1. Allied Grape Growers, 2015. All rights reserved. Unified Wine & Grape Symposium State of the Industry -Finding Equilibrium- Jeff Bitter Allied Grape Growers January 28, 2015

2. Allied Grape Growers, 2015. All rights reserved. What is Allied Grape Growers? California Winegrape Marketing Association Represent our winegrape grower-members, negotiating on their behalf to sell their winegrapes to various buyers statewide Provide field services to buyers Grower-owned Formed as a cooperative Represent +/-600 California growers Governed by an elected board of directors

3. Allied Grape Growers, 2015. All rights reserved. Today’s presentation utilizes information obtained via Allied Grape Growers’ (AGG) annual Grapevine Nursery Survey combined with evaluation of reports and data made available by the State of California. Wine shipment data is courtesy of the Gomberg Fredrikson Report. AGG’s internal operations data along with non-quantified industry observations and anecdotal evidence was also used to draw conclusions.

4. Allied Grape Growers, 2015. All rights reserved. Sections Current Acreage/Grape Supply Position Supply Macro-trends (A look at the future) Segmenting the Industry (By price) Supply Potential by Variety and Segment Summing up for Success

5. Allied Grape Growers, 2015. All rights reserved. Current Position Acreage and Grape Supply

6. Allied Grape Growers, 2015. All rights reserved. Current Position Acreage & Grape Supply Regional Tons Estimation sources: AGG’s internal grower yields, industry input and Winegrape Inspection Service data.

7. Allied Grape Growers, 2015. All rights reserved. Current Position Acreage & Grape Supply

8. Allied Grape Growers, 2015. All rights reserved. Current Position Acreage & Grape Supply Accurately estimating supply requires correct acreage numbers

9. Allied Grape Growers, 2015. All rights reserved. Current Position Acreage & Grape Supply Presentation Assumption: Non-bearing for three years

10. Allied Grape Growers, 2015. All rights reserved. We have observed new plantings statewide, but now we are beginning to see significant removals in the interior.

11. Allied Grape Growers, 2015. All rights reserved. Current Position Acreage & Grape Supply

12. Allied Grape Growers, 2015. All rights reserved. Why are growers pulling vines out?

13. Allied Grape Growers, 2015. 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 Shipment/Supply Imbalance Large crops

14. Allied Grape Growers, 2015. 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 About 2/3 of all the recorded vineyard removals in the SJV are winegrapes. Just since harvest, 22,000 acres (15,000 winegrapes) have been pulled 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

15. Allied Grape Growers, 2015. All rights reserved. Supply Macro-trends (A look at the Future)

16. Allied Grape Growers, 2015. All rights reserved. 34.5% White 65.5% Red Other Reds Include: Grenache Cab Franc Barbera Teroldego Petite Verdot Supply Macro-trends Vine Sales - 2015 Nursery Survey Results

17. Allied Grape Growers, 2015. All rights reserved. Supply 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

18. Allied Grape Growers, 2015. All rights reserved. Supply Macro-trends

19. Allied Grape Growers, 2015. All rights reserved. Supply Macro-trends Assuming attrition rates of 2% coastal and 6% interior, We are forecast to produce along the demand trendline.

20. Allied Grape Growers, 2015. All rights reserved. Segmenting the Industry

21. Allied Grape Growers, 2015. 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

22. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business $10-20 - 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

23. Allied Grape Growers, 2015. 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) 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

24. Allied Grape Growers, 2015. 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

25. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business

26. Allied Grape Growers, 2015. All rights reserved. Supply Potential By Variety and Segment

27. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Chardonnay

28. Allied Grape Growers, 2015. All rights reserved. Supply Potential – Sauvignon Blanc

29. Allied Grape Growers, 2015. All rights reserved. Supply Potential – Pinot Grigio

30. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Merlot

31. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Zinfandel

32. Allied Grape Growers, 2015. All rights reserved. Supply Potential – Cab Sauv

33. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Pinot Noir

34. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Malbec

35. Allied Grape Growers, 2015. All rights reserved. Supply Potential – Petite Sirah

36. Allied Grape Growers, 2015. All rights reserved. Supply Potential - All Wine

37. Allied Grape Growers, 2015. All rights reserved. Summing up for Success

38. Allied Grape Growers, 2015. 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 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 (i.e. with contracts) is critical, and it is critically important for growers to understand contract terms/conditions Opportunities exist, even in segments of the business that appear disadvantaged at the moment.

39. Allied Grape Growers, 2015. All rights reserved. Final Thought Our industry remains a very strong one, with positive overall shipment growth, billions of dollars in annual economic benefit and the production of a world- recognized and globally-consumed product. But in the midst of this success we will be constantly challenged to find and maintain equilibrium considering variable production, ever-changing consumer preference, and the natural time it takes to bring our superior product to market.

40. Allied Grape Growers, 2015. All rights reserved. For more information come see us at Booth 828 Or visit us at: alliedgrapegrowers.org