Inventory Control a Must in Today's Economy
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About 18 months into the current sluggish economy, wines which retail for under $10 a bottle are the best sellers, those selling for $10 to $15 have a modest success, and those retailing for over $25 a bottle are struggling. Thus from consumer cellars, to store shelves, restaurant wine lists, and importer and distributor warehouses, the buzzword is inventory.
"It's a very challenging environment out there with the slower economy," said Bruce Herman, senior vice president of sales for Foster's Wine Estates, a department of Australia-based beer and wine giant Foster's Group which produces the California brand Beringer and Chateau St. Jean, among others.
"It's like the freeway when each person is tapping the brakes a bit and eventually everyone is at a standstill," said Donny Sebastiani of Sonoma, California, Don Sebastiani & Sons, who certainly had the lower sales figure in mind for Don & Sons' two main brands - Pepperwood Grove and Smoking Loon - in groceries and liquor stores.
According to Information Resources Inc., Pepperwood Grove ranks among the 100 largest wine brands, and the nearly 32% decrease in volume sales from mid-May to mid-June 2009 compared to the same period in 2008, was an improvement over the almost 42% year-over-year drop from the previous month. Despite the drop of sales in volume, Sebastiani said that so far, revenues this year are up compared to last year, because of the company's decision to increase the price by $1 a bottle in the West Coast, retailing the Smoking Loon brand for $6.99, and Pepperwood Grove for $5.99.
The competition from other similarly priced brands which shaves prices to move inventory has become "hyper competitive" said Sebastiani, as brands languishing in the restaurant market are being repositioned at lower-prices. On the other hand, Don & Sons decided to launch a five-varietal, restaurant-oriented Smoking Loon extension brand, called Flock, which retail for $15 a bottle and $10 a glass.
Offering more by-the-glass wines is Foster's strategy as well, scaling down from its portfolio of wines which retail for more than $25 a bottle, said Herman. Recently the company has been pushing a Knights' Valley Cabernet Sauvignon, a Chateau St. Jean Pinot Noir and a Chardonnay, as well as a St. Jean's Cinq Cépages flagship blend for sales by the glass.
"We're placing them at fine casual and white tablecloth restaurants that are moving to by-the-glass wine sales rather than full bottles," said Herman. "Selling by the glass allows restauranteurs to make up their dollars by selling more volume rather than by selling everything by the bottle."
An Argentinean Malbec brand called Colores del Sol, which Foster's introduced last year, is among the by-the-glass best selling wines, thanks to its flexibility for serving with food or as an aperitif, Herman noted.
Though some wine sales experts predict that the current industry crises is ending, Herman, who previously headed the fine-wine division for large distributor Young's Market, said that: "Buyers are still cautious. My sense is that like the greater economy, we are closer to the bottom now than in the past, but it will be a slow and cautious recovery."
According to Fred Reno, president of The Henry Wine Group, the wine business will hit bottom in late summer, which represent historically a slow sales period.
"If I am correct in my assumptions and underlying instincts, the sound that we might hear this third quarter will be the collective 'thump' of the wine market and its continued downward spiral in price and selection, which will accelerate in all channels of sales as the consumer continues to level down in price to fit the new economic realities," he wrote in a company newsletter early this month (August 2009).
According to WineCountry.IT, L.L.C. president, Loris Scagliarini, it will take a very long time to climb back to the state of the market in 2007.
"The amazing 59% increase in US imports of inexpensive Australian wines in the first six months of 2009 compared to the same period in 2008, along with the 11% decrease in volume for imports of Italian wines which have mostly held their prices in the same period, tells me that the habits of US consumers are changing and will not reverse easily," declared Scagliarini. "Two recent studies, one commissioned in Italy and one in the US, seem to back my gut feeling," he said.
According to some analysts, the lackluster sales of 2008 Bordeaux futures and lower bids on the recent Auction Napa Valley underscores this trend.
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