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Page 1: SVB 2014 State of the Wine Industry Presentation
Page 2: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

SVB's Annual State of the Wine Industry Report addresses current trends, conditions and future views on wine industry growth, consumer demand trends and winery financial performance.

Sales growth is expected to be the highest since the recession (6-10%), despite a tough economy.

Wine supply is in balance heading into 2014.

Stable pricing means good news for consumers.

For wineries, increased grape costs and flat pricing means lower profitability.

Read the full report: www.svb.com/wine-report

Silicon Valley Bank Wine Report

Page 3: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Global: Production vs. Consumption (million unit cases)

Page 4: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Net Inventory Balance

Page 5: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Net Inventory Balance by Retail Price Point

Page 6: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Net Inventory Balance by Production Level

Page 7: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

California Bulk Wine Inventory

Page 8: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

2013 Spot Market Grape Prices

Page 9: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

United States GDP Growth Rate

Page 10: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

United States Government Spending

Page 11: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Household Employment as a % of the Labor Force and Population

Page 12: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Consumer Credit Outstanding: Revolving

Page 13: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Net Worth of Cohorts

Page 14: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Income by Cohort

Page 15: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Fine Wine Buyers

Page 16: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Income Correlates with Fine Wine Purchases

Page 17: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Total U.S. Wine Consumption

Page 18: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Population Distribution by Age–1990

Page 19: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

NASDAQ

Page 20: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Population Distribution by Age–2020

Page 21: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Premium Planted Acreage on West Coast

Page 22: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Wine Industry Financial Performance

Page 23: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Direct to Consumer Shipments Value

Page 24: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Buyers

SUPPLY / DEMAND DYNAMICS Supply / Demand Dynamics

Short Term – “Hang Over”

Source: Ciatti Company

Page 25: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Chardonnay - Global Market

California $/ Gal Availability California $3.25 – 5.00 Long N. Coast $8.00 – 12.00 Balanced/Long Napa/Son $10.00 – 16.00 Balanced/Long

Global $/ Gal Dlvd Availability Chile $3.40 – 4.00 High Australia $2.50 – 3.00 High South Africa $3.00 – 3.50 Moderate

Source: Ciatti Company

Page 26: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Cabernet Sauvignon - Global Market

California $/ Gal Availability California $5.50 – 8.00 Long/Balanced N. Coast $13.00 – 17.00 Short Napa/Son $18.00 – 33.00 Balanced

Global $/ Gal Dlvd Availability Chile $2.90 – 3.90 High Australia $4.00 – 5.25 Moderate Spain $4.50 – 4.85 Moderate

Source: Ciatti Company

Page 27: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Winegrape Demand - Steady

Buyers securing long-term grape supply

Contract activity strongest in Coastal Areas

Pricing should remain stable with a few exceptions

+/- 30,000 acres planted in last two years 2014 Crop size and Water concerns

Source: Ciatti Company

Page 28: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Buyers Sellers

Buying Selling

SUPPLY/DEMAND DYNAMICS Supply / Demand Dynamics

Source: Ciatti Company

Longer Term - Balanced Market

Page 29: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

2013 Market Review 2013 Acquisitions of Notable U.S. Based Wineries and Brands

Target Acquirer Region Comments

Alderbrook Winery Bernie Orsi Sonoma Production capacity

Geyser Peak Wine Facility Francis Ford Coppola Sonoma Production capacity

Sonoma Crush Facility Carneros Vintners (The Vintners Group) Sonoma Production capacity

Rack & Riddle Facility Duckhorn Wine Company Mendocino Production capacity

Yverdon Vineyard and Winery Jackson Family Wines Spring Mtn. (Napa) Portfolio building

Viansa Winery Vintage Wine Estates Sonoma Portfolio building

Clos Pegase Winery Vintage Wine Estates Napa Portfolio building

Panther Creek Cellars Bacchus Capital Management, LLC Oregon Portfolio building

Moraga Vineyards Rupert Murdoch Los Angeles Lifestyle

Mayacamas Vineyards Charles Banks and Jay Schottenstein Napa Lifestyle

Araujo Estate Artemis Group (Owner of Chateau Latour) Napa Foreign buyer

Cleavage Creek FCC North American Investment, LLC Napa (Pope Valley) Foreign buyer

Solena Winery Jackson Family Wines Oregon Geographic expansion

Goosecross Cellars Golden Equity Investments Napa Industry entrant

Silverado Hill Winery Laird Family Estate Napa Opportunistic

Source: Zepponi & Company

Page 30: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

2012-2013 Winery Purchases of Vineyards

Vineyard Planted Acreage Location

Gallo 3 Vineyards 1,277± acres Monterey Paso Robles Lake County

Jackson Family Wines 9+ vineyards 1,629± acres

3 in Sonoma 2 in Mendocino 3 in Oregon 1 in South Australia

Foley 2 vineyards 450± acres 1 in Sonoma 1 in Lake County

Others

6 vineyards, bought by: Duckhorn Paul Hobbs Bill Price TGIC Ledson Frank Family

483± acres 4 in Sonoma 2 in Napa

Source: Zepponi & Company

Page 31: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Sonoma

Napa

Mendocino

Oregon

Central Coast

Lake County

Other

Most Desired Areas (by planted acreage)

2012-2013 Winery Purchases of Vineyards

Gallo

Jackson Family Wines

Foley

Other

Largest Acquisitions (by planted acreage)

Source: Zepponi & Company

Page 32: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

The Future is NOW

Source: VinTank

Page 33: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

And It’s SUPER HARD aka Welcome To The Most Competitive Wine Market in Human History

Source: VinTank

Page 34: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

And It’s Super Confusing and Demands Incredible Amounts of Time (Learning & Usage)

Source: VinTank

Page 35: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Customer Relationships (past) New Types of Customer Relationships

Even The Way We Define Relationships is Changing

Source: VinTank

Page 36: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Some hard hittin’ social media stats

An average of 1.5 million organic conversations about wine EVERY DAY across ALL primary social media channels

450K new people talking about wine on social media EVERY month

Over 80% of those go unanswered by wine brands.

Over 60M “quality” conversations about wine on SM in the last 5 years from 600 million analyzed conversations

Over 16 million people profiled that mentioned wine at least 1x on SM

Source: VinTank

Page 37: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Mobile traffic (Phone only, not tablet) is increasing to a meaningful percentage - 2013 was the first year it topped 25% of traffic.

E-com sales year over year were up 44% percent. Top 10% Vin65 customers had increases of at least 140%

One large driver of sales was "shipping included". Shipping Included outperformed 20% off in A/B tests

Yes, Everything Digital is Growing

Source: VinTank

Page 38: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Year of the mobile everything.

Digital will become a viable alternative to traditional distribution for certain brands.

The DTC divide for wineries is maturing already.

2014 will be the year of digital divide for wineries.

Expect an increase in consolidation/attrition at the wine/tech vendor level.

Location tools will be key assets for acquiring new business for wineries with tasting rooms.

Looking into 2014 for Digital & DTC + Wine

Page 39: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

Mary Meeker’s Tech Predictions for 2013 - http://www.slideshare.net/kleinerperkins/kpcb-internet-trends-2013

The Age of Context by Shel Israel and Robert Scoble - http://amzn.com/1492348430

Your Brand, The Next Media Company by Michael Brito - http://amzn.com/0789751615

Recommended Reading

Source: VinTank

Page 40: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

About the Report: The report is based on SVB's in-house expertise as one of the largest bankers to the West Coast wine industry, a proprietary database of more than a decade of winery financials, ongoing research, and an annual survey of 650 wineries.

About Silicon Valley Bank’s Wine Division: Silicon Valley Bank’s Wine Division specializes in commercial banking for premium wineries and vineyards and the industries that support them. SVB has the largest team of commercial bankers dedicated to the wine industry of any bank nationwide. Founded in 1994, SVB’s Wine Division has offices in Napa and Sonoma counties and serves clients focused in the fine wine producing regions of California, Oregon and Washington. By virtue of its dedication to the wine industry, Silicon Valley Bank is able to support its clients consistently through economic and growth cycles, and offer guidance on many aspects of their business, beyond traditional banking services. Silicon Valley Bank is a member of global financial services firm SVB Financial Group (Nasdaq: SIVB), with SVB Analytics, SVB Capital and SVB Private Bank. More information on the company can be found at www.svb.com/winedivision. Contact Us: For more information about this report or Silicon Valley Bank’s Wine Division, please contact us:

Rob McMillanEVP & Founder Phone 707.967.1367, [email protected]

Bill Stevens Division Manager Phone 707.967.1373, [email protected]

Page 41: SVB 2014 State of the Wine Industry Presentation

State of the Wine Industry Report 2014 #SVBWINE

This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-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 accurate or 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 obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction.

Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources. Opinions expressed are our opinions as of the date of this content only.

©2013 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB>, SVB>Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. B_WD-13-13170. Rev. 01-14-2014