Slide 4 of 18
Notes:
- Now, when I say “competitive”, I mean that in the best possible way. We like competition because, in our experience, competition means opportunity. But before you can take advantage of the opportunity, you need to understand the obstacles, and today the premium wine market has plenty
- First of all, it’s a crowded market (the top 10 producers account for only 5% of the market). And – especially in the volume end of the market – there continues to be aggressive price competition and a scramble for consumer attention on the selling floor. This has given more clout to retailers, a trend that has been magnified by the changing dynamics in the distribution system. Consolidation has cut the number of distributors in the United States by more than half since 1975, making it harder get attention and loyalty from the trade.
- You also can’t forget that winegrowing is a capital-intensive, low-return business subject to the vagaries of weather and oversupply. Long-term planning is always a challenge, and that’s certainly been true lately when huge domestic harvests and lower grape costs in Australia have created a flood of good wine at extremely competitive prices. This has put pressure on even the most firmly established brands, including our own Woodbridge label.
- Unfortunately, we don’t see this situation changing soon; we expect the oversupply environment to continue another 18 to 24 months. Many of you will remember that we and others in California had hoped for a pretty dramatic decline in the 2003 harvest, but rather than the 12 to 15% drop that we had forecast, we got a statewide decline of 8%. The right trend, certainly; just not as pronounced we would have liked.
- Finally, the premium wine market is characterized by low brand loyalty, which has further sharpened the emphasis on price and the pressure on margins.
