An Independence Day look at progress in direct shipping since Granholm v Heald
Tablas Creek on Fredric Koeppel's Bigger Than Your Head

Wholesale wine sales in an uncertain economy

With the continuing deterioration of (at least certain sectors of) the economy, we are keeping a close watch on any indicators that might show this spilling over into our business.  So far, we're relieved by what we see.  Our median length of wine club membership is still 3.5 years; our cancellation rate hasn't budged from what we've seen the last three years; our average sale per customer in the tasting room is actually up 15%; and our tasting room traffic has grown more slowly this year than in past years but is still up just over 5%.

Our exports, encouraged by the weak dollar, are up about 20% this year, and would be up more if we had allocated more wine to export or had extra wine to sell (see my post from earlier this year on running out of wine).

The one area where we're seeing some weakness appears to be the wholesale market, where our sales to our distributors are off 21%.  Distributors have been telling us that they're apprehensive about market conditions, and the rising cost of the Euro has made all European wines more expensive.  There is anecdotal evidence that restaurants are seeing smaller average bills and slightly reduced traffic.  And yet, when you look behind the numbers, our distributors have been selling Tablas Creek just fine.  A more important number, our wholesale depletions (the sales that our distributors have made to their restaurant and retail customers) for the year is up about 8%. 

I think that it has become fashionable, across the economy, to talk about recession.  Of course no one wants to appear to be gloating when it's clear that some sectors of the market are struggling.  Yet, the focus on the negative seems unusually pervasive and surprisingly unsupported by the facts.  A recent discussion on the bulletin board showed most of the contributors giving account after account of how sales seem to be down among one or another category.  Yet, over the same period, according to Wine & Spirits Daily,

Growth in the U.S. premium wine business is very healthy, with dollar sales up 7% in the 12 week IRI data to May 18. The super-premium plus segment ($8 and above) grew 12% in dollar sales in the 12-week period, while total wine grew 5%.

I see this in the national media as well; stories on the news are overwhelmingly on the troubles of the economy, yet we haven't even had a single quarter of negative growth, let alone the consecutive quarters of negative GDP growth that is the common indicator of a recession. 

The pessimism of the wholesale market appears have encouraged many businesses to run leaner than they have before.  So far this year, our distributors have decreased their inventory by about 800 cases (e.g. sold 800 cases more than they've ordered).  This is the main culprit behind our wholesale sales decline of 21%.  Another piece is a function of looking at sales over a discrete period; over the first half of 2007, our distributors increased their inventory by about 600 cases (e.g. ordered 600 more cases of Tablas Creek than they sold).   Clearly, distributors are not in the business of stockpiling our wines, and you would expect to see a correction.   Still, in speaking to our distributors, even those who are not reporting a difficult market are hedging against a possible deteriorating economy by ordering less wine more frequently.  This helps them with their cash flow at the consequence that they're more likely to inadvertently run out of a particular wine.

We're actually pleased by these numbers.  Depletions are far more important for us than sales to our distributors; sales always follow depletions over the long term and we worry when our distributors' inventories grow.  And, with the strong direct and export sales that we're seeing, we're looking forward to a successful 2008.