1. The US Wine Industry Liz Borodofsky John Dalton John Roeder James Vineyard

2. Table Of Contents Background Background Market Information Market Information Nature Of Customers Nature Of Customers Competition Competition Company Profiles Company Profiles Other Environmental Information Other Environmental Information Sources Sources

3. Background

4. Industry History American wine first gained prominence in the 19 th century. American wine first gained prominence in the 19 th century. Ohio was the first state to successfully grow wine grapes. Ohio was the first state to successfully grow wine grapes. Spanish missionaries brought grapes to California and Texas. Spanish missionaries brought grapes to California and Texas. The wine industry has not regained its size prior to prohibition. The wine industry has not regained its size prior to prohibition.

5. Wine in the US Wine competes with several substitute beverages in the US, primarily other alcoholic beverages. Wine competes with several substitute beverages in the US, primarily other alcoholic beverages. The American culture historically has seen wine as a luxury beverage, not suitable for consumption on a daily basis. The American culture historically has seen wine as a luxury beverage, not suitable for consumption on a daily basis.

6. Wine in the US

7. Market Information

8. Market Sectors Still Red and White wines are the largest market sectors. Still Red and White wines are the largest market sectors.

9. Market Forecasts 2001-2006 Wine sales in the U.S. are forecasted to remain flat for 2003, but increase steadily into 2006. Wine sales in the U.S. are forecasted to remain flat for 2003, but increase steadily into 2006.

10. Wine Sector Forecast 2002-2006 per million liters Almost all projected growth will be in the Still Red and White wine sectors. Almost all projected growth will be in the Still Red and White wine sectors.

11. How the Economy affects the US Wine Industry Wine consumption does not decrease during economic downturns. Wine consumption does not decrease during economic downturns. Demand softens for ultra-premium and luxury wines and increases for lower priced wines. Demand softens for ultra-premium and luxury wines and increases for lower priced wines. Vintners and growers cited a “continued economic downturn” as the most significant constraint to industry growth (ahead of global competition, wine/distributor consolidation, and production constraints). Vintners and growers cited a “continued economic downturn” as the most significant constraint to industry growth (ahead of global competition, wine/distributor consolidation, and production constraints).

12. 2001 Regional Wine Consumption The majority of U.S. wine consumption is concentrated in the Northeast and Pacific regions. The majority of U.S. wine consumption is concentrated in the Northeast and Pacific regions.

13. 2001 Regional Wine Consumption Per Capita

14. U.S. Wine Consumption Per Capita

15. Nature of Customers

16. Customer Demographics Target: US Population over 21 years old Target: US Population over 21 years old

17. Market Segments – By Price

18. Purchasing Habits A majority of US Retail Wine purchases occur at the local grocery store. A majority of US Retail Wine purchases occur at the local grocery store. Source: Euromonitor

19. Competition

20. Competitive Landscape E&J Gallo is the largest Volume Seller. E&J Gallo is the largest Volume Seller.

21. Competitive Landscape Despite lower volume sales, Constellation and Fosters generate more revenue than E&J Gallo. Despite lower volume sales, Constellation and Fosters generate more revenue than E&J Gallo.

22. Industry Trends Medium and large wineries are experiencing significant consolidation while small wineries proliferate (750+ in California alone). Medium and large wineries are experiencing significant consolidation while small wineries proliferate (750+ in California alone). Worldwide grape-glut putting downward pressure on prices. Worldwide grape-glut putting downward pressure on prices. Import wines gain market share. Wines from Italy and Australia, now represent 1 in 3 bottles sold in supermarkets. Import wines gain market share. Wines from Italy and Australia, now represent 1 in 3 bottles sold in supermarkets. The Super Premium category ($7-$14) is experiencing the highest growth. The Super Premium category ($7-$14) is experiencing the highest growth.

23. Example Segmentation – the Robert Mondavi brands Everyday Beverage: Woodbridge ($6-$8) Everyday Beverage: Woodbridge ($6-$8) Super Premium: Robert Mondavi Private Selection ($11) Super Premium: Robert Mondavi Private Selection ($11) Ultra Premium: Robert Mondavi Winery ($20-$30) Ultra Premium: Robert Mondavi Winery ($20-$30) Luxury: Robert Mondavi Reserve and District wines ($23-$150) Luxury: Robert Mondavi Reserve and District wines ($23-$150)

24. Company Profiles

25. Gallo is the worlds largest winemaker. Gallo is the worlds largest winemaker. Traditionally focused on lower price categories, particularly jug wines. Traditionally focused on lower price categories, particularly jug wines. Newer brands such as Turning Leaf and Gallo of Sonoma are targeted at higher priced segments. Newer brands such as Turning Leaf and Gallo of Sonoma are targeted at higher priced segments. 2001 Revenues of $1.65 billion. 2001 Revenues of $1.65 billion. Major Brands: Carlo Rossi, Gallo, Gallo Reserve, Night Train, Ballatore, Rancho Zabaco. Major Brands: Carlo Rossi, Gallo, Gallo Reserve, Night Train, Ballatore, Rancho Zabaco.

26. Constellation Brands Formerly known as Canandaigua Wine Company (Now a subsidiary). Formerly known as Canandaigua Wine Company (Now a subsidiary). The Canandaigua arm focuses on the lower-priced segments while the Franciscan arms targets Super Premium and Luxury segments. The Canandaigua arm focuses on the lower-priced segments while the Franciscan arms targets Super Premium and Luxury segments. Markets more than 125 brands, including beers, wines, and spirits. Markets more than 125 brands, including beers, wines, and spirits. 2001 Revenues of $3.2 billion, net income of $97.3 million. 2001 Revenues of $3.2 billion, net income of $97.3 million. Major Brands: Ravenswood, Estancia, Simi, Inglenook, Almaden, Franciscan, Talus. Major Brands: Ravenswood, Estancia, Simi, Inglenook, Almaden, Franciscan, Talus. Listed on the NYSE as STZ. Listed on the NYSE as STZ.

27. Robert Mondavi Has ownership in luxury producing wineries like Opus One (California), Ornellaia (Italy), and Sena (Chile). Has ownership in luxury producing wineries like Opus One (California), Ornellaia (Italy), and Sena (Chile). Mondavi primarily targets price segments over $8. Mondavi primarily targets price segments over $8. Markets brands in each price segment. Markets brands in each price segment. 2001 Revenues of $0.5 billion, net income of $43 million. 2001 Revenues of $0.5 billion, net income of $43 million. Listed on the NASDAQ as MOND. Listed on the NASDAQ as MOND.

28. The Wine Group Primarily owns low-end brands, but has recently acquired some higher-end brands. Primarily owns low-end brands, but has recently acquired some higher-end brands. Major brands include Franzia, the leading box wine in the US, and Corbett Canyon. Major brands include Franzia, the leading box wine in the US, and Corbett Canyon. 2001 Revenues $300 million, down 14% from 2000. 2001 Revenues $300 million, down 14% from 2000. Formerly part of Coca Cola. Formerly part of Coca Cola. The Wine Group recently purchased the Glen Ellen and MG Vallejo brands from Diageo. The Wine Group recently purchased the Glen Ellen and MG Vallejo brands from Diageo.

29. Other Environmental Information

30. Government Regulations The Bureau of Alcohol, Tobacco and Firearms (ATF) regulates the industry. The Bureau of Alcohol, Tobacco and Firearms (ATF) regulates the industry. Wine is taxed at the state and federal levels. Wine is taxed at the state and federal levels. Individual States determine the regulations regarding the sale, marketing, and shipping of alcoholic beverages. Individual States determine the regulations regarding the sale, marketing, and shipping of alcoholic beverages. Sales occur through state owned and operated stores in some states. Sales occur through state owned and operated stores in some states.

31. Direct Shipping of Wine These restrictions are currently being debated at the state and federal levels. Wine may not be shipped directly to customers in most US states. Wine may not be shipped directly to customers in most US states.

32. Direct Shipping of Wine In 2002, US district judges overturned "discriminatory" interstate shipping bans in Virginia, North Carolina, Texas, and even in New York. In 2002, US district judges overturned "discriminatory" interstate shipping bans in Virginia, North Carolina, Texas, and even in New York. In 2002, the US House and Senate passed a provision into the Department of Justice Appropriations Authorization Act allowing wine purchased while visiting a winery, to be shipped to another state. In 2002, the US House and Senate passed a provision into the Department of Justice Appropriations Authorization Act allowing wine purchased while visiting a winery, to be shipped to another state.

33. Sources Euromonitor.com: Information concerning recent trends in sectors, market segment data, forecasts, market share information, customer demographics and company profiles. Euromonitor.com: Information concerning recent trends in sectors, market segment data, forecasts, market share information, customer demographics and company profiles. Business Source Premier article “Moving Forward”: Regional data of US wine consumption Business Source Premier article “Moving Forward”: Regional data of US wine consumption History-of-Wine.com: Everything from the history of wine, wine production around the world, the popularity of wine in various regions History-of-Wine.com: Everything from the history of wine, wine production around the world, the popularity of wine in various regions Winebusiness.com: Retail wine sales information from the end of September 2002. Winebusiness.com: Retail wine sales information from the end of September 2002.

34. Sources cont. Hoovers.com: Company Profiles WineryExchange.com: Market Segments RobertMondavi.com: Price Segment offering information, company information Constellationbrands.com: Company Information Gallo.com: Company Information California Association of Winegrowers (cawg.org): Industry News, per capita consumption statistics Forbes, January 6, 2003, p 118: “Seeing Stars.”: Company information

35. Sources cont. Wineinstitute.org Wineinstitute.org Mindbranch.com Mindbranch.com Wine Business Monthly Wine Business Monthly