Issue link: http://winesandvines.uberflip.com/i/591609
112 WINES&VINES November 2015 BUSINESS PRACTICAL WINERY & VINEYARD need to work with them. A good outside investor will reinvest with the community if they are smart. It shows the health of the overall industry." Q Has the strength of the U.S. dollar affected your wine sales, either im- port competition or exports? " Yes, we saw that first in Western Europe, where we distribute our wines very strongly. There was a little pushback on the value of California wine there. Of course, the first guys to get pinched were the agents and the distributors there. It was difficult for us to maintain pricing in that area. We were forced to take prices up a little bit in the local currency. The other thing of course, as you start to talk about dollars, is the port strike that hurt us in 2014. If you look at the dollar, we have not seen an increase in the amount of imported wine here in catego- ries that were already hot." " The port strike hurt us as both exporters and importers. We could not export wine for our customers and had a problem getting dry goods in. We had problems importing some of our wines that were bottled offshore." " It has a huge impact on our cost of goods with barrels alone. If we figure to save 20% on the barrel purchase, that is achieving al- most $1 million in savings. From that stand- point it has been really helpful. It is early to tell what is going to happen to us on the international market. So far our markets have held pretty well, but international sales are not nearly as important to us as our cost of goods. If I had to take one or the other, I would take cost of goods." " The area where we saw it more pronounced was in Canada, where we sold quite a lot. It is already difficult to obtain the right prices in Canada. To put it another way, you gener- ally have to accept their margins in building business in Canada. That coupled with a strong dollar made the last year quite difficult." " It definitely has affected us in our imports. We import quite a bit of wine and it has helped us, but it is a major factor. A net positive, since we import more than we export." " When the exchange rate goes from 1.3 to 1.05 for the euro, yes that is a big deal. We have actually had to discount to maintain our momentum in a lot of countries. We do not import enough to offset that. I am con- cerned about too many imports. In America we are a very heavily regulated business— higher costs and taxes. Imported brands, if anything, have government subsidies, and we let them into America almost for free. I am in the American wine business in the big picture, and we are a California grapegrower. That would concern anybody out there. However, in short years we off- set the supply by bringing in imports. Not at the high end, only at the low end. I am concerned about too many imports getting too strong in America." " Looking at imports in the bulk world, if we had not had three huge crops in a row we would probably see more bulk imports than we have. Cased goods being brought into the U.S. are going to continue to grow, and the strength of the dollar is one of the major factors. But you are also going to see a fair amount of European wines that come in and go to market that are above the $10- tier segment. You will see some guys start to bring in more French, Italian and Span- ish reds to hit the price points that will be above that value." " We see an impact that is just beginning. If you look at Italian imports, which we are quite close to, you really see a decline in the value even though the volume is growing. It appears that we are seeing discounting by Italian producers and that they are taking the exchange rate savings and plowing them back into lower prices. I do not know why they would do it, but they are taking advantage of the strength of the dollar and then discounting their product." " On the export side it has been affected quite a bit. We do a fair amount of bulk wine exports, and the competitive nature of that has gotten tough with other currencies being so weak and ours being very strong. That has had an impact. It has forced us to really push on quality and to kind of dig our heels in and say, 'Look, while it is a com- modity, we are not going to be a cheap commodity.' On the import side, it has affected us a lot less because it has made it really hard for folks to come here and compete too." " About 30% of our total volume is export. We have seen a little of that impact in the past couple years. In Canada, even though we have had double-digit growth, the Cana- dian dollar versus the USD has hurt our margins a bit. But the port closing was the big problem on the export side, just getting wine shipped out of there." " It is hurting exports pretty substantially. The currency is brutal. Volumes are still decent, but the currency exchange is brutal. I do not see anybody lowering prices at all." " It has had virtually no impact on our busi- ness. We thought on the import side that imports would be a better value. We have not really seen that yet. On the export side, we as a company took the position that those clients are really terrible. A) They are fickle. B) They pay slowly. We have a strong domestic market. We really shifted our gears where we are about 95% domestic because this is the best market in the world to sell wine. As long as we have domestic margins that outperform imports, it is just a question of allocating resources." Q There seems to be an increasing bifurcation of the wine market for brands above and below $10. Will this trend continue? How have you responded? " Absolutely. The market is moving upwards, it is enormous. Growing very fast. We pre- dict the same thing of, say, $12, $15 and $20 wines in the next five years. There will be enormous growth. Below that there is not going to be any growth." " We have a very strong foothold in the under-$10 economy section, especially at the lower end. But the future is definitely above that. We are trying to get more bal- ance into our portfolio: diversifying that whole portfolio and realizing that while we are strong under $5, the $5-$10 is not that strong. I am not too anxious to invest be- cause I do not see it as very strong. We will try to really diversify and balance our port- SUMMARY Producers still feel the effects of the West Coast port strike; labor concerns persist in importing/exporting for many winery owners. For some, the savings gains from barrels and other goods can offset most international sales decreases. As strength of the dollar rises, case goods and imports will only increase domestic competition. Exporters feel the impact as international price competition has continued to rise in Europe, Asia and North America. Weakness in the Canadian dollar has had a key impact on many U.S. wine companies. Strength of U.S. dollar's impact on sales