Market Beat: Global wine consumption
June 13, 2013
The Mesopotamians first created wine about 6,000 years ago. Wine has been a staple of our diet for many years. California alone produces more than 17 million gallons of wine per year, largely from the Napa-Sonoma region.
The average American drinks about 2 and a half gallons of wine per year, while the average French person consumes more than six times that much, about 15 gallons. Wine grapes are the No. 1 fruit crop worldwide, and there are more than 10,000 varieties of wine on the market.
Moderate wine consumption has also been shown to have several health benefits, including longevity, reducing heart attack risk, lowering risk of stroke, cutting risk of colon cancer, helping with Type 2 diabetes, and slowing brain decline as we age. Brain function has been shown to decline much more rapidly among nondrinkers than in moderate drinkers, according to a Columbia University study.
Global wine consumption is projected to increase at a steady rate over the next few years — about 5 percent over the next four years, a little more than 1 percent per year. That's a pretty good growth rate and may mean that companies in the wine business should have a promising future.
There are more than a million winemakers worldwide and most of them are relatively small privately held operations. There are three companies responsible for making or importing about 50 percent of the wine consumed in the United States. They are Constellation Brands, E&J Gallo and The Wine Group.
Of the three, Constellation Brands is the only one that is a publicly traded company. They were started in 1945 in New York and today are one of the dominant companies worldwide; they have a market cap of about $7.5 billion. The wine brands they carry include: Robert Mondavi, Clos du Bois, Estancia, Franciscan Estate and more.
E&J Gallo is based in Modesto and is the largest family owned winery in the United States. Constellation Brands is rated "buy with medium risk" by S&P Capital IQ. They had a sales increase of more than 5 percent in their fiscal year 2013.
Globally, a company called Diageo is the leader; it's a $73 billion company that is rated a "buy" by S&P Capital IQ with a low risk assessment and has a dividend yield more than 2 percent. They have an impressive lineup of wine brands that include Beaulieu, Sterling, Chalone, Blossom Hill, and Piat d'Or Vineyards.
With any stock purchase you should consult your advisor and don't invest more than you can afford to lose.
Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.