Wine pricing remains under pressure - Rabobank

Wine pricing remains under pressure - Rabobank

Oversupply on the global wine market and discounting by retailers threaten to derail positive signs in the US wine sector, according to investment banking group Rabobank.

There has been a "marked improvement" in sales of wine priced over US$15 per bottle in the US in the first six months of 2010, Rabobank said in its Wine Quarterly report this week.

Its report underpins recent optimistic comments from some of the largest wine firms operating in the country, including Foster's Group and Constellation Brands.

"There is strong growth in retail channels, there are reports of improving trends in direct-to-consumer sales, and on-premise sales appear to be stabilising," said Rabobank.

However, the Netherlands-based investment bank said that a global oversupply of wine and continued discounting in a difficult US economy could yet put the brakes on premium wine market recovery.

"While US super-premium wine sales are showing momentum in the right direction, the true litmus test of growth will come in the second half of 2010," said Rabobank.

"Our view is that the premium and above segment will continue to grow, but at much slower rates than before the recession and with some resetting of prices.”

Oversupply is set to remain a "key factor", the bank added.

According to the International Organisation of Wine and Vine, global wine production exceeded wine consumption by approximately 9% in 2007 and 2008.

"The excess supply constantly available in the market has made it difficult to build solid brands with strong pricing power, creating headwinds for profitability in the sector," said the quarterly report's co-author, Stephen Rannekleiv, who is also Rabobank's executive director for food & agribusiness research and advisory services.

Constellation CEO Rob Sands said earlier this month that the company had "outperformed" the US wine industry in its fiscal first quarter, although profits on its North America wine business slipped by 10%.