Winegrapes & Concentrate State of the Industry Winegrapes & Concentrate Jeff Bitter Allied Grape Growers November 13, 2018

Evaluating the Market and Forecasting the Future First: Set the stage for wine market discussion Next: Trends in the wine business Next: Central Valley supply/demand Finish: Discuss concentrate market and interaction with raisin industry

Setting the Stage However Grape & Wine Markets Are Under Constant Evaluation Short and Long Term Supply Evaluation Crop Size, Bulk Wine Market & Acreage Analysis Short and Long Term Demand Evaluation Consumer Behavior and Demographics Producers/Winemakers Generally Slow to React Varietally vs. Categorically However Growers Seek Stability Challenges to Stability Exist Mother Nature Global Supply Ever-Rising Costs Understanding Grape/Wine Spot Market Gives Directional Information Never Truly Reflects Industry 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.

Potential Threats To Market Stability Unavoidable Supply Changes (short-term) Large crops and/or imports pressure Economic Regression (mid-term) Consumer Age Demographics (long-term)

Trends in the Wine Business…..

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

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 (Now shifting to bulk market) Bottling/warehousing just before shipment 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

Domestic Wine Consumption Growth

Supply Stability Planting at Attrition Rate (Forecast)

Statewide Supply Record crop, but not record yield

Central Valley Winegrapes

Central Valley

Relative Bright Spots in the 2018 Winegrape Market Generic Whites (including Thompsons) Grapes for Rosé Florals Rubired (Color)

Winegrape Market Summary Trump’s “very unofficial” reaction Winegrape Market Summary Demand and supply trends of wine & winegrapes are limiting opportunities for Central Valley market expansion. The recent over-supply of Central Valley winegrapes is now mostly diminished with increased vineyard removals. Opportunities in the interior come specifically from strong production and/or above average quality allowing inclusion in price points above $6/bottle. Imports are making in-roads at our expense in a U.S. market that is still growing. Given market dynamics are “stable” over the next year, it is likely we will see no real change in the value of, or demand for, most Central Valley grapes for crush.

Red and White Grape Juice Concentrate Shifting Gears….. Red and White Grape Juice Concentrate

Red and White Concentrate

Red and White Concentrate Red concentrate: Stable demand/relatively balanced market. California (Red 1,000): +/-$12.00/gallon. Producers selective about re-signs; based on color history White Concentrate: Finally transitioned from long to balanced last year. Argentinian crop was “average” in 2018. California white concentrate traded at or near $10.00/gallon this year. Demand is impacted by permeate (Red 200) – the by-product of crystal-color (75% of volume) and table grape strippings and other “leftover” grapes.

Defined Need

Go Green or Make Raisins?

Winegrapes & Concentrate Thank You! State of the Industry Winegrapes & Concentrate Jeff Bitter Allied Grape Growers November 13, 2018