MARKET UPDATE Information provided by: Glenn Proctor DEDICATED - - PowerPoint PPT Presentation

SONOMA COUNTY GRAPE AND WINE MARKET UPDATE

Information provided by: Glenn Proctor

SONOMA COUNTY WINEGRAPE COMMISSION

DOLLARS & $ENSE SEMINAR

JANUARY 17, 2019

GLOBALLY BASED TO BUILD YOUR BUSINESS WORLDWIDE DEDICATED BROKERS IN 8 COUNTRIES

CALIFORNIA MARKET OVERVIEW

• SLUGGISH CASEGOOD SALES THE LAST 12 – 18 MONTHS
• HISTORIC 2018 CROP
• SPOT MARKET GRAPE ACTIVITY EXTREMELY QUIET
• BULK WINE MARKET CONTINUES TO SOFTEN; INCREASED INVENTORIES

(PRICES EXPECTED TO DECREASE)

SUPPLY DEMAND DYNAMICS

TOTAL CA WINE 0% DOMESTIC 0% EXPORTS (-16% Bottled; +9% Bulk) (-3%) IMPORTS CASEGOODS +1% BULK (-14%) COASTAL WAREHOUSE SHIPMENTS (-15%) TOTAL US Market (YTD) IMPORT & DOMESTIC (-1%)

Source: Gomberg-Frederickson

2018 USA SHIPMENTS – 9 months ending September

Retail Price/ 750ml Eqv. Price Segment Volume Change Volume Share Value Share

Under $4 Value

• 3.5%

23.7% 9.0% $4 - $7 Premium Box 10.8% 8.0% 5.4% $4 - $8 Popular

• 5.6%

30.5% 22.8% $8 - $11 Premium

• 0.4%

18.7% 24.1% $11 - $15 Super Premium 7.1% 10.9% 18.7% $15 - $20 Ultra Premium 9.2% 3.9% 9.1% $20 - $24 Luxury 6.8% 1.4% 4.1% $25 + Super Luxury 4.1% 0.9% 5.0% TTL Table Wine All

• 0.5%

Source: Nielson - Latest 52 Weeks – Ending 12/1/2018

TABLE WINE SALES

WAREHOUSE SHIPMENT TRENDS

Source: Gomberg-Fredikson through Aug 2018, Silicon Valley Bank

2018 CRUSH

2 2.5 3 3.5 4 4.5 2012 2013 2014 2015 2016 2017 2018 Est.

Tons in Millions

Winegrape Other Crush 4.3+

CALIFORNIA STATEWIDE GRAPE CRUSH

100,000 120,000 140,000 160,000 180,000 200,000 220,000 240,000 260,000 280,000 SONOMA 2014 2015 2016 2017 2018

TOTAL TONS

SONOMA TOTAL TONS 2014 – 2018 Est.

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 Chardonnay Sauvignon Blanc 2014 2015 2016 2017 2018 Est.

TONS

SONOMA COUNTY WHITE GRAPE TONNAGES

2014 – 2018 Est.

10,000 20,000 30,000 40,000 50,000 60,000 Cab Sauv Merlot Zinfandel Pinot Noir 2014 2015 2016 2017 2018 Est.

2014 – 2018 Est.

SONOMA COUNTY RED GRAPE TONNAGES

TONS

SONOMA COUNTY PRICING DYNAMICS

$1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 2,000 12,000 22,000 32,000 42,000 52,000 62,000 72,000 82,000 92,000 102,000 2013 2014 2015 2016 2017 2018 Est.

AVERAGE PRICE/TON TONS (US)

Chardonnay Tons Cabernet Sauvignon Pinot Noir Chardonnay Prices Cabernet Sauvignon Prices Pinot Noir Prices

∆ Average Growth % 2013 to 2018 Est. ∆ 25% ∆ 28% ∆ 28%

2018 GRAPE MARKET

2018 GRAPE MARKET

– BUYER ACTIVITY WAS EXTREMELY SLOW – WEAKEST ACTIVITY SINCE 2010 – MOST GRAPES UNDER CONTRACT – FEW UNCOMMITTED GRAPES – INITIAL EARLY RRV CHARDONNAY, AND PREMIUM CS DEMAND – BUYERS SHUT DOWN MID-SEASON ONCE CROP WAS REALIZED – END OF SEASON NO REAL OFFERS – QUALITY STANDARDS MORE RELATIVE

Tight Supply Market

Buying Selling Sellers

(On sideline)

SUPPLY/DEMAND DYNAMICS 2016 – EARLY 2017

Expanding Sourcing Options

BUYING SELLING

SUPPLY/DEMAND DYNAMICS - TODAY

Buyers (ON SIDELINE)

MOVING TO OVERSUPPLY

NEW REALITY! MARKET HAS CHANGEDD

SONOMA COUNTY GRAPE MARKET SURVEY 2019

SONOMA MARKET SURVEY 2019

0.00% 20.00% 40.00% 60.00% 80.00% Short Slightly Short Balanced Slightly Long Long

Current Overall Sonoma County Grape Supply/Demand Situation:

SONOMA MARKET SURVEY 2019

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Chardonnay Sauvignon Blanc Cabernet Sauvignon Pinot Noir Merlot Zinfandel

Do you plan to purchase LESS, SAME, or MORE of the following varietals in 2019

Less Same More

SONOMA MARKET SURVEY 2019

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Chardonnay Sauvignon Blanc Cabernet Sauvignon Pinot Noir Merlot Zinfandel

In 2019, do you expect grape prices to be DOWN, STABLE, or UP

Down Stable Up

SONOMA MARKET SURVEY 2019

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% Down Moderately Down Slightly Down Flat Slightly Up Moderately Up Significantly Up

Case good sales projections for 2019 compared 2018

SONOMA MARKET SURVEY 2019

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%

Adjust app. Sourcing Cancel supply contracts Long term contracts Renegotiate price Remove old vyds

How have your grape purchasing strategies changed

2019 GRAPE MARKET

2019 EXPECTED GRAPE MARKET

– EARLY MARKET EXPECTED TO BE VERY SLOW – WINERIES GRAPPLING WITH INVENTORY FROM LARGE 2018 HARVEST, AND

WILL POTENTIALLY BE SELLERS THEMSELVES

– MORE SPOT MARKET AVAILABILITY AS WINERIES GIVE CONTRACT NOTICES – BUYERS WILL BE RELUCTANT TO BUY UNTIL THEY KNOW THEY HAVE A REAL

NEED

– POTENTIAL MARKET ACTIVITY IF 2019 CROP LOOKS SIGNIFICANTLY LIGHTER

WINE/GRAPE MARKET –

SOME THINGS WILL NEVER CHANGE?

Winery Grower

Lower! Higher!

BULK MARKET

BULK MARKET

– ACTIVITY HAS BEEN SLOW AND PRICING HARD TO PIN

DOWN

– BUYERS ARE LOOKING FOR DEALS WITH LOWER PRICING – RENEWED ACTIVITY BY NEGOTIANTS IN THE LAST FEW

MONTHS

– BULK SELLERS HAVE STARTED TO REALIZE NEW MARKET

REALITY

– WINERIES ALSO LOOKING TO MOVE EXCESS INVENTORY

CALIFORNIA BULK WINE INVENTORY

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000

• Jan. 2017
• Jan. 2018
• Jan. 2019

Bulk Gallons Available Cabernet Sauvignon Chardonnay Merlot Pinot Noir Zinfandel

100,000 200,000 300,000 400,000 500,000

• Jan. 2017
• Jan. 2018
• Jan. 2019

Bulk Gallons Available Cabernet Sauvignon Chardonnay Pinot Noir Zinfandel

SONOMA COUNTY BULK WINE INVENTORY 2017 – 2019

THE MARKET HAS CHANGED!

• SALES ARE SLUGGISH
• BUYERS ARE CAUTIOUS – SUPPLY IS A BAD WORD ONCE

AGAIN

• BUYERS HAVE CHANGED SOURCING PLANS TO MANAGE

MARGINS

• SELLING GRAPES & BULK WINE WILL BE MORE CHALLENGING
• GLOBAL DYNAMICS OF WINE BUSINESS

ACTIONS TO TAKE

• STRENGTHEN RELATIONSHIP WITH CURRENT BUYERS –

RECOGNIZE THEIR NEEDS (INVEST SONOMA COUNTY BRANDS)

• BE OPEN TO THE REALITIES OF THE NEW MARKET PLACE
• SOMETIMES THE FIRST OFFER IS THE BEST OFFER
• MANAGE INPUTS AND ASSETS TO MAINTAIN PROFITABILITY
• DEVELOP A STRATEGY : SHORT TERM – SURVIVAL

LONG TERM – PROSPERITY

SUMMARY/CONCLUSION

• WE HAVE BEEN THROUGH THIS BEFORE
• CONSUMERS WILL CONTINUE TO DRINK CALIFORNIA AND

SONOMA COUNTY WINE

• PREMIUM SALES GROWING – BUT AT SLOWER RATES
• NEW BRAND OPPORTUNITIES EXIST TO UTILIZE THIS AVAILABLE

SUPPLY

• CAPITALIZE AND INVEST IN THOSE OPPORTUNITIES
• DON’T BE FEARFUL BECAUSE TODAYS CHALLENGES ARE

TOMORROWS OPPORTUNITIES

THANK YOU

CIATTI REPORTS / PUBLICATIONS

• CALIFORNIA MARKET REPORT
• GLOBAL MARKET REPORT
• WWW.CIATTI.COM

GLENN PROCTOR GLENN@CIATTI.COM 415/458-5150 NEW OFFICE ADDRESS:

– 201 ALAMEDA DEL PRADO SUITE # 101

NOVATO, CA 94949

POINTS TO DISCUSS

• 2018 WINEGRAPE HARVEST
• GRAPE AND BULK MARKET
• WHAT TO EXPECT IN 2019
• COMMENTS/QUESTIONS

GROWTH RATES IN LUXURY SALES

AVERAGE PRICE INCREASES

500,000 1,000,000 1,500,000 2,000,000 2,500,000 North Coast Central Coast & So. Cal North Interior C & S SJV 2014 2015 2016 2017 2018 Est.

TOTAL TONS

STATE REGIONAL TOTAL TONS

Sonoma Napa

Chard $500 – 2,800 $1,000 – 3,000 Sauv Blanc $1,000 – 1,850 $1,400 – 2,500 Cab Sauv $1,000 – 3,400 $2,000 – 10,000+ Pinot Noir $1,000 – 4,500 $800 – 3,600 Merlot $1,000 – 2,200 $1,800 – 3,800 Zinfandel $1000 – 3,000 $2,500 – 4,500 How low should we show pricing -$500 per ton ???????????

2018 SPOT MARKET GRAPE PRICING

– MOST NEEDED VARIETY

–

CHARDONNAY, CABERNET SAUVIGNON

– LEAST NEEDED VARIETY

–

ZINFANDEL, CABERNET SAUVIGNON, PINOT NOIR

– BIGGEST THREATS TO SONOMA COUNTY

–

LABOR, PRICING, GOVERNMENT REGULATIONS, COMPETITION, LACK OF GROWING SONOMA COUNTY BRANDS

– VARIETY YOU WOULD PLANT/REPLANT

–

CHARDONNAY, PINOT NOIR, SAUVIGNON BLANC

– VARIETY YOU WOULD REMOVE CABERNET SAUVIGNON/ZINFANDEL

–

CABERNET SAUVIGNON, ZINFANDEL

SONOMA MARKET SURVEY 2019

Reported Bearing Reported Non Bearing Total Reported N-B % Chardonnay 15,078 559 15,637 4% Cab Sauv 11,952 383 12,335 3% Merlot 4,668 106 4,774 2% Zinfandel 4,927 70 4,996 1% Sauv Blanc 2,595 15 2,611 1% Pinot Noir 12,233 349 12,582 3% Syrah 1,517 11 1,528 1% Pinot Gris 452 2 454 .4% Others 303 29 332 9% Total 57,603 1,613 59,216 3%

We should look at Updating this based on Latest crop report – show that there is really no new acres? Potentially bigger issues with CS where more planting has gone in Remember when We said we could Not have too much Because we have Limited acres – When demand changes And brand sourcing Changes you Can be oversupplied

SONOMA WINEGRAPE ACREAGE 2017

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

• Jan. 2017
• Jan. 2018
• Jan. 2019

Bulk Gallons Available Cabernet Sauvignon Chardonnay Merlot Pinot Noir

NAPA COUNTY BULK WINE INVENTORY 2017 – 2019

INTERIOR COASTAL SONOMA NAPA CAB SAUV $7 - 10 $15 - 22 $24 - 30 $40 – 55 MERLOT $5 - 7 $9 - 11 $14 - 17 $20 - 27 ZINFANDEL $6 - 8 $10 - 15 $16 - 20 $20 - 25 PINOT NOIR $6 - 9 $13 - 17 $25 - 30 $20 - 28 $9 - 15 $5 - 7 $15 - 22 $20 - 30 $4 - 6 $7 - 9 $12 - 15 $18 - 23 $5 - 8 $9 - 13 $12 - 20 $14 - 18 $5 - 7 $8 - 11 $10 - 15 $20 - 25

$POST HARVEST 2018 EST. PRICES? $PRE HARVEST 2017 PRICES

BULK MARKET PRICING

*PRICES DIFFICULT – MINIMAL ACTIVITY

RECENT HEADLINES

• CALIFORNIA NORTH COAST WINE GRAPE HARVEST IN 2018 TOO

MUCH OF A GOOD THING? (NORTHBAY BUSINESS JOURNAL)

• STOCK MARKET WOES RAISE A NAGGING FEAR: IS A RECESSION

NEAR? (ASSOCIATED PRESS)

• TOUGH BUSINESS CLIMATE WILL TEST NORTH COAST WINERIES IN 2019

(PRESS DEMOCRAT)

• THE FUTURE OF LOCAL TOURISM? WINE, CRAFT BEER, MAYBE EVEN

CANNABIS (PRESS DEMOCRAT)

• CONSTELLATION DUMPS CHEAP WINE FOR WEED (WINE SEARCHER)

SONOMA MARKET SURVEY 2019

0.00% 20.00% 40.00% 60.00% 80.00% 100.00%

Greater Yields Per Acre More Mechanization Higher Grape/Wine Quality More Reasonable Brix Parameters Return to Brix Bonuses Sustainable Grape Pricing Growers Making More Bulk Wine

What changes will the industry need to make over the next 5 years to remain competitive

INTERIOR COASTAL SONOMA NAPA CHARDONNAY $5 - 8 $11 - 14 $16 - 22 $17 - 20

• SAUV. BLANC

$6 - 8 $8 - 11 $12 - 15 $18 - 22 $8 - 11 $10 - 14 $14 - 17 $6 - 8 $7 - 10 $10 - 13 $14 - 18 $4 - 7

BULK MARKET PRICING

$POST HARVEST 2018 EST. PRICES? $PRE HARVEST 2017 PRICES

*PRICES DIFFICULT – MINIMAL ACTIVITY

2018 GRAPE MARKET

–

BUYER ACTIVITY WAS EXTREMELY SLOW – WEAKEST MARKET SINCE 2010

–

MOST GRAPES UNDER CONTRACT – FEW UNCOMMITTED GRAPES

–

EARLY RRV CHARDONNAY, AND PREMIUM CS DEMAND, BUT MARKET CAME TO HALT BY MID SEASON

–

BUYERS SHUT DOWN ONCE CROP WAS REALIZED

–

END OF SEASON NO REAL OFFERS

–

SOME BUYERS GIVING NOTICE ON LONG TERM CONTRACTS TO PROVIDE GREATER SUPPLY FLEXIBILITY

–

BUYERS ADJUSTING SOURCING OPTIONS BECAUSE OF AVAILABILITY & PRICING CONTRAINTS

MOVING TO OVERSUPPLY

Buying Selling Buyers (ON SIDELINE)

SUPPLY/DEMAND DYNAMICS - TODAY