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Allied Grape Growers, 2015. All rights reserved.
Sonoma Grape ExpoState of the Industry
Jeff BitterAllied Grape GrowersNovember 13, 2015
Allied Grape Growers, 2015. All rights reserved.
Three Part Presentation
• Part 1: A look at California Supply• Acreage trends – production potential• By variety/market segment
• Part 2: Pros and cons in the business
• Part 3: What does all this mean for growers?•Managing market risk
Allied Grape Growers, 2015. All rights reserved.
Part 1:A look at supply
Allied Grape Growers, 2015. All rights reserved.
A look at supply
Allied Grape Growers, 2015. All rights reserved.
Factors affecting crop size as compared to last year:• Mother Nature – Shorter Crop• Off 20-25% in the coast• Off less than 10% in the interior
• New Plantings• Added 30-35K bearing acres from
2012 plantings (3 years non-bearing assumed)
• Newer plantings producing more each year
• Vineyards Removals (Predominantly Interior)• Removed 25,000 winegrape acres in
2015
A look at supply -Lots of moving parts
Allied Grape Growers, 2015. All rights reserved.
Region 2009 2010 2011 2012 2013 2014North Coast 465,938 443,360 395,172 579,852 588,472 555,148 Central Coast 508,709 537,202 389,318 548,444 593,855 559,753 Total all Coastal 974,647 980,562 784,490 1,128,296 1,182,327 1,114,901
Winegrapes tons crushed, 2009-2014
• Six-year average = 1,027,537 tons• Numerous reports of crops being down 25% or more from
2014• If we were at least 10% off of normal, we might struggle to
reach 900,000 tons from coastal districts in 2015, even with new acreage.
A look at supply – coastal production
Allied Grape Growers, 2015. All rights reserved.
Bearing Non-Bearing Total2014 555,000 100,000 655,000 2015 562,000 90,000 652,000
AGG Winegrape Acreage Estimates
*
*2015 non-bearing acreage includes an assumption that approximately 20,000 acres were planted this
year.
A look at supply
Allied Grape Growers, 2015. All rights reserved.
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2010 2011 2012 2013 2014
Range of Potential California Winegrape Acres Planted Based on Annual Vine Sales
A look at supply
Allied Grape Growers, 2015. All rights reserved.
Segmenting the Business
Essentially, the California Coast
Range is the geographic line that
represents the+/- $10/bottle pivot point in the market.
<$10
>$10= <$10= $10-20= >$20
Allied Grape Growers, 2015. All rights reserved.
Segmenting the Business
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
2012 2013 2014
Segment Allocation of Winegrape Vines Sold, 2012-2014
HighMidValue
24 Million
30 Million
27 Million
Higheremphasis
in NorthernInterior
Majorconcentrationin Northern
Interior
Allied Grape Growers, 2015. All rights reserved.
Supply Potential - Chardonnay
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
High Mid Value
Est. California Chardonnay Bearing Acres, 2013-2017
2013 2014 2015 2016 2017
Includes 2% Attrition Rate
0% 1% 2%
3% 3% 4%
-1% 4% 4%
Allied Grape Growers, 2015. All rights reserved.
Supply Potential – Sauvignon Blanc
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
High Mid Value
Est. California Sauvignon Blanc Bearing Acres, 2013-2017
2013 2014 2015 2016 2017
Includes 2% Attrition Rate for High and Mid
0% -1% 1% 0% 0% -1%0% 1% 2%
Allied Grape Growers, 2015. All rights reserved.
Supply Potential - Merlot
-
5,000
10,000
15,000
20,000
25,000
30,000
High Mid Value
Est. California Merlot Bearing Acres, 2013-2017
2013 2014 2015 2016 2017
Includes 2% Attrition Rate
-2% -1% -1%1% 0% 0%
1% 2% 1%
Allied Grape Growers, 2015. All rights reserved.
Supply Potential - Pinot Noir
-
5,000
10,000
15,000
20,000
25,000
30,000
High Mid Value
Est. California Pinot Noir Bearing Acres, 2013-2017
2013 2014 2015 2016 2017
Includes 2% Attrition Rate for High and Mid
2% 5% 4%
9% 10% 6%
3% 8% 13%
Allied Grape Growers, 2015. All rights reserved.
Supply Potential - Zinfandel
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
High Mid Value
Est. California Zinfandel Bearing Acres, 2013-2017
2013 2014 2015 2016 2017
Includes 2% Attrition Rate
-1% 0% -1%11% 10% 6%
0% 4% -1%
Allied Grape Growers, 2015. All rights reserved.
Supply Potential – Cab Sauv
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
High Mid Value
Est. California Cab Sauv Bearing Acres, 2013-2017
2013 2014 2015 2016 2017
Includes 2% Attrition Rate
2% 3% 4%10% 16% 10%
3% 8% 13%
Allied Grape Growers, 2015. All rights reserved.
Supply Potential – Petite Sirah
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
High Mid Value
Est. California Petite Sirah Bearing Acres, 2013-2017
2013 2014 2015 2016 2017
Includes 2% Attrition Rate for High and Mid
1% 6% 1%
6% 5% 6%
16% 23% 15%
Allied Grape Growers, 2015. All rights reserved.
Part 2:Pros and consIn the business
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the Business
• The economy• Foreign competition• Categorical competition• Consumption trends
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the Business
The Economy
Allied Grape Growers, 2015. All rights reserved.
Graph Source: The Gomberg Fredrikson Report - 2014 Annual Wine Industry Review
30.8
66.6
69.745.9
California Wine Shipment VolumeShown in millions of cases shipped, 1980-2014
Recession directly affects the wine business categorically.
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the Business
Foreign Competition
Allied Grape Growers, 2015. All rights reserved.
+20%
+30%
+23%
Pros and Cons in the Business
Foreign Competition
Allied Grape Growers, 2015. All rights reserved.
Can we call Washington and Oregon foreign?
Pros and Cons in the Business
• Washington since 2005/2006:• Acreage up by 66% (now over 50,000)• Number of wineries up by 130% (about 850)• Wine volume up by 85%• Net economic impact up by 55%
• Oregon since the recession:• Acreage up by 18%• Number of wineries up by 45%• Volume up by 39%• Net economic impact up by 28%
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the business
Source:winefolly.com, 2014
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the Business
Categorical Competition
Allied Grape Growers, 2015. All rights reserved.
What year did the interest in craft beer take off? - 2011October 21, 2015 | Filed under By The Numbers | Posted by Lewis Perdue Source: Google. View the interactive chart at this link.
Pros and Cons in the Business
Categorical Competition
Allied Grape Growers, 2015. All rights reserved.
Beer Trends - CNBC.com and the Brewer’s Association
"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.“ - CNBC
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. - CNBC
According to the Brewer’s Association, craft beer has grown by 16% this year so far.
Pros and Cons in the Business
Categorical Competition
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the Business
Consumption and Categorical Competition
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the Business
Consumption Trends
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the Business
Consumption Trends
Allied Grape Growers, 2015. All rights reserved.
“Millennials generally drink more premium wine than the typical US wine
consumer, but they are not yet the core consumers of ultra-premium
wines. The sweet spot of millennial consumption appears to be the $10-
25/bottle range.”
- Stephen Rannekleiv -Rabobank Beverage Industry Analyst
Pros and Cons in the Business
Consumption Trends
Allied Grape Growers, 2015. All rights reserved.
Pros and Cons in the Business
Consumption Trends
Allied Grape Growers, 2015. All rights reserved.
Graph Source: The Gomberg Fredrikson Report - 2014 Annual Wine Industry Review
30.8
66.6
69.745.9
California Wine Shipment VolumeShown in millions of cases shipped, 1980-2014
Allied Grape Growers, 2015. All rights reserved.
“Barring any major shocks to the economy, we project the demand for
>$25/bottle wines to rise approximately 10% per year through
2017.”
- Stephen Rannekleiv -Rabobank Beverage Industry Analyst
Pros and Cons in the Business
Consumption Trends
Allied Grape Growers, 2015. All rights reserved.
Part 3:Understanding and
managing riskin the market
Allied Grape Growers, 2015. All rights reserved.
What creates market risk?
OVERSUPPLY
-Either from a supply/demand imbalancecaused by a multi-year, longer term issue
Or from a large crop or series of large crops
(generally a shorter term issue)
Understanding/Managing Risk
Allied Grape Growers, 2015. All rights reserved.
Let’s not be afraid ofour own shadow….
Understanding/Managing Risk
Allied Grape Growers, 2015. All rights reserved.
Region 2009 2010 2011 2012 2013 2014North Coast 465,938 443,360 395,172 579,852 588,472 555,148 Central Coast 508,709 537,202 389,318 548,444 593,855 559,753 Total all Coastal 974,647 980,562 784,490 1,128,296 1,182,327 1,114,901
Winegrapes tons crushed, 2009-2014
Understanding/Managing Risk
• We experienced three huge coastal crops in a row• Consider the timing of the recession “hangover”
• Bottom line: Coming into 2015, any excess in the market at the mid and upper ends was caused by short term production rather than long term trends.
Allied Grape Growers, 2015. All rights reserved.
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
High Mid Value
Est. California Winegrape Bearing Acres, 2013-2017
2013 2014 2015 2016 2017
Includes 2% Coastal Attrition Rateand 6%Interior Attrition Rate
1% 2% 2%
6% 6% 5%
-1% 1% 0%
Supply Potential - All Wine
Allied Grape Growers, 2015. All rights reserved.
Understanding/Managing RiskDiversify Your Grape Marketing by Being Different
• Different Varieties• Planting contracts dictate, but consider your current mix• If you do plant on speculation, change it up a bit
• Different Buyers• Local, as well as out of area• Small, as well as big (Seven largest wineries = 82% of the
volume)• Different Terms
• Stagger your contract end dates (or ask for evergreens)• Different Form
• Make bulk wine with a portion of your crop• Proves your quality• Extends marketability by months, if not years• Perishability becomes a “soft” concern• Harvest on your schedule, not on someone else’s• Exposes your product to buyers that don’t buy grapes• Programs do exist with virtually no additional cost to
growers
Allied Grape Growers, 2015. All rights reserved.
Thank you
Jeff BitterAllied Grape GrowersNovember 13, 2015