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Ma in Wine Country

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REVISED: 1/04/10

O NL IN E SI MU LA TIO N F OR EG R OU ND R E A D IN G

Mergers & Acquisitions Simulation Introduction to Industry & Companies
The U.S. Wine Industry In 2008 the United States was the world’s third largest wine market by unit volume, behind France and Italy, and the largest based on dollar value. Consumption had grown at a compound annual rate of less than 4% over the past decade, and analysts expected annual long-term growth of not more than 3%. Table wine was divided into three segments: basic (jug), popular premium, and super/ultra-premium. Basic represented about 50% of market volume, and consumers tended to buy on price. Popular premium (35%) was purchased based on both price and brand. Superpremium was bought based on brand and quality. Winemaking was capital-intensive: It required land acquisition and vineyard development in addition to large investments in inventory due to lengthy storing and aging requirements. California accounted for over 90% of U.S. production volume, and 75% of U.S. consumption was supplied by domestic wines. Since the mid-1990s, the number of California wineries had doubled to 2,900 and the number of California acres devoted to red wine grapes grew by nearly 90% (acres devoted to white wine grapes grew more slowly). U.S. producers also faced tough competition from imports, which were growing faster than consumption of domestic product. Several years of favorable weather increased crop yields and produced record grape harvests in California. A global oversupply of wine exacerbated the problem. The “wine glut,” combined with economic recession, led to price pressure in the United States from 2001 to 2006. Winemakers resisted lowering retail prices, but some offered discounts to wholesalers, and others started to sell lower-priced brands to consumers. This glut eased after droughts and below-average temperatures

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