Wine companies struggling with the tough conditions in the US, the world’s most profitable market, may face worsening conditions with the threat of another big vintage in 2003 increasing the oversupply problem.
A report by the investment bank Morgan Stanley, released yesterday, said a 2003 vintage up 10 to 20% from last year could move the industry into a state of significant oversupply. And it warned that conditions could continue to be depressed for several years yet.
“Most major wine companies in the world have significant businesses, or significant aspirations, in the US wine market,” Morgan Stanley’s global beverages team said. “Consequently, most wine companies will be negatively affected by this continuing pricing pressure.”
It went on to say that by 2005 US producers could have close to two years of inventory to clear, partly because US producers had, until now, no need to develop export markets.
Though it did say that in particular new entrants into the market would struggle, the report also said it was possible for companies to plan against the over-supply by managing brands well, taking advantage of cheap grape prices and by cutting costs.