Trends in theCalifornia Wine Business

Jeff BitterAllied Grape GrowersNovember 5, 2014

Quality, Integrity, Stability

California Wine Shipment Trends

Industry Update

• The California wine industry remains strong, but there are threats to our success:

Industry Update

• The California wine industry remains strong, but there are threats to our success:• Dependence on Economy

Industry Update

California Wine Shipment Trends

Industry Update

Source: zillow.com

Industry UpdateHeadline: The Conference Board Consumer Confidence Index® Continues

to Improve24 Jun. 2014

According to Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer confidence continues to advance and the index is now at its highest level since January 2008 (87.3). June’s increase was driven primarily by improving current conditions, particularly consumers’ assessment of business conditions. Expectations regarding the short-term outlook for the economy and jobs were moderately more favorable, while income expectations were a bit mixed. Still, the momentum going forward remains quite positive.” Source:June 2014 Consumer Confidence Survey®

The Conference Board

Industry Update

• The California wine industry remains strong, but there are threats to our success:• Dependence on Economy• Foreign competition

Industry Update

2008 2009 2010 2011 2012 20130.0

10.020.030.040.050.060.070.080.090.0

100.0

Imported Wine - Bottled and Bulk(In Millions of Cases)

Bottled Imports Bulk ImportsData obtained via the Gomberg Fredrikson Report

Total-1%

Total+12%

Total+0%

Total+7%

Total+16%

Total-7%

-5%

+27%

+92%

-2%+7% +3% -2%

+3%

-20%+26%

+71%

-25%

Industry Update

• The California wine industry remains strong, but there are threats to our success:• Dependence on Economy• Foreign competition• Categorical competition

Industry Update

Industry UpdateCraft Beer

Beer Trends from CNBC.comCraft beer production was up 9.6 percent in 2013, while overall beer production fell 1.4 percent, according to Technomic's "2014 Special Trends in Adult Beverage Report: State of the Industry" report. And that continued popularity of specialty beers is paving the way for a new crop of beer makers.

"Over the last couple of years, the number of new brewery openings has been at near unprecedented levels," said Bart Watson, Ph.D., staff economist at Brewers Association, a craft beer industry group. "We're seeing breweries open at about a rate of 1.2 per day.“

Craft breweries have a few things working in their favor, perhaps the most important of which is a customer base that's financially well off. Nielsen reports that 58.9 percent of craft beer drinkers have annual incomes of $75,000 or more.

Gomberg Fredrikson Report2013 Annual Wine Industry

Review• Cider shipments increased by

67% last year!• Moscato (the hottest trend in

the wine business) was only up by 5%.

Gomberg Fredrikson Report2013 Annual Wine Industry

ReviewQuote:“New cider brands, new flavors, and the lower alcohol content of hard cider are attracting new consumers, and especially young women…..it seems likely that the upsurge in cider sales has cannibalized sales of entry level wines….”

Industry Update

• The California wine industry remains strong, but there are threats to our success:• Dependence on Economy• Foreign competition• Categorical competition• Costs of business and the

scarcity/price of resources

Industry Update

Industry Update

• The California wine industry remains strong, but there are threats to our success:• Dependence on Economy• Foreign competition• Categorical competition• Costs of business and the

scarcity/price of resources• Overproduction

California Acreage Trends

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections

No Growth from the 1980s

Growing Demand; Moderate Expansion

Growing Demand, but

Rapid Expansion

Demand Good, but Acreage Peaks;

Oversupply

Acreage stalls;

Oversupply Chronic

Growing Demand; Moderate Expansion

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections

Growing Demand; Moderate Expansion

Growing Demand; Moderate Expansion

California Acreage Trends

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections

Growing Demand;

Rapid Expansion

California Acreage Trends

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections

THIS

CAUSED

California Acreage Trends

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections

THIS

CAUSEDTHIS

California Acreage Trends

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections

Growing Demand;

Rapid Expansion

Are we Entering a Period of

Rapid Expansion?

California Acreage Trends

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections

Growing Demand;

Rapid Expansion

California Acreage Trends

We know this is coming for 2015 & 2016, but is it rapid

expansion?

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections

Only if we continue the recent planting

trend and/or neglect to remove

vines

California Acreage Trends

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Estimated California Bearing Winegrape AcresFrom 1990 with projections Moderate

Planting Matches the

TrendModerate Planting Defined:

+/-15,000 NET new acres per year

California Acreage Trends

Industry Update

• The California wine industry remains strong, and we do have opportunities before us:• There’s more consumption of

wine today than ever in the U.S.

Industry Update

Industry Update

• The California wine industry remains strong, and we do have opportunities before us:• There’s more consumption of

wine today than ever in the U.S.• Millennial generation is

significant.

Industry Update

Industry Update

Industry Update

• The California wine industry remains strong, and we do have opportunities before us:• There’s more consumption of

wine today than ever in the U.S.• Millennial generation is

significant.• Plenty of supply in the short term.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2009 2010 2011 2012 2013 2014Est.

2015Est.

2016Est.

2017Est.

California Wine Shipments and Grape Production (for wine only)2009-2013 with estimates and projections thru 2017

Wine Shipments Grapes Crushed for Wine

2013 Wine Shipments estimated by AGG based on data obtained via theThe Gomberg Fredrikson Report, 01/2014

Millionsof Tons

Industry Update

Industry Update

• The California wine industry remains strong, and we do have opportunities before us:• There’s more consumption of

wine today than ever in the U.S.• Millennial generation is

significant.• Plenty of supply in the short term.• Mid/high price segments are on

fire, experiencing very strong growth.

California Wine Shipment Trends

Industry Update

What about 2014?• Was this the third large crop in a

row?

Industry Update

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

3.76

3.143.25

3.06

3.70 3.583.34

4.024.25

3.90

4.33

3.673.49

3.67 3.67

Tons(in Millions)

Statewide Grape Crush 2005-2014 Estimate

Other Crush Winegrape Crush

4.093.98

4.704.39

4.10

Industry Update

What about 2014?• Was this the third large crop in a

row?• How did the market develop?

Industry Update

Industry Update

www.alliedgrapegrowers.org

Questions?