A second US investment bank in the last week has issued a stark warning over the state of the US wine industry, saying the days of traditionally high margins in the country were “well and truly numbered”.
Australian producers operating in the US have in the past enjoyed margins of around 25%, compared to the UK and Australia, where margins are closer to 15% and 10% respectively.
But a Merrill Lynch research note to its clients has warned that the success of wine in the US at US$1.99 a bottle – known as two-buck chuck – would affect the margins of premium producers.
The bank’s global beverages team said it was “very sceptical” that Australian producers could protect their current 25% margins on pre-tax earnings from the US “while two-buck chuck is in town”.
The bank said that the US would probably continue to be more profitable than the UK or Australia but concluded that “the days of wine producers generating EBITA/sales margins in excess of 25% could be well and truly numbered”.
The bank also said that because margins in the US are so attractive, producers would unwittingly flood the market, exacerbating the supply problem.