Jeff Bitter
Allied Grape Growers
November 5, 2014

Quality, Integrity, Stability

California Wine Shipment Trends

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

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

Industry Update

California Wine Shipment Trends

Industry Update
Source: zillow.com

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

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

Industry Update
100,0
90,0
80,0
70,0
60,0
50,0
40,0
30,0
20,0
10,0
0,0
Total
-1%
-5%
+27%
Imported Wine - Bottled and Bulk
(In Millions of Cases)
Total
+12%
-2%
+92%
2008 2009
Data obtained via the Gomberg Fredrikson Report
Total
+0%
+7%
-20%
Total
+7%
+3%
+26%
Total
+16%
-2%
+71%
2010 2011
Bottled Imports
2012
Bulk Imports
Total
-7%
+3%
-25%
2013

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

Industry Update

Industry Update
Craft Beer

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.

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

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….”

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

Industry Update

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

700,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
Growing
600,000
500,000
400,000
Growing
Demand, but
Rapid
Expansion
No Growth from the
Expansion
Peaks;
Oversupply
Chronic
Moderate
Expansion
300,000
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

700,000
600,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
Growing
Demand;
Moderate
Expansion
500,000
400,000
Growing
Demand;
Moderate
Expansion
300,000
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

700,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
600,000
Growing
Demand; Rapid
Expansion
500,000
400,000
300,000
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

700,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
600,000
CAUSED
500,000
THIS
400,000
300,000
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

700,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
600,000
500,000
400,000
300,000
THIS
CAUSED
THIS
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

700,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
600,000
Growing
Demand; Rapid
Expansion
Are we Entering a Period of
Rapid
Expansion?
500,000
400,000
300,000
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

700,000
600,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
Growing
Demand; Rapid
Expansion
We know this is coming for 2015 & 2016, but is it rapid expansion?
500,000
400,000
300,000
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

700,000
600,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
Only if we continue the recent planting trend and/or neglect to remove vines
500,000
400,000
300,000
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

700,000
600,000
California Acreage Trends
Estimated California Bearing Winegrape Acres
From 1990 with projections
Moderate
Moderate Planting Defined:
+/-15,000 NET new acres per year
Planting
Matches the
Trend
500,000
400,000
300,000
200,000
100,000
-
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Industry Update
• 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.

Industry Update

Industry Update
• 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.
• Millennial generation is significant.

Industry Update

Industry Update

Industry Update
• 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.
• Millennial generation is significant.
• Plenty of supply in the short term.

Industry Update
Millions of Tons
5.0
4.5
4.0
3.5
3.0
2.5
California Wine Shipments and Grape Production (for wine only)
2009-2013 with estimates and projections thru 2017
2.0
1.5
1.0
0.5
0.0
2009 2010 2011 2012 2013 2014
Est.
2013 Wine Shipments estimated by AGG based on data obtained via the
The Gomberg Fredrikson Report, 01/2014
Wine Shipments
2015
Est.
2016
Est.
2017
Est.
Grapes Crushed for Wine

Industry Update
• 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.
• Millennial generation is significant.
• Plenty of supply in the short term.
• Mid/high price segments are on fire, experiencing very strong growth.

California Wine Shipment Trends

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

Industry Update
Tons
(in Millions)
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
4.33
3.76
3.49
3.14
Statewide Grape Crush 2005-2014 Estimate
4.70
4.39
4.09
4.10
3.98
3.67
3.67
3.67
4.25
4.02
3.90
3.70
3.58
3.25
3.34
3.06
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Other Crush Winegrape Crush

Industry Update
What about 2014?
• Was this the third large crop in a row?
• How did the market develop?

Industry Update

Industry Update

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