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November 2016 WINES&VINES 35 2016 SUPPLIER SURVEY bets in light of waning sales for mid- and low-priced bottles and bag-in-box wines. BSG's Yamamoto points to wineries adding distillation and brewing capabilities as exam- ples, as well as clients adopting technologies that promise to save money during the wine- making process. The suppliers who re- sponded to our survey also re- ported that renewed interest in higher priced brands—dubbed "premiumization" by the wine industry—is a major factor driv- ing businesses this year. In addition to acquiring high- priced wineries and well posi- tioned vineyards, some producers of traditionally entry- level wines are even spinning off high-end brands made with fruit from well-known AVAs rather than the ubiquitous California designation typically used for mass-produced wines from the San Joaquin Valley. Bruno Remy, vice president of sales and marketing at Can- ton Cooperage in Windsor, Calif., told Wines & Vines, "The large groups—Gallo, The Wine Group, Constellation, Trin- chero—are trying to make wines with more quality, but also higher prices." Nowhere is the trend more evident than in Constellation's recent acquisition history, which includes brands The Prisoner ($32-$47 per bottle) and Meiomi ($16-$25 per bottle). FROM THE SUPPLIER SIDE For wine industry suppliers, however, all that consolidation can come at a cost. Some long- time wine industry vendors be- lieve the trend has put pressure on them, as corporate owners increasingly expect to get cut- rate deals due to their size. One California winery supply retailer even accused large wine companies of purchasing pre- mium brands and then "bastard- izing" them to the point they are relegated to mid-range and eventually value pricing. That said, consolidation is only one of many trends re- ported by wine and grape in- dustry suppliers. A NEW TYPE OF BUYER Several wine industry service providers noted that the high cost of entry is drawing a new type of winery and vineyard owner. "People are making wines not just for fun, but to sell the wines," Remy said, noting that several newcomers to the busi- ness aren't brick-and-mortar wine producers but virtual winer- ies using their neighbors' facili- ties for custom crush. In a competitive market, vir- tual winery ownership can be a way to ease into the winery business without risking a multi-million-dollar investment. "It's probably tough for all these new brands to find their place in the market because there is a lot of competition," Remy said, "but people are doing it successfully." Rodda from American Ag- Credit added, "It's becoming more difficult for smaller, fam- ily-owned enterprises to exer- cise muscle in a large book," referring to the hundreds of brands that distributors repre- sent to potential off-premise accounts. It is the same dilemma that prompted the late Jess Jackson, founder of Jackson Family Wines and producer of some of the most popular wines on U.S. retail shelves, to enter the distribution market himself in 1993. Today Regal Wine Co. represents not just JFW wines but also 55,000- case Opolo Vineyards of Paso Robles, Calif., 18,000-case Lange Estate of Dundee, Ore., and others. DIRECT-TO-CONSUMER SALES Wineries looking to eschew the three-tier model are increasingly adopting the direct-to-consumer channel as a way to grow their sales and create loyal customers and brand ambassadors. "DtC has been a huge factor for the smaller wineries for the past five to 10 years. Selling on-site at the winery itself, the mailing list, all those things are huge because that's full FOB price," Rodda said, referring the drop in revenue that ac- companies each step of three- tier distribution. The growing DtC sales chan- nel has produced not just a new source of revenue for wineries but also a variety of businesses to cater to their DtC needs. One supplier of packaging used for DtC shipping predicted his sales for the channel would grow be- tween 20% and 30% in the coming year. Indeed, DtC shipments grew from $63 million in September 2009 to $198 million in Septem- ber 2016, according to data from ShipCompliant and Wines Vines Analytics, which show annual DtC sales from U.S. wineries to be well north of $2 billion. PRICES TO CLIMB SLIGHTLY As wine sales grow, the prices of products and services avail- able to wineries and vineyards often increase as well. More than half of survey respondents said they planned to increase prices in the next 12 months, and 18% say increases will jump more than 3%. Many at- tributed the increase to trends in the pricing of raw materials and labor. Cooperage is one industry that has seen materials costs skyrocket in recent years, al- CLIENTS' ACCESS TO FINANCING Which statement best describes your clients' ability to find cash or financing to pay for your products and services? Getting Worse 2% INDUSTRY HEALTH IN 2017 Based on your orders and knowledge of the wine industry, what do you expect the industry to do in the next 12 months? PRICING IN THE NEXT YEAR Do you expect to change the prices of your products and/or services during the next 12 months? Expand Slowly 72% Increase Prices by More Than 3% 18% Increase Prices by Less Than 3% 35% Expand Rapidly 8% Keep Prices the Same 47% Retreat Slowly 6% Retreat Rapidly 0% Decrease Prices by More Than 3% 0% Decrease Prices by Less Than 3% 0% Remained Unchanged 14% Staying the Same 67% Getting Better 30%