and imports more attractive. Vice-versa: We have been through the ups and downs of that over time, and it is something that we have to watch very closely. Environmental con■ straints, especially in California: shortage of clean water, pesticide use, the effect on the grapes, the concern over the impact the industry has on the environment, how to be sustainable—and that is something that we hold dear to our hearts and something that is very important to us. ■ There will continue to be pressure on cost of inputs. Labor is going to be a challenge, particularly on economics in most growing regions, and land costs will go up. Total pressure on costs will escalate. That will either cause repositioning or pressure on margin—and again, it is a world-wide business. At what point are the brands well-established? What will the customers start trading off, or how much? How price-elastic are they? ■ We are now planting vineyards designed for box pruning; that means no shoot-positioning or leaf pulling. At the end of the day when the vine comes in, balance not fruit-thinning. ■ The biggest California issue is water. We are looking at numbers where we think the industry could grow 150 million cases in the next 10 years, and that is a huge amount of grapes, water and competition for the land. We will have to deal with prices going up quite a bit in the future. A lot of imports will fill up the vacuum because of that upper growth. I do not see it coming out of California. Q: Even in central San Joaquin Valley? ■ I do not see it. You will probably see wine coming out of Washington, but that is somewhat limited. ■ I am nervous about the volume of wine that we sell direct to consumer and about what shipping rates could do to that whole model. If shipping rates double, it could put our "direct" business out of business. ■ Distributors, hopefully, are going to morph into something more value-added than they are today. Either they become true sales organizations that add value, or they are going to be replaced. ■ DHL, Fed-Ex and those guys, they will figure this thing out. They have the trucks and delivery systems. The distributors are only going to be taking orders and making deliveries. There is a lot of margin in there, it is a lot better than postage that they are getting right now and the other kind of mail. I would not be surprised if we see something fundamentally changed there, with— let's describe it as a Tier Two system. ■ The biggest challenge will be the Mother Nature impact on any agricul- 62 p r acti c al w i ne ry & v i ne yard DECEMBER 20 13 tural business. It is horrible looking at what challenges occurred in Europe: rain in 2012 and hail in 2013. How devastating that can be on people's long-term projections. You look and try to forecast what to do, where to invest your branded dollars, then all of a sudden, your crop is wiped out. ■ High alcohol versus medium and low alcohol. Certainly, proposed nutrition labeling is a significant issue and may have an impact on the wine industry, particularly mandatory labeling of calorie levels for certain wines. ■ Another factor that is really rearing its head is the private-label business within the retailers around the country. They have a huge push— Costco, Wal-Mart and others — seeking out their own private labels and pushing those that tend to be in the lower price-points. ■ Consumers will continue to be swayed away from an old host of conventional thinking: If you can find it at Costco, it is a lesser brand. Well, we thought that way 10 or 15 years ago. Now, if you find it at Costco, Costco has got something you really want, that is totally cool. Screwcaps or alternative closures and containers continue to gain more favor. New guys in this industry spawned so much innovation and excitement that there is not going to be any shortage of new guys coming in and chasing the big guys, or the established guys, or the medium-size guys. That is really healthy for this industry. ■ The demographic shifts are the biggest opportunity. You have two of the biggest shifts occurring—the Boomers and the Millennials. The Boomers are getting older; they are going to reduce consumption over time, potentially. Millennials are adapting to wine at a faster pace and are a different type of consumer than what we have seen in the past. ■ They predict 450 million cases of wine in America, 200 million cases more than today, in about 10 years. It is going to be availability. We saw what happened in the past few years when there were shortages. It is a matter of having enough available to be able to feed the market. ■ The wine industry is one of the greatest industries. The future is bright. Young people today enjoy being introduced to wine, and it is a pleasure when you go out to restaurants and you see them having a glass of wine, more so than ever before, and I have been watching this for a long time. We are in a great spot. ■ If you look at what we have done in the past 12-18 months in regard to land acquisition and plantings, we are gearing up for a bright future. PWV