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State of the Wine Industry 2016Videocast PresentationRob McMillan
EVP & Founder, Silicon Valley Bank Wine Division
Follow Rob (@SVBWine)Join the conversation at #SVBWine
2
Panelists
• Jeff Bitter, Allied Grape Growers
• Amy Hoopes, Chief Marketing Officer/EVP Global Sales, Wente Family Estates
• Paul Mabray, Chief Strategy Officer of Vintank
• Rob McMillan, EVP & founder of Silicon Valley Bank’s Wine Division
3
Trends: Exports in Volume 2008–2014 (in Mhls)
Source: OIV
4
Worldwide Production vs Consumption (in Mhls)
Source: OIV
5
Trends: New Customers 2000–2014
Source: OIV
6
U.S. Wine Consumption by Volume
Source: California Wine Institute
7
Segment Performance in Table Wine
Nielsen Beverage52 weeks 12-5-2015 $ Vol Table Wine
$ ShareTable Wine $ Shr Chg Case Vol Table Wine
Case ShareTable Wine
Case Shr Chg
TOTAL TABLE WINE 13,226,095,260 100.0 - 159,757,531 100.0 -
TTL GLOBAL TBL BE 0-2.99 828,850,252 6.3 (0.4) 28,594,622 17.9 (1.2)
TTL GLOBAL TBL BE 3-5.99 4,041,378,691 30.6 (1.3) 68,618,309 43.0 (0.5)
TTL GLOBAL TBL BE 6-8.99 1,681,255,025 12.7 (0.9) 18,602,352 11.6 (0.4)
TTL GLOBAL TBL BE 9-11.99 3,049,547,575 23.1 0.7 25,347,167 15.9 0.9
TTL GLOBAL TBL BE 12-14.99 1,773,554,251 13.4 0.9 11,277,079 7.1 0.7
TTL GLOBAL TBL BE 15-19.99 991,226,591 7.5 0.7 4,759,017 3.0 0.3
TTL GLOBAL TBL BE >20 853,289,202 6.5 0.3 2,507,566 1.6 0.1
Source: Nielsen Beverage Group
Source: 2015 Annual Wine Conditions Survey | November 30, 2015 8
Imported Bulk Wine to U.S.
2009 2010 2011 2012 2013 20140
50
100
150
200
250
300
350
Top Countries by Volume
Chile New Zealand Australia Argentina Italy
Mill
ions
of H
ecto
liter
s
Shortfall in U.S. Production vs U.S. Consumption
9Source: OIV.
Forgone Domestic Sales
10
Demographic Demand by Price Point
Source: 2015 Annual Wine Conditions Survey | November 30, 2015
Source: 2015 Annual Wine Conditions Survey | November 30, 2015 11
YOY Changes in Cohort Purchase Share
12
Premium Varietal Growth By Price Segment
Source: 2015 Annual Wine Conditions Survey | November 30, 2015
13
Generational Shape of U.S. Net Household Wealth
Source: Deloitte Center for Financial Services, Nov. 9 th, 2015
Millennials will never move out!
Owner Price Projections: Five-Year Survey Comparison
Source: 2015 Annual Wine Conditions Survey | November 30, 2015 14
2015 Retail Price Projections by Production Size
1 - 2,500 2,501 - 5,000 5,001 - 10,000 10,001 - 25,000
25,001 - 50,000
50,001 - 100,000
100,001 - 250,000
>250,0000%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Decrease Prices Hold Prices Increase Price
15Source: 2016 Annual Wine Conditions Survey | November 30, 2015
Three Tier Premium
30%
23%
39%
4%5%
Tasting Room
Wine Club
Wholesale
Export
Other
Wine Club
Wholesale
Percentage of Total Sales by Distribution ChannelDtC is Critical for Success
16Source: 2016 Annual Wine Conditions Survey | November 30, 2015
Tasting Room
Almost 60% of the Average Winery's sales are direct today.
Summary Findings
• Sales growth in fine wine in the range of 9%-13%.
• Imports will gain U.S. market share in bottled wine
• Low priced generic/jug wine, dying/dead
• Drop in per-capita and total domestic wine consumption temporarily.
• Large wine companies will continue to buy premium brands and property.
• DtC still with strong growth but threatened with local regs
• Modest bottle price increases expected this year in fine wine
17
Forecast Changes in U.S. Cohort Purchase Share (Fine Wine)
Source: 2015 Annual Wine Conditions Survey | November 30, 2015 18
Gen Z Millenial Gen X Boomers Matures0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
12%
46%
27%
16%
2015-2035
2015 2025 2035
Total Growth Rates of CA Regions
Source: Correia Company, CASS Grape Acreage Report 19
Napa Total Acreage
Source: Correia Company, CASS Grape Acreage Report 20
Napa County Vineyard
Source: Correia Company, 21
District 13 Fresno—Madera
Source: Correia Company 22
California Bulk Wine Inventory 2015
Source: Ciatti Brokerage 23
Direct-to-Consumer Shipments
Source: ShipCompliant, Wines & Vines 24
Financial Performance of Premium Wineries
25Source:SVB Peer Group Analysis Platform
12/31/2006
12/31/2007
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
9/30/2
014
9/30/2015
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
45.0%
47.0%
49.0%
51.0%
53.0%
55.0%
57.0%
59.0%
Sale
s Gro
wth
and
Pre
tax
Profi
t
Gros
s Mar
gin
Relative Magnitude of 2015 Harvest Quality
Despite lower yields overall, all major wine regions reported “above average” or “excellent” harvest quality in 2015.
Oregon
Mid-Coastal, CA
Sonoma County, CA
Napa County, CA
2015 Average
Santa Barbara & San Luis Obispo, CA
Virginia
Sierra Foothills, CA
Washington State
Lodi & Other Delta Counties, CA
Paso Robles, CA
Other
Anderson Valley & Mendocino County, CA
1 2 3 4 5 6 7 8 9
8.57
8.13
8.03
7.97
7.87
7.78
7.74
7.62
7.56
7.44
7.42
7.34
7.00
1 = Historical Low 5 = Historical Average 9 = Historical High
26Source: 2016 Annual Wine Conditions Survey | November 30, 2015
Relative Magnitude of 2015 Harvest Yield
Oregon
Virginia
Washington State
Other
2015 Average
Lodi & Other Delta Counties, CA
Anderson Valley & Mendocino County, CA
Sierra Foothills, CA
Napa County, CA
Sonoma County, CA
Santa Barbara & San Luis Obispo, CA
Mid-Coastal, CA
Paso Robles, CA
1 2 3 4 5 6 7 8 9
7.80
5.81
4.77
4.34
3.55
3.00
3.00
2.85
2.62
2.60
2.56
1.63
1.58
1 = Historical Low 5 = Historical Average 9 = Historical High
27Source: 2016 Annual Wine Conditions Survey | November 30, 2015
Changing Landscape 2010 vs. Now…..
• Bearing Acreage (Up 10%)• 500,000 to 550,000.
• Yield (up 5%)• Average 2006-2010 - 6.8 tons/acre.• Average 2011-2015 - 7.2 tons/acre.
• Imports (up 15%)• 2006-2010 import average - 99M cases
annually,• 2011-2015 import average - 114M cases
annually.• Strength of US Dollar – DXY Index (up 25%)
• At end of 2010 was +/-80• At end of 2015 was +/-100Source: Allied Grape Growers. All rights reserved
Production Capability…..
2009 3,703,031 490,000 7.562010 3,588,985 500,000 7.182011 3,342,689 510,000 6.552012 4,018,237 525,000 7.652013 4,244,891 540,000 7.862014 3,894,397 550,000 7.082015 3,700,000 555,000 6.672016* 4,141,450 565,000 7.332017* 4,202,560 571,000 7.362018* 4,255,000 575,000 7.40
Average per acre yield from 2009-2014: 7.31*2016-2018 assume approx 1% coastal & 6% interior attrition rates
Crop Year
Winegrape Tons Crushed or Estimated
AGG Estimated Bearing
Winegrape Acres
Estimated Average
Winegrape Yield
Source: Allied Grape Growers. All rights reserved
Over the Hump…..
Source: Allied Grape Growers. All rights reserved
Evolving Acreage Base.....
Source: Allied Grape Growers. All rights reserved
What’s Hot, What’s Not….
Source: Allied Grape Growers. All rights reserved
Leading Varietals Planted….• 2015
• Cabernet Sauvignon - 31%• Pinot Grigio – 17%• Pinot Noir – 15%• Chardonnay – 13%
• 2014• Cabernet Sauvignon - 29%• Chardonnay – 17%• Pinot Grigio – 12%• Pinot Noir – 12%
• 2013• Cabernet Sauvignon - 29%• Chardonnay – 14%• Pinot Noir – 13%• Zinfandel – 10%
Source: Allied Grape Growers. All rights reserved