Central Coast Grape Expo Malcolm Media’s Central Coast Grape Expo State of the Winegrape Industry Nat DiBuduo Allied Grape Growers November 11, 2016

Presentation Outline Part 1: The Supply Foundation Production History & Trends Driving Categorical Supply Part 2: Segmenting the Business (By Price and Variety) A Look at Planting Trends Understanding Future Supply by Segment Part 3: Shipment Trends & Industry Opportunities Part 4: Application to the Central Coast

Supply Foundation

Building The Supply Foundation Light crop in a much stronger market Record state crops & huge coastal crops Three short crop sets stage for balance 2016 & Beyond: Huge premium opportunity; low end balancing occurring Strengthening economy, but relatively weak dollar Recession Strengthening Dollar

Over the Hump….. Our prediction for 2016 is 16,000 new acres. Almost entirely northern interior

What’s Hot, What’s Not…. 65% Red 35% White

Planting Trends, 2013-2015 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 Chardonnay – 14% Pinot Noir – 13% Zinfandel – 10%

Our Production Potential……

Segmenting the Business

Breaking it Down…. Value - (<$7/bottle) Interior (excluding Lodi/Delta) Mid - ($7-10/bottle) Lodi/Delta High - ($10-20/bottle) Coastal (standard) Luxury - (>$20/bottle) High-end Coastal (AVA Designations)

Varietal Trends, by Segment….. California +6% +25% +62% -15% -8% +26% +75% +1% Note: Change stated cumulatively Annual attrition rates estimated

Varietal Trends, by Segment….. California +3% +15% +1% -6% +32% +39% +49% +2% Note: Change stated cumulatively Annual attrition rates estimated

Varietal Trends, by Segment…. +32% California +11% +23% -2% +6% +23% +2% +16% Note: Change stated cumulatively Annual attrition rates estimated

Varietal Trends, by Segment…. +8% California +2% +8% -4% 0% +1% +9% +4% Note: Change stated cumulatively Annual attrition rates estimated

Estimated categorical acreage growth 2015-2018 Too much of a good thing? Maybe not enough of a good thing?

So what isn’t growing? A largely undiscussed category of varieties, primarily in the San Joaquin Valley: Generics Zinfandel (for White and Red) Merlot From here on out: Florals

Shipment Trends/Industry Opportunities

Wine Shipments U.S. Wine Market Volume Graph Source: The Gomberg Fredrikson Report - 2015 Annual Wine Industry Review

Wine Shipments

Wine Shipments

Where Opportunity Lays… Regional: Interior – Producing quality blenders with “reasonable” yields…..examples: Chenin Blanc, Florals, Petite Verdot, Petite Sirah, Tannat, Tempranillo. Lodi/Delta – Continue increasing quality (and exposure) with the existing varietal mix to target blending opportunities in the $10-20 market. Coastal – Increasing production and/or incorporating mechanization WITHOUT compromising quality. Varietal Opportunities: Sauvignon Blanc Pinot Grigio at higher than traditional price points Reds with color/depth for the red blend market – Petite Sirah, Teroldego, etc. Non-traditional varieties that add layers to traditional wines

Application to Central Coast

So what does all this mean? I just want to know if the Central Coast is over or under planted….

Comparing Production and Demand

Evolving Acreage Base… Represents only 1.3% total growth annually

Supply Summary Although there is no forecasted shortage of winegrapes in the near future, there may continue to be categorical and/or varietal shortages as annual yields and changing consumer preference present ever-moving targets for our industry. Current areas of over-supply should continue to moderate as growers make removal decisions based on relatively weak market conditions.

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