Expert: Shock of recession wearing off among consumers

By MATEUSZ PERKOWSKI

Capital Press

Oregon wine producers are poised to benefit from the end of the price-cutting trend that afflicted the wine industry after the recession, experts say.

In general, prices for higher-end wines rose steadily during 2012, a departure from the "discounting" of recent years, said Christian Miller, proprietor of the Full Glass Research firm.

"That seems to have reversed, largely," Miller said during the Oregon Wine Symposium in Portland on Feb. 19.

When consumer spending plummeted during the recession, higher-quality reserve wines were often mixed with less expensive wine to move the product, said Rob McMillan, executive vice president and founder of the Silicon Valley Bank's wine division.

"With the blending down now ending, the quality is not what it was before," McMillan said.

Wine producers now report more confidence that they can raise prices on higher-end wines, betting that consumers will trade up to continue drinking a high-quality product, he said.

Wine inventories are a bit higher in Oregon than in the overall wine industry, offering consumers a high-quality product at a good value, McMillan said.

Oregon wines have seen solid growth in volume and value over the past year, and well-informed wine consumers are more aware of the state, said Miller.

In the past five years, the proportion of such consumers who buy Oregon wine regularly has doubled, from 13 percent to 27 percent, he said.

There has been a psychological shift among consumers, with the shock of the recession wearing off, Miller said.

The frequency of purchases over $20 per bottle -- a common price point for Oregon wine -- has recovered since the depth of the recession in 2009, he said.

As consumers learn more about Oregon wine, however, more have adopted the perception that its quality varies considerably from year to year, depending on weather, Miller said. "A little knowledge is sometimes a dangerous thing in this case."

The broader economic picture is uneven for the wine industry, with the U.S. gross domestic product trending down over 2012, McMillan said.

Economists have repeatedly downgraded their forecasts for growth in early 2013, and same-store sales at restaurants -- an important metric for the wine industry -- have flattened while traffic declines, he said.

"We had a continuing deceleration of the economy," McMillan said.

On the other hand, housing sales and optimism among home builders is up, which portends well for the consumer outlook, he said. "The consumer is showing signs of being a little more resilient."

McMillan expects that this dynamic will result in a weak first half of 2013 and strengthening during the second half.

Even so, the wine industry shouldn't expect the kind of amplifying consumption as it did starting in the early 1990s, he said.

The baby boomer generation, a major component of the wine-buying population, is heading into retirement and exiting its prime spending years, McMillan said. Meanwhile, people within the "millennial" generation who are reaching drinking age don't have the same spending power and aren't likely to replace boomers anytime soon.

"That is a headwind we all will be facing," he said.