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150 WINES&VINES January 2017 BUSINESS PRACTICAL WINERY & VINEYARD M illennials, whose baby boomer parents were the first generation of premium wine drinkers in the United States, are consuming more and higher value wines, driven by a thirst for quality, new experiences and information-sharing, according to wine industry leaders surveyed by the University of California, Davis. Survey of wine executives The 14th annual wine executive survey reflects the opinions and projections of the leaders of 27 companies including 17 California wine produc- ers, one Washington state producer and one Italian wine producer, plus seven wine marketers and one vineyard-investment company. Asked if they were preparing for a recession following the recent years of economic growth, most respondents remained confident in the health of the industry, and some were prepar- ing for continued growth. Others noted that they were fine-tuning their businesses by di- versifying their portfolios to include a better balance of luxury and economy brands of wine. Although they remain optimistic, some re- spondents also reported that they are stream- lining their operations by downsizing wine inventories, strengthening their supply chains and mechanizing to reduce labor expenses. Climate change and water availability Factoring in climate change and water avail- ability, the wine executives are purchasing only vineyards with good access to water; choosing vigorous, water-efficient rootstocks; and in- vesting in technology to minimize water use in the vineyard and winery. Some are using rainwater catchment and storage systems and installing wastewater treatment equipment that enables their facilities to use winery wastewater for vineyard irrigation. Anticipating that climate change will inten- sify in the coming years, some wine executives are now looking outside California to Oregon and Washington for vineyard development and to Chile, Argentina and Australia for sourcing bulk wine. The five questions that follow were submit- ted to a variety of participating CEOs, who agreed to have their edited responses included without attribution. Q The economy has had a good, long run. Are you doing anything to pre- pare for the possibility of a coming recession? " No, we are not. We are doing a lot of things, but not preparing for a recession." " We have been in the business 58 years and gone through a number of recessions. My experience knows that in good and bad times, people drink wine. We do not see ups and downs in the business cycle. It is straight up." " The biggest risk in a downturn is inventory, because you end up having too much wine on hand. From a strategy standpoint on wine quality, what also makes you live or die as a brand is the quality of wine you make. What can really make you live in a recession is not buying all the (grapes) you think you will need, playing it short and buy the rest on the bulk market, but we are not doing that now." " We are running business as usual. The big- gest issue we have as a sales organization is that we do not have enough inventory. We would actually like to have more inventory. Maybe if we were running into a recession I would be happy we do not have the inven- tory, but we need inventory." " We are diversifying our portfolio. We have multiple price segments. If you go back to the previous recession in 2008, our pre- mium/luxury brands tanked. Our value brands saw us through a little bit." Industry Leaders Optimistic About Premium Wines Millennials are trading up, but climate change, labor availability and input costs cause concern By Robert Smiley, Ph.D., and Nicholas Simmons KEY POINTS Findings from a survey of wine industry ex- ecutives were reported during the Wine In- dustry Financial Symposium in Napa, Calif., and are published here. Climate change, distributor consolidation and direct-to-consumer sales were cited as continuing issues in the wine industry. Many wine CEOs prepare for growth but streamline their operations, while labor avail- ability and rising input costs concern them.