Allied Grape Growers, 2015. All rights reserved. Sonoma Grape Expo State of the Industry Jeff Bitter...

Allied Grape Growers, 2015. All rights reserved.

Sonoma Grape ExpoState of the Industry

Jeff BitterAllied Grape GrowersNovember 13, 2015


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


Part 1:A look at supply


A look at supply


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


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


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


-

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


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


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


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%


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%


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


-2% -1% -1%1% 0% 0%

1% 2% 1%


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


2% 5% 4%

9% 10% 6%

3% 8% 13%


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


-1% 0% -1%11% 10% 6%

0% 4% -1%


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


2% 3% 4%10% 16% 10%

3% 8% 13%


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


1% 6% 1%

6% 5% 6%

16% 23% 15%


Part 2:Pros and consIn the business


Pros and Cons in the Business

• The economy• Foreign competition• Categorical competition• Consumption trends



The Economy


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.



Foreign Competition


+20%

+30%

+23%


Foreign Competition


Can we call Washington and Oregon foreign?


• 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%


Pros and Cons in the business

Source:winefolly.com, 2014



Categorical Competition


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.



http://craftbeverageinsights.com/?cat=28

http://craftbeverageinsights.com/?author=3

http://craftbeverageinsights.com/wp-content/uploads/2015/10/Screen-Shot-2015-10-20-at-6.28.11-PM.png

http://craftbeverageinsights.com/jump.php?utm_source=newsfetch&utm_medium=email&utm_campaign=nf&url=https://www.google.com/trends/explore#q%3Dcraft%2Bbeer

http://craftbeverageinsights.com/wp-content/uploads/2015/10/Screen-Shot-2015-10-20-at-6.28.11-PM.png


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.





Consumption and Categorical Competition



Consumption Trends


“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


Consumption Trends



Consumption Trends


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


“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


Consumption Trends


Part 3:Understanding and

managing riskin the market


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


Let’s not be afraid ofour own shadow….



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


• 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.


-

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


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


Thank you

Jeff BitterAllied Grape GrowersNovember 13, 2015

Allied Grape Growers, 2015. All rights reserved. Sonoma Grape Expo State of the Industry Jeff Bitter...

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