Unified Wine & Grape Symposium
State of the Industry
-Finding EquilibriumJeff Bitter
Allied Grape Growers
January 28, 2015
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
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.
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
Allied Grape Growers, 2015. All rights reserved.
Current Position
Acreage and Grape Supply
Allied Grape Growers, 2015. All rights reserved.
Current Position
Acreage & Grape Supply
Regional Tons
Region
North Coast
Central Coast
Lodi/Clarksburg
Central Interior
Other
Total
Three
Year
Average
521,165
510,539
849,449
1,904,774
84,420
3,870,347
2013
Actual
Production
588,472
593,855
949,591
2,026,212
87,722
4,245,852
2014
Estimated Estimated
AGG
% Above % Under
Estimate
Average
2013
540,000
4%
-8%
550,000
8%
-7%
860,000
1%
-9%
1,965,000
3%
-3%
85,000
1%
-3%
4,000,000
3%
-6%
Estimation sources: AGG’s internal grower yields, industry
input and Winegrape Inspection Service data.
Allied Grape Growers, 2015. All rights reserved.
Current Position
Acreage & Grape Supply
Statewide Grape Crush 2006-2014 Estimate
Tons
(in Millions)
4.70
4.39
5.00
4.50
4.09
3.49
3.67
3.98
3.67
3.67
4.25
4.00
4.02
3.70
3.50
3.00
4.25
3.14
3.25
3.58
4.00
3.34
3.06
2.50
2.00
1.50
1.00
0.50
0.00
2006
2007
2008
2009
2010
Winegrape Crush
2011
2012
Other Crush
2013
2014
Est.
Allied Grape Growers, 2015. All rights reserved.
Current Position
Acreage & Grape Supply
Accurately estimating supply requires correct acreage numbers
State Reported
State Estimated
DPR Permitted
AGG Estimated
2014 AGG Estimate
2015 AGG Estimate
2013 Acreage Data Comparison
Bearing
Non-Bearing Total
469,062
25,131
494,193
525,000
45,000
570,000
N/A
N/A
620,837
545,000
75,000
620,000
555,000
562,000
100,000
90,000
Allied Grape Growers, 2015. All rights reserved.
655,000
652,000
Current Position
Acreage & Grape Supply
Presentation Assumption:
Non-bearing for three years
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.
Allied Grape Growers, 2015. All rights reserved.
Current Position
Acreage & Grape Supply
Allied Grape Growers, 2015. All rights reserved.
Why are growers
pulling vines out?
Allied Grape Growers, 2015. All rights reserved.
Current Position
Acreage & Grape Supply
Lodi – 12/14
What Happened?
• Imports
• Shipment/Supply Imbalance
• Large crops
Madera – 01/15
Is over-production
limited to the
interior regions?
Allied Grape Growers, 2015. All rights reserved.
Current Position
Acreage & Grape Supply
• 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.
Allied Grape Growers, 2015. All rights reserved.
Supply
Macro-trends
(A look at the Future)
Allied Grape Growers, 2015. All rights reserved.
Supply Macro-trends
2014 Winegrape Vines Sold by California Nurseries
Vine Sales - 2015 Nursery Survey Results
34.5%
White
Chardonnay
17.0%
Cabernet
Sauvingon
29.2%
65.5%
Red
Pinot Grigio
12.5%
French
Colombard
1.2%
Pinot Noir
12.2%
Sauvignon Blanc
1.1%
Other
White/Florals
2.7%
Other Reds Include:
Grenache
Cab Franc
Barbera
Teroldego
Petite Verdot
Other Red
7.0%
Malbec
1.1% Syrah Rubired
1.8% 3.3%
Merlot
3.1%
Zin/Primitivo
3.8%
Petite Sirah
4.2%
Allied Grape Growers, 2015. All rights reserved.
Supply Macro-trends
Will new acres produce a multi-year surplus?
Range of Potential California Winegrape
Acres Planted Based on Annual Vine Sales
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
Are we repeating the early 2000s?
-Larger acreage base today
-Quicker grower reaction to excess
-Less speculative planting
2010
2011
2012
2013
Allied Grape Growers, 2015. All rights reserved.
2014
Supply Macro-trends
Winegrape Tons
Crushed or
Estimated
AGG Estimated
Bearing
Winegrape
2013
4,244,891
545,000
7.79
2014
4,000,000
555,000
7.21
2015
4,119,460
562,000
7.33
2016
4,255,000
575,000
7.40
2017
4,387,500
585,000
7.50
Crop Year
Average
Winegrape
Yield
Average per acre yield from 2009-2013 = 7.29 TPA
2015-2017 assume 2% coastal and 6% interior attrition rates
Allied Grape Growers, 2015. All rights reserved.
Supply Macro-trends
Millions
of Tons
5.0
4.5
California Wine Shipments and Grape Production (for wine only)
2009-2014 with estimates and projections thru 2017
Assuming attrition rates of 2% coastal and 6% interior,
We are forecast to produce along the demand trendline.
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2009
2010
California Wine Shipment Data Source:
The Gomberg Fredrikson Report
2011
2012
2013
2014
Est.
Wine Shipments
2015
Est.
2016
Est.
2017
Est.
Grapes Crushed for Wine
Allied Grape Growers, 2015. All rights reserved.
Segmenting
the Industry
Allied Grape Growers, 2015. All rights reserved.
Segmenting the Business
Bottle Prices:
Less than $10 / $10-20 / and above $20
• <$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)
Allied Grape Growers, 2015. All rights reserved.
Segmenting the Business
Bottle Prices:
Less than $10 / $10-20 / and above $20
• $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)
Allied Grape Growers, 2015. All rights reserved.
Segmenting the Business
Bottle Prices:
Less than $10 / $10-20 / and above $20
• >$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)
Allied Grape Growers, 2015. All rights reserved.
Segmenting the Business
<$10
>$10
Essentially, the
California Coast Range
is the geographic line
that represents the
+/- $10/bottle pivot
point in the market.
= <$10
= $10-20
= >$20
Allied Grape Growers, 2015. All rights reserved.
Segmenting the Business
Segment Allocation of Winegrape Vines Sold, 2012-2014
30 Million
27 Million
30,000,000
24 Million
25,000,000
20,000,000
High
Mid
Value
15,000,000
Higher
emphasis
in Northern
Interior
10,000,000
5,000,000
Major
concentration
in Northern
Interior
2012
2013
2014
Allied Grape Growers, 2015. All rights reserved.
Supply Potential
By Variety and Segment
Allied Grape Growers, 2015. All rights reserved.
Supply Potential - Chardonnay
Est. California Chardonnay Bearing Acres, 2013-2017
50,000
-1% 4% 4%
Includes 2% Attrition Rate
45,000
3% 3% 4%
40,000
35,000
30,000
25,000
0% 1% 2%
20,000
15,000
10,000
5,000
-
High
2013
Mid
2014
2015
Value
2016
Allied Grape Growers, 2015. All rights reserved.
2017
Supply Potential – Sauvignon Blanc
Est. California Sauvignon Blanc Bearing Acres, 2013-2017
8,000
Includes 2% Attrition Rate for High and Mid
7,000
6,000
0% -1% 1%
0% 1% 2%
0% 0% -1%
5,000
4,000
3,000
2,000
1,000
-
High
2013
Mid
2014
2015
Value
2016
Allied Grape Growers, 2015. All rights reserved.
2017
Supply Potential – Pinot Grigio
Est. California Pinot Grigio Bearing Acres, 2013-2017
25,000
7% 12% 23%
20,000
15,000
10,000
2% 4% 9%
5,000
3% 3% 1%
-
High
2013
Mid
2014
2015
Value
2016
2017
Allied Grape Growers, 2015. All rights reserved.
Supply Potential - Merlot
Est. California Merlot Bearing Acres, 2013-2017
30,000
Includes 2% Attrition Rate
1% 2% 1%
25,000
20,000
15,000
1% 0% 0%
-2% -1% -1%
10,000
5,000
-
High
2013
Mid
2014
2015
Value
2016
Allied Grape Growers, 2015. All rights reserved.
2017
Supply Potential - Zinfandel
Est. California Zinfandel Bearing Acres, 2013-2017
50,000
Includes 2% Attrition Rate
0% 4% -1%
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
-1% 0% -1%
11% 10% 6%
5,000
-
High
2013
Mid
2014
2015
Value
2016
Allied Grape Growers, 2015. All rights reserved.
2017
Supply Potential – Cab Sauv
Est. California Cab Sauv Bearing Acres, 2013-2017
50,000
Includes 2% Attrition Rate
3% 8% 13%
45,000
40,000
2% 3% 4%
10% 16% 10%
35,000
30,000
25,000
20,000
15,000
10,000
5,000
2013
Value
Mid
High
2014
2015
2016
Allied Grape Growers, 2015. All rights reserved.
2017
Supply Potential - Pinot Noir
Est. California Pinot Noir Bearing Acres, 2013-2017
30,000
Includes 2% Attrition Rate for High and Mid
2% 5% 4%
25,000
20,000
9% 10% 6%
15,000
3% 8% 13%
10,000
5,000
-
High
2013
Mid
2014
2015
Value
2016
2017
Allied Grape Growers, 2015. All rights reserved.
Supply Potential - Malbec
Est. California Malbec Bearing Acres, 2013-2017
3,500
45% 10% 7%
3,000
2,500
2,000
54% 7% 8%
1,500
8% 3% 4%
1,000
500
-
High
2013
Mid
2014
2015
Value
2016
Allied Grape Growers, 2015. All rights reserved.
2017
Supply Potential – Petite Sirah
Est. California Petite Sirah Bearing Acres, 2013-2017
10,000
Includes 2% Attrition Rate for High and Mid
16% 23% 15%
9,000
8,000
7,000
6,000
5,000
6% 5% 6%
4,000
3,000
2,000
1% 6% 1%
1,000
-
High
2013
Mid
2014
2015
Value
2016
2017
Allied Grape Growers, 2015. All rights reserved.
Supply Potential - All Wine
Est. California Winegrape Bearing Acres, 2013-2017
350,000
Includes 2% Coastal Attrition Rate
and 6% Interior Attrition Rate
-1% 1% 0%
300,000
250,000
200,000
6% 6% 5%
150,000
1% 2% 2%
100,000
50,000
-
High
2013
Mid
2014
2015
Value
2016
2017
Allied Grape Growers, 2015. All rights reserved.
Summing up
for Success
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.
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 worldrecognized 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.
Allied Grape Growers, 2015. All rights reserved.
For more information
come see us at
Booth 828
Or visit us at:
alliedgrapegrowers.org
Allied Grape Growers, 2015. All rights reserved.