1. State of the Industry Jeff Bitter Allied Grape Growers
Piecing Together the Wine Industry Supply/Demand Puzzle
Temecula Valley Winegrowers
April 19, 2018

2. What are consumers buying?
Wine Shipments:
What are consumers buying?

3. Gomberg Fredrikson Report (GFR):
2017 Wine Shipments
Quote from the Annual
Gomberg Fredrikson Report (GFR):
“The U.S. market saw good growth with an increase of 9.7 million cases or just over 2% in 2017.”

4. Wine Shipment Highlights
Gomberg Fredrikson Report, 2017
Overall:
U.S. market grew to million cases of wine
California wines to the U.S. market were up by 1%
Imported wines to the U.S. market were up by 7%
California wines were down overall by 1%
Imports/Exports:
Bottled imports were up 3%
Top importers (in order) were Italy, France, Australia, Chile, Argentina, New Zealand and Spain
Bulk imports were up by 19%
Top importers (in order) were Chile, Australia, New Zealand, Argentina, Italy and Spain
Bottled exports down 16%
Bulk exports were flat

5. Are Premium Wine Growth Rates Slowing?
Wine Shipments
Are Premium Wine Growth Rates Slowing?

6. Wine Shipments Are Premium Wine Growth Rates Slowing?
Rolling 52-Week Sales Comparison of Wine, by Price
Source: With Permission - Silicon Valley Bank’s 2018 State of the Wine Industry Report

7. Wine Shipments Are Premium Wine Growth Rates Slowing?
Premium Winery Sales Growth
Source: With Permission - Silicon Valley Bank’s 2018 State of the Wine Industry Report

8. Wine Shipment Highlights
For 2017, as compared to 2016
As reported by Neilsen
As reported by the GFR
<$4/bottle - down 4%
<$3/bottle - down 7%
$4-8/bottle - down 4%
$3-7/bottle - up 1%
$8-11/bottle - up 1%
$7-10/bottle - flat
$11-15/bottle - up 7%
$10-14/bottle - up 12%
$15-20/bottle - up 10%
$14-20/bottle - up 9%
>$20/bottle - up 8%

9. Wine Shipment Highlights
Gomberg Fredrikson Report, 2017
Varietal Volume Performance
(scan data in food stores only)
Chardonnay flat (value up 2%)
Pinot Grigio up 4%
Moscato up 2%
Sauvignon Blanc up 8% (value up 10%)
Other whites down 6%
White Zinfandel down 5%
Cab Sauv up 3% (value up 6%)
Red Blends up 2%
Merlot down 6%
Pinot Noir up 7% (value up 10%)
Red Zin down 6% (value down 1%)
Other reds up 3%

10. Value Change, by Variety, for >$8/Bottle
2017 as compared to 2016
Source: With Permission - Silicon Valley Bank’s 2018 State of the Wine Industry Report

11. Volume Growth by Variety and Price Range
Source: With Permission - Danny Brager, Nielsen Company

12. What about
the “trade war”
with China?

13. What is our winegrape supply future?
Supply Trends:
What is our winegrape supply future?

14. Supply Stability
Planting at Attrition Rate
(Forecast)

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

16. Huge preference toward reds:
28% white

17. Segmenting Supply Central Valley North Valley California Coastal AVA
(Value Wines)
North
Valley
(Daily Drinkers)
California
Coastal
(Premiums)
AVA
Based
(Luxury Wines)
<$6/bottle
$6-10/bottle
>$20/bottle
$10-20/bottle

18. Central
Valley
(Value Wines)
<$6/bottle

19. Central Valley

20. Central Valley
“The bottom line is that, following the 2015 crop, we will still need to remove about 36,000 acres…”

21. Central Valley
Doesn’t equal 36,000 acres
(Forecast)

22. North
Valley
(Daily Drinkers)
$6-10/bottle

23. Bright Spots/Opportunities
North Valley
Regional
Bright Spots/Opportunities
Premiumization
Potential
“Middle” of
the Market
Varietal
Diversity

24. North Valley

25. North Valley

26. California
Coastal
(Premium Wines)
$10-20/bottle

27. California Coastal

28. California Coastal

29. Bright Spots/Opportunities
California Coastal
Regional
Bright Spots/Opportunities
Epicenter of
Growth
“Managed” Growth
AVA Extenders
and
Alternatives

30. AVA
Based
(Luxury Wines)
>$20/bottle

31. Reginal Market/Supply
AVA Based
Reginal Market/Supply
Hot Topics
Relationship with
“The Economy”

32. Premium Winery Sales Growth
AVA Based
Premium Winery Sales Growth
Source: With Permission - Silicon Valley Bank’s 2018 State of the Wine Industry Report

33. Sales Growth Rates of U.S. Luxury Goods
AVA Based
Sales Growth Rates of U.S. Luxury Goods
Source: With Permission - Silicon Valley Bank’s 2018 State of the Wine Industry Report

34. AVA Based

35. AVA Based

36. Summing up Supply…

37. Supply Stability
9,000 Net Acre
Reduction (-5%)

38. Supply Stability 9,500 Net Acre North Valley Addition (+7%)
Overall Interior
Acres Flat
From 2016

39. Most of the new acres came in 2017!
Supply Stability
16,500 Net Acre
Addition (+7%)

40. Summary
Wine consumers continue to be very fickle; they are not particularly loyal to California, readily looking to foreign alternatives.
Premiumization will continue as the dominate wine industry trend, as consumers trade up in quality, all while being value conscious.
California will experience no material growth in bearing acreage through 2020, but higher yields and larger crops are likely.
Producers will continue to adjust regional supply, in response to continually changing consumer preference.