Allied Grape Growers, All rights reserved. Clarksburg District Grape Day State of the Industry Jeff Bitter Allied Grape Growers March 3, 2015

Allied Grape Growers, All rights reserved. Sections Current Acreage/Grape Supply Position Macro-trends (A look at the future) Segmenting the Industry (By price) Supply Potential by Variety and Segment

Allied Grape Growers, All rights reserved. Current Position Acreage and Grape Supply

Allied Grape Growers, All rights reserved. Current Position Acreage & Grape Supply Regional Tons

Allied Grape Growers, All rights reserved. Current Position Acreage & Grape Supply

Allied Grape Growers, All rights reserved. Current Position Acreage & Grape Supply

Allied Grape Growers, All rights reserved. Current Position Acreage & Grape Supply Presentation Assumption: Non-bearing for three years

Allied Grape Growers, All rights reserved. We have observed new plantings statewide, but now we are beginning to see significant removals in the interior.

Allied Grape Growers, All rights reserved. Current Position Acreage & Grape Supply

Allied Grape Growers, All rights reserved. Why are growers pulling vines out?

Allied Grape Growers, All rights reserved. Current Position Acreage & Grape Supply Lodi – 12/14 Madera – 01/15 Is over-production limited to the interior regions? What Happened? Imports Large Crops/Ample Supply Shipment/Supply Imbalance

Allied Grape Growers, All rights reserved. Segmenting the Business

Allied Grape Growers, All rights reserved. Vineyard Removals It is primarily a SJV phenomenon. It may be a very tough decision based on vineyard age. The ground is not being replanted to grapes. Removal Data – From Observation and Public Records 30,000+ grape acres (20,000+ winegrapes) are estimated to be pulled out this winter in the SJV. During the 2014 calendar year the amount of vineyard removals tripled over that recorded in each of the five previous years. It is likely removals will continue at the current pace thru Spring, and even into next year, as growers plan to plant alternative crops. Current Position Acreage & Grape Supply

Allied Grape Growers, All rights reserved. Macro-trends (A look at the Future)

Allied Grape Growers, All rights reserved. 34.5% White 65.5% Red Other Reds Include: Grenache Cab Franc Barbera Teroldego Petite Verdot Macro-trends Vine Sales Nursery Survey Results

Allied Grape Growers, All rights reserved. Macro-trends Will new acres produce a multi-year surplus? Are we repeating the early 2000s? -Larger acreage base today -Quicker grower reaction to excess -Less speculative planting

Allied Grape Growers, All rights reserved. Macro-trends Assuming attrition rates of 2% coastal and 6% interior, We are forecast to produce along the demand trendline.

Allied Grape Growers, All rights reserved. Macro-trends

Allied Grape Growers, All rights reserved. Segmenting the Industry

Allied Grape Growers, All rights reserved.

Segmenting the Business <$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

Allied Grape Growers, All rights reserved. Segmenting the Business $ 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) Bottle Prices: Less than $10 / $10-20 / and above $20

Allied Grape Growers, All rights reserved. Segmenting the Business >$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) Bottle Prices: Less than $10 / $10-20 / and above $20

Allied Grape Growers, All rights reserved. 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

Allied Grape Growers, All rights reserved. Segmenting the Business

Allied Grape Growers, All rights reserved. Supply Potential By Variety and Segment

Allied Grape Growers, All rights reserved. Supply Potential - Chardonnay

Allied Grape Growers, All rights reserved. Supply Potential – Sauvignon Blanc

Allied Grape Growers, All rights reserved. Supply Potential – Pinot Grigio

Allied Grape Growers, All rights reserved. Supply Potential - Merlot

Allied Grape Growers, All rights reserved. Supply Potential - Pinot Noir

Allied Grape Growers, All rights reserved. Supply Potential – Petite Sirah

Allied Grape Growers, All rights reserved. Supply Potential - All Wine

Allied Grape Growers, All rights reserved. Summing up for Success Market growth is currently at higher price points. This is a prime opportunity to differentiate. Focus on promoting California (A grower driven marketing order?) Embrace sustainability (on our terms) Industry growth requires continued investment in our future. Clean vine stock protocols Pest/disease prevention and control programs Continue to monitor production increases and inventories. A healthy industry strives for growth but requires balance Planting for need is critical; pulling for lack of market is essential Opportunities exist, even in segments of the business that appear disadvantaged at the moment.

Allied Grape Growers, All rights reserved. For more information, visit us at: alliedgrapegrowers.org