SOURCE: Rabobank, N.A.

Rabobank, N.A.

May 19, 2016 13:15 ET

Challenges Arising From Premiumization in Wine

Rabobank Report Key Trend Affecting U.S. Wine Industry

FRESNO, CA--(Marketwired - May 19, 2016) - It is no secret that the premiumization trends in the U.S. have been accelerating in recent years. While this trend has had a very positive effect for certain segments of the industry, it has also caused a series of challenges for wineries such as sourcing, securing long term supply, managing community relations and increased import competition. Rabobank's recent research note "The Premiumization Conundrum - The Challenges Arising from Premiumization in the U.S. Wine Market" looks at five interrelated areas of tension that are driving change in the market today that are driven by the premiumization trend.

"The rapid growth in the profitability of the U.S. wine market is clearly a positive development, but comes with some challenges," says Stephen Rannekliev, analyst at Rabobank and author of the report. "The purpose of the report is to develop a better understanding of the interrelationship of these trends and to share views on how wineries can be best placed to take advantage of the opportunities. The five areas we focused on, we feel, are where wineries can focus time and have a positive impact on their operation."

The areas identified in the research are:

  • Demand for Premium vs. Basic Wine Grapes - Trying to balancing grape production with shifting demand
  • Long Term Supply vs. Managing ROIC - The challenge of securing long term grape supply when vineyard valuations seem prohibitive
  • Wholesaler Consolidation and Retail "Chainification" vs. Premiumization - Wineries (both large and small) face increasing hurdles in maintaining relevance with wholesalers and retailers
  • Direct-to-Consumer (DTC) vs. NIMBY (not-in-my-backyard) - Rising wine tourism supports growth of the DTC trend, but also leads to increasing tensions with the community
  • Domestic vs. Import Wines - The rising demand for premium wines is also attracting increasing competition from abroad

According to Rannekliev, each of these areas of tension have an impact on the others, but wineries will feel the effects of each to varying degrees, depending on their location, sales channel strategy and current wine grape sourcing situation. "At the core, these tensions affect decisions about strategies related to supply (cost) and sales channels (revenue). Finding a best solution to take advantage of these trends is critical for survival and growth of U.S. wineries."

The full report is available exclusively to clients of Rabobank and to media upon request.

About Rabobank, N.A. 
Rabobank, N.A. is a California community bank and a leading provider of agricultural financing and full-service banking products to California consumers, businesses and the agriculture industry. With more than 100 retail branches, we serve the needs of communities from Redding to the Imperial Valley through a regional structure that promotes local decision-making and active community involvement by our employees.

Rabobank, N.A. is a division of the Rabobank Group, the premier lender to the global food and agricultural industry and a financial services leader providing commercial, retail and agricultural finance solutions in 48 countries around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the world's largest and safest banks. Rabobank, N.A. is a Member FDIC and Equal Housing Lender.

About Rabo AgriFinance 
As a leading financial services provider for agricultural producers and agribusinesses in the United States, Rabo AgriFinance adds value using industry expertise, client-focused solutions, and by creating long-term business relationships. Rabo AgriFinance offers a comprehensive portfolio of services that give producers the right products to prepare for, and take advantage of, market opportunities. Rabo AgriFinance representatives offer a wide array of financial services and knowledge to help customers realize their ambitions. This comprehensive suite of services includes loans, insurance, middle market agribusiness, input finance and sophisticated risk management products. Rabo AgriFinance is a division of Rabobank, the premier bank to the global agriculture industry and one of the world's largest and safest banks.

About Rabobank Food & Agribusiness Research and Advisory (FAR) 
The Rabobank Food & Agribusiness Research and Advisory (FAR) group is a global team of more than 80 analysts who monitor and evaluate global market events that affect agriculture worldwide. This international team works to collect key insights into commodity markets; conduct in-depth analysis of the factors that drive sector success (or failure); and examine the megatrends that ultimately influence clients' business strategy. These analysts are internationally respected experts in sectors from protein to produce, inputs to oilseeds, and their knowledge is shared with Rabobank customers.

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