1. (and a glimpse into the future)
Harvest & Crush
2018 Recap
(and a glimpse into the future)
Jeff Bitter
Allied Grape Growers
November 28, 2018

2. 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: Quick discussion on concentrate
(Time permitting)

3. 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 (Difficult) vs. Categorically (Do-able)
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

4. So are we experiencing a time of stability in the wine industry?

5. 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 and can be present in certain segments of the market while simultaneously being absent in others.
REALITY:
Over the last year or two, we have been teetering on imbalance…..

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

7. Trends in the Wine Business…..
Where are things going and how do we line up with that?

8. 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.
REALITY: We have been commoditized in the Central Valley

9. Premium Wine Shipment Growth Rates are Slowing
Wine Shipments
Premium Wine Shipment Growth Rates are Slowing

10. Total California Wine Shipments
Percentage changes reported from the Gomberg-Fredrikson Report
REALITY: California wine shipments are down.

11. 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 (Grapes and Bulk Wine)
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

12. Are consumers really drinking less wine?

13. Domestic Wine Consumption Growth
REALITY: Consumers aren’t drinking less wine, they are drinking less California wine.

14. Supply Stability
Planting at Attrition Rate
(Forecast)

15. Statewide Supply
Record crop, but not
record yield

16. Central Valley
Winegrapes

17. Central Valley Removals
REALITY: We have been, and will continue to, adjust our acreage to match demand.

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

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

20. Central Valley

21. Central Valley

22. Highlights indicate what was definitively up or a good-sized crop in 2018
Central Valley Yields

23. Highlights indicate what was definitively down or a relatively short crop in 2018.
Central Valley Yields

24. Central Valley Returns
“Average” Return Per Acre Using 2018 Price Est.
Highlights indicate likely economic sustainability

25. Central Valley Returns
“Average” Return Per Acre Using 2018 Price Est.
Highlights indicate important revenue breaking points

26. Relative Bright Spots in the 2018 Winegrape Market
Generic Whites (including Thompsons)
Florals
Rubired (Color)
Grapes for Rosé
REALITY: There are economically sustainable winegrape growers in the Central Valley.

27. Winegrape Market Realities
Trump’s
“very unofficial” reaction
Over the last year or two, we have been teetering on imbalance. Demand and supply trends of wine & winegrapes are limiting opportunities for Central Valley market expansion.
We have been commoditized in the Central Valley. 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.
California wine shipments are down, but consumers aren’t drinking less wine. Imports are making in-roads at our expense in a U.S. market that is still growing.
We have been, and will continue to, adjust our acreage to match demand. The recent over-supply of Central Valley winegrapes is now mostly diminished with increased vineyard removals.
There are economically sustainable winegrape growers in the Central Valley. Opportunities in the interior come specifically from strong production and/or (to a lesser extent) above average quality, allowing inclusion in higher-priced wines.

28. Our problem is demand driven rather than supply driven.
Bottom Line:
Our problem is demand driven
rather than supply driven.
Opportunities for future success
depend on increasing demand.

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

30. Red and White Concentrate

31. 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.

32. Defined Need

33. (and a glimpse into the future)
Thank you!
Harvest & Crush
2018 Recap
(and a glimpse into the future)
Jeff Bitter
Allied Grape Growers
November 28, 2018