2020 State of the Wine Industry VideocastJanuary 2020

How optimistic is the industry?2019 marked an historic change of sentiment

-11.8

13.4 10.8

37.1

-30.9

-11.9

4.8

-14.0

-43.8 -46.3-60

-40

-20

0

20

40

60

80Ne

t Sen

timen

t Ind

ex2015 2016 *2017 2018 2019

Source: Silicon Valley Bank Industry Survey 2

Trend of winery financial health

3

0%

3%

13%

21%

33%

18%

11%

0%

5%

10%

15%

20%

25%

30%

35%

On Life Support Very Weak Slightly Weak Good Strong Very Strong Rock Solid

2015 2016 *2017 2018 2019

Source: SVB State of the Wine Industry Survey

How was your year?

4

1%

7%10%

14%

24%

21%

24%

0%

5%

10%

15%

20%

25%

30%

35%

40%

The most difficultyear in our history

One of our mostchallenging years

ever

A disappointing year Neither a good year ora bad year

A good year One of our betteryears

The best year in ourhistory

Perc

enta

ge o

f res

pond

ents

2016 *2017 2018 2019

Source: SVB State of the Wine Industry Survey & SVB Peer Group Database of Financial Statements

Quartile 1 -7.82%

Quartile 2 3.59%

Quartile 3 11.29%

Quartile 4 22.34%

Sales Growth Rates of Family Wineries

Wine consumption by cohort

5

2.1%

17.0%

34.6%

40.1%

5.9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Gen Z (21-22) Millennials (23 - 38) Gen X (39 - 54) Boomers (55 - 73) Mature (74+)

2014 2015 2016 *2017 2018 2019

Source: SVB State of the Wine Industry Survey

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

California Bulk Wine Inventory*Jan 2020 Est.

CABERNET SAUVIGNON CHARDONNAY MERLOT PINOT NOIR ZINFANDEL

Bulk

Gal

lons

Ava

ilabl

e

0.0

5.0

10.0

15.0

20.0

25.0

30.0

JAN.

201

5

JAN.

201

6

JAN.

201

7

JAN.

201

8

JAN.

201

9

NOV.

201

9

EST.

JAN.

202

0

TOTAL GALLONSIn Millions

Acute over supply in market

Source: Ciatti Brokers6

Consumption preference alcohol and cannabisWill consumers continue to move to wine?

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Millennials (22 - 37) Gen X (38 - 53) Boomers (54 - 72) Matures (73+)

Inde

x Ba

se =

100

Recent Beer Recent Liquor Recent Wine Recent Cannabis

Sources: Scarborough Research, SVB Analysis 7

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Demand Growth Economic Turbulence Grape Price Growth

Sonoma $989.60 $979.97 Napa $1,257.40 $1,218.29 Mendocino $707.36 $723.86

North coast CA grape price increasesThe story of bubbles…The bad kind

Source: USDA NASS Grape Crush Report, Vineyard Financial Associates8

Do you have a full-time employee dedicated to analyzing consumer data?

9

Full-Time18%

No55%

Part-Time27%

Source: SVB State of the Wine Industry Survey

Predicted year-end sales growth

10

17%

12%

11%

10% 10%

15%

10% 10% 9%8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2015 2016 *2017 2018 2019

Change in $ Sales Change in Case Sales

Source: SVB State of the Wine Industry Survey

12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 9/30/2019Gross Margin 53.7% 53.2% 53.4% 54.8% 56.8% 56.9% 57.4% 58.5% 58.3% 59.3%Sales Growth 10.8% 12.2% 7.7% 9.2% 11.9% 8.8% 9.6% 3.1% 5.3% 7.2%Pretax Profit 6.7% 6.1% 6.9% 6.6% 8.0% 9.6% 10.2% 9.9% 10.6% 5.3%

45.0%

47.0%

49.0%

51.0%

53.0%

55.0%

57.0%

59.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Gro

ss M

argi

n

Sale

s Gro

wth

and

Pre

tax

Prof

it

Financial performance of premium wineriesGross margin improving while profitability is lower

Source: Silicon Valley Bank Peer Group Analysis Database 11

Source: Nielsen Homescan Panel, Total US: 52 weeks ending 06/29/19 Wine includes Still & Sparkling; Beer includes FMB and Ciders

Exclusive Wine15% People/4% $

Exclusive Beer18% People/7% $

Exclusive Spirits6% People/2% $ Vol

Wine & Beer19% People/17% $

Wine & Spirits7% people/7% $

Beer & Spirits8% people/9% $

WineBeerSpirits

Wine/Beer/Spirits27% People/55% $

Competition is beer and spiritsOnly 15% of drinkers are exclusive to wine

12

Projected retail price changes in 2019

13

1% 2%5%

48%

37%

1% 1%0%

10%

20%

30%

40%

50%

60%

StrongDecrease

ModerateDecrease

Small Decrease Hold Prices Small Increase ModerateIncrease

StrongIncrease

Source: SVB State of the Wine Industry Survey

Monthly visitors to tasting room

Average Napa Sonoma Oregon Washington Virginia2015 1,237 1,644 1,288 527 789 1,0962016 1,297 1,369 1,099 587 656 1,6442017 1,114 1,497 1,039 716 618 2,0752018 1,160 1,453 1,004 712 808 1,4822019 1,520 1,372 1,098 1,079 942 1,464

-

500

1,000

1,500

2,000

2,500

Source: Silicon Valley Bank Direct to Consumer Survey 14

Annual growth rate in hard seltzers

0

50

100

150

200

250

$-

$2,000.0

$4,000.0

$6,000.0

$8,000.0

$10,000.0

$12,000.0

$14,000.0

$16,000.0

4 Yr Ago 3 Yr Ago 2 Yr Ago 1 Yr Ago Lat. 52 weeks

Num

ber o

f Bra

nds

Mill

ions

of D

olla

rs

Dollar Sales Number of Brands

Source: Nielsen, 11-16-2019 15

5%5%

9%10%

13%14%

15%17%

18%19%

21%24%

32%

0% 10% 20% 30% 40%

I/my partner is expecting or recently had a child

Other

Friends/family are drinking less

More interested in Cannabis

Consuming more non alcoholic beverages

Want to maintain clarity/control

Can't afford to drink as much

Don't want to be hungover

Health related reasons

Don't go out as much as I used to

Consuming more of a different Alcohol beverage

Lost interest in drinking alcohol in general

Opting for healthier lifestyle

Why are young consumers cutting back?

Survey conducted online by The Harris Poll in partnership with Nielsen (January 7-9, 2019); n=1,964U.S. adults21+ 16

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Male Female

MatureBoomerGen XMillennial

Gen

Z

US population by age and cohort

Source: US Government Populations Statistics17

Growth rate in volume between $9.00 – $19.99

0%

2%

4%

6%

8%

10%

12%

14%

16%

N-16

D-16 J-1

7F-

17M

-17

A-17

M-1

7J-1

7J-1

7A-

17S-

17O-

17N-

17D-

17J-1

8F-

18M

-18

A-18

M-1

8J-1

8J-1

8A-

18S-

18O-

18N-

18D-

18 J-19

F-19

M-1

9A-

19M

-19

J-19

J-19

A-19

S-19

O-19

N-19

Perc

ent C

hang

e

$9 - $11.99 $12 - $14.99 $15 - $19.99

Source: Nielsen – Rolling 52 Week 11-2019 18

Varietal growth and share of market

-15%

-10%

-5%

0%

5%

10%

15%

20%

Share of Market NegativeGrowth Rate Positive Growth Rate

Source: SipSource, 12M rolling Sept 2019 19

Off-premise retail sales: 2014 – 2019

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

150.0

152.0

154.0

156.0

158.0

160.0

162.0

164.0

166.0

Billi

ons

of D

olla

rs

Mill

ions

of C

ases

Cases Dollars

Source: Nielsen – Rolling 52 Week 12-2019 20

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Wine Off Premise Wine On Premise Spirits Off Premise Spirits On Premise

Wine

Spirits

Wholesale depletions of wine and spirits

Source: SipSource, 2019 21

-4%

-3%

-3%

-2%

-2%

-1%

-1%

0%

1%

1%

2%Pe

rcen

tage

$0-2.99 $3 - $5.99 $6 - $8.99

Off-premise growth rate below $9.00

Source: Nielsen – Rolling 52 Week 11-2019 22

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2013

2014

2015

2016

2017

2018

12M

Oct

. 201

9

Gro

wth

Rat

e

Sale

s in

$U

SD

DtC Sales Growth Rate

Source: Wines Vines Analytics/ShipCompliant

Annual sales and growth rate direct to consumer

23

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

187 ML 375 ML 500 ML 750 ML 1.5 L 3 L 4 & 5 L

Shar

e of

For

mat

Grow

th R

ate

Growth Rate Share

Growth rate and share in formats

Source: Sip Source, 9-19 24

Disclaimer This material, including without limitation to the statistical information herein, is provided for informational purposes only. The views expressed in this article are solely those of the author and do not reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates. Silicon Valley Bank is not selling or distributing wine or wine-related products. Silicon Valley Bank provides banking and financial services, along with industry insights to Vineyards and Wineries. Silicon Valley Bank is not responsible for (or a participant in) the sales of any wineries’ products in any fashion or manner and makes no representations that any promotion or sales of alcoholic beverages will or will not be conducted in a lawful manner. Further, Silicon Valley Bank disclaims any responsibility or warranty for any products sold by wineries or other wine industry service providers. All companies, people, informational and news related sources other than those specifically named or represented by SVB, SVB Financial Group or Silicon Valley Bank are independent third parties and are not affiliated with SVB Financial Group.

Silicon Valley Bank is not selling or distributing wine or wine-related products. Silicon Valley Bank is not selling or distributing wine or wine-related products. Silicon Valley Bank provides banking and financial services, along with industry insights to Vineyards and Wineries.

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