Before the harvest – State of the Industry Jeff Bitter (Moderator) – Allied Grape Growers Steve Fredricks – Turrentine Brokerage Rob McMillan – Silicon Valley Bank Jon Moramarco – BW166/Gomberg-Fredrikson Report July 17, 2018

Setting the Stage Grape & Wine Markets Are Under Constant Evaluation Short and Long Term Supply Evaluation Crop Size, Bulk Market and Acreage Analysis Short and Long Term Demand Evaluation Consumer Behavior and Demographics Producers/Winemakers Generally Slow to React Varietally vs. Categorically Growers Seek Stability Challenges to Stability Exist Mother Nature Global Supply Desire to Find Margin Grape/Wine Spot Market Activity Provides Directional Information Doesn’t Necessarily Measure Stability

Wine Industry Stability Stability can come in times of growth, times of regression, or amidst no change at all. Market stability is a function of supply/demand equilibrium, regardless of specific market volume/size or direction.

Supply Stability Planting at Attrition Rate (Forecast)

Potential Threats To Stability Large Crops (short-term) Economic Regression (mid-term) Consumer Age Demographics (long-term)

Premiumization vs. Commoditization The $10/Bottle Divide Premiumization: The action or process of attempting to make a brand or product appeal to consumers or buyers by emphasizing its superior quality and exclusivity. Commoditization: The process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers.

Wine Shipment Growth Rates are Slowing Wine Shipments Wine Shipment Growth Rates are Slowing

Wine Shipments Slowing Percentage changes reported from the Gomberg-Fredrikson Report

Production for 2018-2020 based on average yield of 7.2 tons/acre Supply Stability Production for 2018-2020 based on average yield of 7.2 tons/acre

Wine Shipments What are some of the characteristics associated with slowing wine shipments? Incredible competition and product offerings Growth brands are essentially cannibals Wine producers practice “just-in-time” supply management Start/stop buying behavior Speculative or opportunistic grape buying is limited Enhanced efforts surface to maintain margin Wine producers focus on value More attention on the intersection of price/quality