1. Trends in the California Wine Business Jeff Bitter Allied Grape Growers November 5, 2014

2. Quality, Integrity, Stability

3. California Wine Shipment Trends

4. Industry Update The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success:

5. Industry Update The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy

6. Industry Update

7. California Wine Shipment Trends

8. Industry Update Source: zillow.com

9. Industry Update Headline: The Conference Board Consumer Confidence Index® Continues to Improve 24 Jun. 2014 According to Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer confidence continues to advance and the index is now at its highest level since January 2008 (87.3). June’s increase was driven primarily by improving current conditions, particularly consumers’ assessment of business conditions. Expectations regarding the short-term outlook for the economy and jobs were moderately more favorable, while income expectations were a bit mixed. Still, the momentum going forward remains quite positive.” Source: June 2014 Consumer Confidence Survey ® The Conference Board

10. Industry Update The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy Foreign competition Foreign competition

11. Industry Update

12. The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy Foreign competition Foreign competition Categorical competition Categorical competition

13. Industry Update

14. Craft Beer

15. Beer Trends from CNBC.com Craft beer production was up 9.6 percent in 2013, while overall beer production fell 1.4 percent, according to Technomic's "2014 Special Trends in Adult Beverage Report: State of the Industry" report. And that continued popularity of specialty beers is paving the way for a new crop of beer makers. "Over the last couple of years, the number of new brewery openings has been at near unprecedented levels," said Bart Watson, Ph.D., staff economist at Brewers Association, a craft beer industry group. "We're seeing breweries open at about a rate of 1.2 per day.“ Craft breweries have a few things working in their favor, perhaps the most important of which is a customer base that's financially well off. Nielsen reports that 58.9 percent of craft beer drinkers have annual incomes of $75,000 or more.

16. Gomberg Fredrikson Report 2013 Annual Wine Industry Review Cider shipments increased by 67% last year! Cider shipments increased by 67% last year! Moscato (the hottest trend in the wine business) was only up by 5%. Moscato (the hottest trend in the wine business) was only up by 5%.

17. Gomberg Fredrikson Report 2013 Annual Wine Industry Review Quote: “New cider brands, new flavors, and the lower alcohol content of hard cider are attracting new consumers, and especially young women…..it seems likely that the upsurge in cider sales has cannibalized sales of entry level wines….”

18. Industry Update The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy Foreign competition Foreign competition Categorical competition Categorical competition Costs of business and the scarcity/price of resources Costs of business and the scarcity/price of resources

19. Industry Update

20. The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy Foreign competition Foreign competition Categorical competition Categorical competition Costs of business and the scarcity/price of resources Costs of business and the scarcity/price of resources Overproduction Overproduction

21. California Acreage Trends No Growth from the 1980s Growing Demand; Moderate Expansion Growing Demand, but Rapid Expansion Demand Good, but Acreage Peaks; Oversupply Acreage stalls; Oversupply Chronic Growing Demand; Moderate Expansion

22. California Acreage Trends

23. Growing Demand; Rapid Expansion California Acreage Trends

24. THIS CAUSED California Acreage Trends

25. THIS CAUSED THIS California Acreage Trends

26. Growing Demand; Rapid Expansion Are we Entering a Period of Rapid Expansion? California Acreage Trends

27. Growing Demand; Rapid Expansion California Acreage Trends We know this is coming for 2015 & 2016, but is it rapid expansion?

28. Only if we continue the recent planting trend and/or neglect to remove vines California Acreage Trends

29. Moderate Planting Matches the Trend Moderate Planting Defined: +/-15,000 NET new acres per year California Acreage Trends

30. Industry Update The California wine industry remains strong, and we do have opportunities before us: The California wine industry remains strong, and we do have opportunities before us: There’s more consumption of wine today than ever in the U.S. There’s more consumption of wine today than ever in the U.S.

31. Industry Update

32. The California wine industry remains strong, and we do have opportunities before us: The California wine industry remains strong, and we do have opportunities before us: There’s more consumption of wine today than ever in the U.S. There’s more consumption of wine today than ever in the U.S. Millennial generation is significant. Millennial generation is significant.

33. Industry Update

35. The California wine industry remains strong, and we do have opportunities before us: The California wine industry remains strong, and we do have opportunities before us: There’s more consumption of wine today than ever in the U.S. There’s more consumption of wine today than ever in the U.S. Millennial generation is significant. Millennial generation is significant. Plenty of supply in the short term. Plenty of supply in the short term.

36. Industry Update

37. The California wine industry remains strong, and we do have opportunities before us: The California wine industry remains strong, and we do have opportunities before us: There’s more consumption of wine today than ever in the U.S. There’s more consumption of wine today than ever in the U.S. Millennial generation is significant. Millennial generation is significant. Plenty of supply in the short term. Plenty of supply in the short term. Mid/high price segments are on fire, experiencing very strong growth. Mid/high price segments are on fire, experiencing very strong growth.

38. California Wine Shipment Trends

39. Industry Update What about 2014? Was this the third large crop in a row? Was this the third large crop in a row?

40. Industry Update

41. What about 2014? Was this the third large crop in a row? Was this the third large crop in a row? How did the market develop? How did the market develop?

42. Industry Update

44. www.alliedgrapegrowers.org Questions?