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32 WINES&VINES November 2017 2017 SUPPLIER SURVEY T he U.S. economy has maintained an upward trajec- tory during the past year, extending from dollar ap- preciation to the gross domestic product. This positive trend has been evident across most parts of the wine industry, as wine buyers continue to reach for higher priced products at retail, through direct-to- consumer (DtC) shipping and other sales outlets. For the 10th consecutive year, Wines & Vines reached out to wine industry product and service providers to get their perspec- tives on the state of the wine in- dustry past, present and future. Jeff Clark, an industry expert in Live Oak Bank's Wine & Craft Beverage Group, says it's a great time to be in the wine business. "We have enjoyed steady growth in sales with younger generations embracing wine, albeit in their own fashion. Interest rates remain low, and we have enjoyed good harvests in recent years," he said. The vast majority of wine in- dustry suppliers agreed, with 97% of respondents to our sur- vey reporting the financial health of their wine industry clients was as good or better than the previ- ous year. Suppliers shared anec- dotes of vineyards that earned sustainable certifications and were able to charge more for their grapes, increased sales in the DtC sector and improved wine quality that demands higher prices in the marketplace. Unlike 2016, when zero sup- plier respondents described their wine industry clients' fi- nances as "getting worse," 3% of wine industry suppliers chose this option in our multi- ple-choice survey. Still, the fig- ure is a vast improvement from 2011, when 19% of suppliers said their clients' financial health was worsening. MAKING DEALS Mergers and acquisitions have continued during the past 12 months, with wine-production facilities and mature, producing vineyards among the most desir- able properties for buyers. E. & J. Gallo Winery created shock- waves in the wine industry that will reverberate for years to come this April, when it pur- chased Stagecoach Vineyard in Napa Valley for $180 million, ac- cording to deeds recorded in Napa County. The deal was just one more example of an industry looking to cater to wine consumers with increasingly refined tastes and more money to spend on luxury goods. Roger Nabedian, senior vice president and general manager of Gallo's Premium Wine Division, said at the time, "This purchase affirms Gallo's commitment to compete in the luxury wine seg- ment and provides us the oppor- tunity to continue making and selling luxury wine offerings such as Louis M. Martini, William Hill Estate and Orin Swift." The Martini and William Hill brands already sourced fruit from Stagecoach, but more than 30 other brands had vineyard-desig- nated wines attributed to the 600-plus-acre vineyard in the Atlas Peak appellation. Gallo agreed to fulfill existing contracts, but once those agreements are concluded, the fruit from this prestigious site could go to the high-end labels in E. & J. Gallo's 71 million-case wine portfolio. EMERGING TRENDS Almost 17% of wine industry suppliers reported the kind of "premiumization" evident in the Stagecoach deal was one of the top wine sales trends affecting their businesses. Other popular selections included the "ex- panding direct-to-consumer market" and "proliferation of new brands." Providers of wine packaging agreed the increased number of wine brands ushered in more creative freedom, with one sup- plier opining: "New consumers are more accepting of alternative packaging." Still more agreed that the use of screen printing, metallic foils and other non-tra- ditional items were picking up as more established brands rolled out new offerings geared toward a younger set of consumers. PRICES AND FINANCING While wine consumption and sales are moving in a positive direction, more suppliers say their winery and vineyard clients are having a tough time accessing the cash and financing necessary to make capital improvements this year. Borrowing rates are still low, and banks have not returned to the tight-fisted lending practices that followed the financial crisis of 2008, but 11% of survey respon- dents said their "clients' ability to find cash or financing to pay for products and services" was "get- ting worse." One winemaking con- sultant speculated that was because few wineries are in need of loans—possibly attributable to Wine Industry Suppliers Report Client Growth DtC shipping, premiumization and new brands offer avenues for success By Kate Lavin FINANCIAL HEALTH OF WINE INDUSTRY CLIENTS What is your impression of the financial health of your wine industry clients? 80% 70% 60% 50% 40% 30% 20% 10% 0 Getting Better Staying the Same Getting Worse 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017