2018 SVB Wine Report Videocast · 2018 SVB Wine Report Videocast 3 Rob McMillan EVP and Founder Premium Wine Division Silicon Valley Bank Gretchen Boock . Chief Executive Officer

2018 SVB Wine Report Videocast Rob McMillanEVP & Founder, Silicon Valley Bank Wine DivisionJanuary 17, 2018

About the 2018 SVB Wine Videocast

These slides were shared during a live videocast on January 17, 2018. We will publish the full 2018 SVB Wine report in February 2018 and email a link to the report when it is available. Rob McMillan will also notify his blog followers at http://svbwine.blogspot.com/. For future reference, the 2018 report will be published in February on our website at https://www.svb.com/wine-report/.

If you have questions or comments about the 2018 SVB Wine Report, videocast or wine surveys please email [email protected].

2018 SVB Wine Report Videocast 2

2018 SVB Wine Report Videocast

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Rob McMillanEVP and Founder Premium Wine Division Silicon Valley Bank

Gretchen Boock Chief Executive Officer Dobbes Family Estate / Wines By Joe

Mary Jo DaleMarketing DirectorAmericasVinventions / Nomacorc

Paul MabrayWine Industry Digital Futurist and Director, Getemetry.com

2018 SVB Wine Report Videocast

Moderator and panel of experts

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Perc

ent S

ales

Gro

wth

Designer Apparel and Footwear (Ready-to-Wear) Fine Wines/Champagne and Spirits Luxury Eyewear Luxury Jewellery Luxury Leather Goods Luxury Timepieces Luxury Writing Instruments and Stationery Super Premium Beauty and Personal Care

Source: Euromonitor International, Passport, Dec 2017

Growth Rates in US Luxury Sales Are Decelerating

Rec

essi

on

Figure 1

Luxury good sales 2005 – present and forecast to 2021

2018 SVB Wine Report Videocast 3

5

US Wine Consumption Is Slowing After 20 Year Run

200

300

400

500

600

700

800

Mill

ions

of G

allo

ns

Note: Recessions

Figure 2

Premiumization only part of the reason

Source: CA Wine Institute

?

2018 SVB Wine Report Videocast

6

Indulgence Gap10K Boomers replaced by 10K millennials daily

Debt StrappedMillennials

Gainfully EmployedGen X

RetiringBoomers

Wealth

2018 SVB Wine Report Videocast

Figure 3

Source: Nielsen Beverage

Rolling 52 Week Sales Growth Above $9.00 Weakening

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

$9-$11.99 $12-$14.99 $15-$19.99 >$20

Figure 4

2018 SVB Wine Report Videocast 6

Warehouse Shipment Trends

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov

-16

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep-

17

Month % Chng % Of Total California Volume Latest 12 Months

Figure 5

January 2013 to September 2017

Source: Gomberg-Fredrickson, BW166 2018 SVB Wine Report Videocast 7

Import’s Share of US Wine Sales

10

15

20

25

30

35

Perc

ent

Figure 6

1990 - 2015

Source: Gomberg Fredrickson, Nielsen, SVB analysis 2018 SVB Wine Report Videocast 8

Percent of Winery Revenues Sold Through Restaurant Channel Dropping

Source: SVB Industry Conditions Survey, 2014 - 2016

31%

19%16% 17%

2014 2015 2016 2017 (est)

Figure 7

Switch to other channels

2018 SVB Wine Report Videocast 9

Percent of Average Winery Sales Sold Through Restaurants – By Case Production

Source: SVB Industry Conditions Survey, 2014 - 2016

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 - 2,500 2,501 - 5,000 5,001 - 10,000 10,001 - 25,000 25,001 - 50,000 50,001 - 100,000 100,001 - 250,000 > 250,000 Average

2014 2015 2016 est 2017

Figure 8

Consistent declines in importance

2018 SVB Wine Report Videocast 10

Premium Varietal Growth

Source: IRI

($20,000,000)

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

Chardonnay Cab Sauv Pinot Grigio Red Blends Pinot Noir Sauv Blanc Merlot Moscato Zinfandel

Box Wine $14+ $8-$11 $11-$15 $15-$19 $20-$25 $25+

Figure 9

Chardonnay overtakes red blends as second largest growth varietal

2018 SVB Wine Report Videocast 12

Generation Preference Curves for Wine versus Average Price Point

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

< $15 $15 - $19 $20 - $29 $30 - $39 $40 - $69 > $69

2017 Millennials (ages 22-38) 2017 Gen X (ages 39-50)

2017 Boomers (ages 51-68) 2017 Matures (ages 69+)

Figure 10

* Estimated from 2016 SVB Wine Conditions Survey 2018 SVB Wine Report Videocast 12

Growth Rate by Price Point and Regions

142018 SVB Wine Report Videocast

52 Week change in dollars ending December 2, 2017

-5.0 0.0 5.0 10.0 15.0Price Ranges

Total Table

$0 - $2.99

$3 - $5.99

$6 - $8.99

$9 - $11.99

$12 - $14.99

$15 - $19.99

$20 - $29.99

$30 - $49.99

$50 - $99.99

$100+

-10.0 -5.0 0.0 5.0 10.0 15.0 20.0Region

Oregon

France

New Zealand

Italy

Total Domestic

California

Total Imported

Washington

Australia

Spain

Chile

Argentina

Figure 11

DTC Spending in Club by Gender and Age, versus Discretionary Income

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

20-29 30-39 40-49 50-59 60-69 70-79 80-89 90-99

Annu

al C

lub

Mem

ber S

pend

Dis

cret

iona

ry In

com

e

female male Discretionary Income

Figure 12

Thirty-five to fifty-five is the dominant cohort, but long spending tail

Source: Customer Vineyards, Census Bureau 2018 SVB Wine Report Videocast 15

12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 9/30/2016 9/30/2017Gross Margin 55.3% 52.4% 53.7% 53.2% 53.4% 54.8% 56.8% 56.9% 57.4% 57.5% 56.7%Sales Growth 2.0% -3.8% 10.8% 12.2% 7.7% 9.2% 11.9% 8.8% 9.6% 9.8% 0.3%Pretax Profit 9.5% 2.2% 6.7% 6.1% 6.9% 6.6% 8.0% 9.6% 10.2% 11.6% 9.7%

45.0%

47.0%

49.0%

51.0%

53.0%

55.0%

57.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Gro

ss M

argi

n

Sale

s Gro

wth

and

Pre

tax

Prof

it

Income Statement Trends and Benchmarks

Figure 13

2008 - 2017

Source: Silicon Valley Bank Peer Group Analysis Data Base 2018 SVB Wine Report Videocast 15

Change In Monthly Visitor Counts to Winery

818618

1,272

883

2,179 2,300

-

500

1,000

1,500

2,000

2,500

3,000

Oregon Washington Napa County Sonoma County Virginia New York

2013 2014 2015 2016 2017

Figure 14

Downward trend is consistent except OR, VA, NY

Source: Silicon Valley Bank, DTC Surveys, 2013-2017 2018 SVB Wine Report Videocast 17

Disclosure

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This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information fromthird-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurateor complete. The information should not be viewed as tax, investment, legal or other advice, nor is it to be relied on in making an investment or other decision. You should obtainrelevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendationto acquire or dispose of any investment or to engage in any other transaction.Silicon Valley Bank is not selling or distributing wine or wine-related products. Through the online informational platform, SVB Cellar Selections, Silicon Valley Bank providesmaterial to employees about a variety of premium Silicon Valley Bank winery clients and their wines. These communications are for informational purposes only. Silicon ValleyBank 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 alcoholicbeverages 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 wineindustry service providers.

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The views expressed in the videocast are solely those of the panelists and do not reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates.