November 18, 2009 9:10am

•  The new ‘normal’ is not the old ‘normal’

•  ‘A $50 bottle of wine is now permanently out of the question for a normal purchase’

Squeezed by the Great Recession, the wine industry will see only a slow recovery in 2010, predicts Silicon Valley Bank in a preliminary report Wednesday from its annual state of the wine industry report.

Based on what it describes as in-house expertise and ongoing research among West Coast wineries, the report says the market will be slow to fully recover and year over year sales declines for calendar year 2009 will be noted, but there could be modest growth at the producer level in 2010.

The growth prediction is tempered by observations of continuing economic softness and demographic shifts that are “creating headwinds against a quick return to the business conditions that were considered normal prior to Q3 2008.”

"Our current research is showing that the wine businesses continue to be pushed in this economic environment, and there is no expectation that what was normal for the past decade will return in short order," says Rob McMillan, founder of Silicon Valley Bank's Wine Division and author of the report.

"Defining a new ‘normal’ and acting on that is more prudent than waiting for the ‘old normal’ to return," he says.

Emerging demographic shifts in particular will impact sales and marketing strategies for fine wines as target consumers change spending patterns, and potentially exit the market altogether.

"For that segment of Baby Boomers who have seen their net worth drastically reduced and who have been the prime target of wine marketing for nearly 20 years, a $50 bottle of wine is now permanently out of the question for a normal purchase," Mr. McMillan says.

Early reports for Q4 2009 sales suggest improvement over the same period in 2008, an expected down year for the full year 2009, but positive growth in the fine wine business in 2010, the report says.

However, the report continues, true recovery will take time due to lasting, negative economic changes in housing, consumer wealth, consumer credit, business spending and restaurant sales.

"Not all the changes we're seeing and expecting during an ongoing correction and recovery will be permanent and it's not all doom and gloom, but everyone in this business should expect that the future will be quite different than the past decade in fine wine," says Mr. McMillan.

Silicon Valley Bank's annual State of the Wine Industry Report is due for release in the spring. It says the preliminary report, released Wednesday, offers data, trends and observations that businesses can use during their 2010-2011 planning.

Silicon Valley Bank is the California bank subsidiary of financial services firm SVB Financial Group (NASDAQ: SIVB) of Santa Clara.