With a depressed home market and a weakened currency, it is little wonder that US wine producers see opportunities to make headway in the UK and Europe, in spite of the soft market conditions. Ben Cooper reports on the US presence at this week's London International Wine Fair and the conditions facing US wine producers at home.

The weak dollar may offer US exhibitors at this week's London International Wine Fair (LIWF) a boost in exports, but the depressed consumer markets of the UK and Europe hardly offer the most reassuring of environments.

US wine exports rose by 6% in value terms in 2008 to over US$1bn, with volumes up 8% at 55m cases. As the dollar has depreciated considerably against sterling in the ensuing months it is reasonable to expect a further volume uplift in 2009.

However, the US wineries looking for sales abroad to compensate for depressed market conditions at home are to a degree jumping out of the frying-pan into the fire.

While the California Wine Institute - California accounts for around 90% of US wine exports - said the region's wines had performed well in Europe in 2008, and had continued to build share in the UK, the effects of the financial crisis are obviously being as keenly felt in Europe as in the US. Indeed, the two largest US players, Constellation and Gallo, both of whom are present at the LIWF, recently announced plans to cut up to 50 jobs in the UK.

But the importance of the EU to US wine exports can be seen in the export figures for 2008. The EU accounted for around 50% of total export volumes in 2008, with total revenues of $486m. The next largest market is Canada, a distant second with shipments worth $260m, followed by Japan with $61m. Exports now account for around 18% of California's total wine sales.

In addition to Gallo and Constellation, a number of producers from California will be exhibiting on the California Wine Institute stand at the LIWF, including Sonoma-based winery Red Truck Wines, Cecchetti Wine Company, and Napa-based winery Bialla Vineyards.

The Oregon Wine Board and Washington Wine Commission have also taken a stand. Among the Oregon wineries present will be Adelsheim Vineyard, Evergreen Vineyards, Firesteed Cellars, Maysara Winery, Domaine Serene, Montinore Estate, King Estate, Willamette Valley Vineyards and Willakenzie Estate.

While Oregon wineries will be promoting the state's specialisation in Pinot Noir and Pinot Gris, Washington's focus will be on quality Syrah and Riesling, as well as Merlot, Cabernet Sauvignon and Chardonnay. Among the wineries representing Washington are Badger Mountain & Powers Winery, Covey Run, Columbia Winery, Delille Cellars, Gordon Brothers Cellars, L'Ecole No 41, Milbrandt Vineyards, Precept Brands, Ste Michelle Wine Estates and Woodward Canyon.

Adding a further regional flavour, New Horizon Wines, a group of Virginia wineries, is making its LIWF debut this year. This is the fifth largest wine region in the US in terms of production, and produces wines from grapes such as Viognier, Cabernet Franc, Petit Verdot and Nebbiolo. Wineries represented include Barboursville Vineyards, DelFosse Vineyards, Keswick Vineyards, Rappahannock Cellars, Veramar Vineyards, Veritas Winery & Vineyards and White Hall Vineyards.

Meanwhile, Gallo will be using the LIWF as the launch-pad for its new brand, Redwood Creek, a brand themed around 'the great outdoors'. Visitors to the Gallo stand will be invited to participate in an interactive Wii Fishing game to reinforce the concept. In addition, new packaging will be unveiled for the Gallo Family Vineyards and Turning Leaf ranges. Also, Ironstone Vineyards is being relaunched as Kautz Family Vineyards at the show.

Constellation Europe will be introducing new packaging for its Private Selection range at the LIWF, and will also be launching an on-trade loyalty scheme for Jack Rabbit wines.

So US producers appear to be looking to make the most of the LIWF as a showcase for their wines at a time when the weakness of their currency provides an opportunity to make ground in the UK and Europe. And given the picture on the home front, any positive effect the weak dollar may have on exports could be an important boon.

According to a recent report published by the Silicon Valley Bank (SVB) Wine Division, the fourth quarter of 2008 was the worst final quarter in memory for the fine wine sector. On the plus side, the value sector is not surprisingly doing better, but other factors, such as a depressed on-premise market, rising unemployment, lack of credit and persistent drought conditions in California, combine to make a bleak picture.

"The next 12 months will be difficult for the fine wine segment, with declining growth rates and flat year-to-year sales overall," the report states. "This is offset by higher volume segments that are experiencing good business conditions as consumers trade down to value-priced wines, for which positive year-over-year results are expected."

As part of its research for its State of the Wine Industry report, SVB surveyed the views of US wine producers. Reflecting the more buoyant market for competitively-priced wines, the survey for 2009 showed that while winery owners believe 2009 will be a difficult year, Central Valley suppliers were the most optimistic and Napa and Sonoma suppliers the most pessimistic. SVB adds: "Oregon producers are more optimistic than their California fine wine counterparts, but they may be overly optimistic in our opinion."

Looking ahead, SVB forecasts some recovery but is guarded in its outlook. "Despite declining growth rates and nightmarish results in the fourth quarter of 2008, we predict wine sales will be sluggish through the early part of 2009, but finish the year with a better Q4 thus creating flat year-over-year sales in the segment," the report states.

However, there is an important caveat. "While zero growth is comparatively good in this economy, a growth rate that has fallen from 23% to 0% in 24 months causes many problems for a business that has long-term contracts with growers and has to commit to production and inventory positions well ahead of the kind of financial collapse we experienced last year. This will inevitably lead to declining gross and net profit margins over the next two years."

The report's authors also expect that the fine wine sector will take longer to recover from this recession than from past downturns. "Unlike the last recession, in which fine wine held its own on market share with higher volume producers, in the present recession we see the volume in wine consumption still growing slightly, but the more modest price segments experiencing better resiliency in their rate of growth." It adds that the "destruction of consumer wealth" seen in this slump, along with the muted business conditions and business spending forecast for the post-recessionary period, are likely to keep price pressure on wines over $35.