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There is no doubt that a downturn in the economy can be challenging. For those anticipating slowing sales, the situation can leave them feeling uneasy. A shift in perspective, however, can help you turn a time of uncertainty into an opportunity to revisit your business’s operational and strategic direction.
Good business practice dictates that we should be monitoring our operations constantly to ensure we’re getting value for every dollar spent. But many winery and vineyard owners have been extremely busy over the last few years and may have lost sight of what really drives profit to the bottom line.
Understanding how economic conditions may affect you is the first step in getting back to business basics.
Various reports in the industry indicate we can expect changes in consumer spending. In an economic slowdown, people tend to purchase their wine at retail stores and less at restaurants.
In other words, consumers are less likely to enjoy their favourite wines at expensive restaurants where markups can be 200 or 300 per cent but it looks like everyone is still buying. In order to accommodate this change in spending, your sales approach may need to be adapted.
According to Californian.com (October 20, 2008 article), counter-intuitively, wine consumption is still increasing. Wine consumption (in the U.S.) has steadily increased by two to three percent per year since 1991. It appears the rough year on Wall Street has not disrupted that trend.
In addition, Wine Spectator (October 22, 2008) also reported that U.S. wine consumption will increase for the 15th year in 2008, but the rate of increase is expected to slow to just 1.5 per cent.
It’s safe to say that the wine industry is somewhat recession-proof but nobody wants to see declining sales. However, declining sales doesn’t necessarily have to translate to declining profits. One option is to look at operational efficiencies and see if there are ways to lower your costs.
Most industry commentators also predict that trend of sales growth in the “ultra-premium” category will remain relatively unaffected. At the same time, they expect that many consumers currently purchasing wines in the premium category of $25 to $35 per bottle may change their buying habits towards the medium-price categories at $17 to $25 per bottle.
Understanding these trends can help you identify opportunities to shift your focus.
In addition to operating more efficiently, you need to ask yourself how does this affect my sales strategies and what can I do to take advantage of new opportunities? By revisiting your strategic plan, you can identify the best way to adjust your goals and strategies to deal with the economic climate.
Another potential issue is tighter lending conditions for new financing, as available liquidity is reserved for existing customers.
The interest rates on new loans will also likely increase, at least in the near term. But again, there are ways to help offset the financial burdens and getting advice from a professional business advisor can help steer you in the right direction.
According to CIBC World Markets Economist Meny Grauman, the number one piece of advice for small and medium sized business owners weathering the economic slowdown is to work closely with a strong business advisor.
Getting back to fundamental business practices during a slowdown and getting professional advice can help you survive the tough times and gives you more control in a situation driven by external factors.
Geoff McIntyre, CA is a Business Advisor with Meyers Norris Penny LLP. He can be reached at 250.763.8919 or [email protected].
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