macro-trends in the california wine business segmenting the wine business and identifying threats...

Macro-trends in theCalifornia Wine Business

Segmenting the wine business andidentifying threats and opportunities.

Jeff BitterAllied Grape Growers

October 21, 2015

Quality, Integrity, Stability

0.0

0.5

1.0

1.5

2.0

2.5

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3.5

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4.5

5.0

2009 2010 2011 2012 2013 2014 2015Est.

2016Est.

2017Est.

California Wine Shipments and Grape Production (for wine only)2009-2014 with estimates and projections thru 2017

Wine Shipments Grapes Crushed for Wine

Millionsof Tons

California Wine Shipment Data Source:The Gomberg Fredrikson Report

Production vs. Shipments

Includes estimated vineyard attrition rates for 2016 & 2017.

California Wine Shipment Trends

Chart Source: The Gomberg Fredrikson Report

Segmentingthe Business

Segmenting the Business

Essentially, the California Coast

Range is the geographic line that

represents the+/- $10/bottle pivot point in the market.

<$10

>$10= <$10= $10-20= >$20


• <$10 – Everyday Wines – (The “Value” Category)• The backbone of the industry• Highly competitive (not only within the wine business,

but among competing beverage industries)• The bottom end of this segment has been declining in

volume for decades• Generally characterized by higher volume/lower

margin• Limited differentiation• Lower portions of this segment may exist due to

oversupplies of wine worldwide• Competing interest – production agriculture• Geographically – the interior regions

• (Grapes <$1,000/ton)

Bottle Prices:Less than $10 / $10-20 / and above $20


• $10-20 - Premium Segment (The “Mid” Category)• Seemingly more mainstream to the U.S. consumer• Consumer confidence and value are keys to success• Grape buyers looking to average down their cost• Growers challenging the paradigm of low-yield = high

quality• Geographically – coastal regions

• (Grapes $1,000-2,000/ton)



• >$20 - Luxury Segment (The “High” Category)• Based on discretionary income• Highly differentiated; provides unique experience• Limited land & unique sites (grape

growing/marketing)• Ultimate place in the business for differentiation• Grants the most ability to invest in quality & pass

along cost• Geographically – Very specific coastal areas

• (Grapes >$2,000/ton)


Industry Observations

We have observed many new plantings statewide, BUT………..

……now we are beginning to see significant removals in the interior.


Lodi

Madera

What Happened?• Imports• Large Crops/Ample

Supply• Shipment/Supply

Imbalance


Imports

Chart Source: The Gomberg Fredrikson Report

Acreage & Grape Supply

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5.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Est.

3.14 3.253.06

3.70 3.583.34

4.024.25

3.89 3.75

3.673.49

3.67 3.87

Tons(in Millions)

Statewide Grape Crush, 2006-2015 Estimate

Winegrape Crush Other Crush

4.093.98

4.704.39

4.143.90

Wine Industry Trivia

To the nearest quarter of a ton,what does the average winegrape

vineyard yield per acre in California?

(according to Allied Grape Growers)

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5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2010 2011 2012 2013 2014

Range of Potential California Winegrape Acres Planted Based on Annual Vine Sales

Supply Trends

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60.0

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120.0

140.0

2006 2007 2008 2009 2010 2011 2012 2013 2014

106.8 107.2113.2

117.0 118.1123.9 122.8

118.0 115.6

Cases(in Millions)

Est. California Table Wine Volume <$7/Bottle, 2006-2014

Data Source: Gomberg Fredrikson Report

DemandValue Category

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

Industry Update

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

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.com"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.

Competition Grows

• Craft beer grew by 16% this year so far – Brewer’s Association

• Cider shipments are up by about 13% for this first half of the year – GF Report

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

• There are not only threats, but also 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

• 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.• Mid/high price segments are on

fire, experiencing very strong growth.


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2006 2007 2008 2009 2010 2011 2012 2013 2014

64

68.4 69.6 71 74.9

81.187.2

92.197.4

Cases(in Millions)

Est. California Table Wine Volume >$7/Bottle, 2006-2014

Data Source: Gomberg Fredrikson Report, 2014 Est. by AGG

Thank you for your attention

Jeff BitterAllied Grape

GrowersOctober 21, 2015

macro-trends in the california wine business segmenting the wine business and identifying threats...

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