The global wine market A macro context A macro context Important - PowerPoint PPT Presentation

The Canadian Wine Sector : Driving success in the face of global competition Canadian Vintner’s Association, July 2013

The global wine market A macro context

A macro context Important changes in the market : - Grape costs rose in many regions, but now in decline - European domestic market remains soft - Global wine companies prioritize profitable growth markets

Production decline reduces available supplies Production, consumption and ending inventories of wine, 2000- 2012 300 200 180 290 Production & Consumption 160 280 Ending inventories 140 270 120 260 100 80 250 60 240 40 230 20 220 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Ending Inventories Production Consumption

New World see strong 2012/ 2013 harvest Wine grape harvest (Mn. HL) in USA, Chile, Argentina & Australia 25,000 20,000 15,000 10,000 5,000 0 US Chile Arg Aus 2011 2012 2013

New World harvest affecting bulk wine prices Price (USD/ Lt) of bulk wine, Sept 2010- Mayo 2013 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Cab Sauv- Spain Cab Sauv- Chile Dry Red- Spain Dry Red- Chile Bulk wine prices remain high, but are declining

European domestic market under pressure Wine consumption (Mn lt.) in Western Europe, 2007- 2012 13,000 12,800 12,600 12,400 12,200 12,000 11,800 11,600 2007 2008 2009 2010 2011 2012 Source: Euromonitor, 2013

Premium European wines focus more on exports Export vs. domestic share of Rioja wine sales, 2004- 2012 80% 70% 60% 50% 40% 30% 20% 10% 0% Domestic Exports 2004 2012 Source: Consejo Regulador de la Rioja, 2013

Wine sales declining in the UK… UK Wine released for revenue and consumption (Mn. lt.), 2008- 2012 1,260 1,240 1,220 1,200 1,180 1,160 1,140 1,120 2008 2009 2010 2011 2012 Source: National Bureau of Statistics, 2013

China gaining importance for many suppliers… Spanish exports of bottled wine (with DOP) to China, 2007- 2012 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2007 2008 2009 2010 2011 2012 Source: OEMV, 2013

U.S. wine consumption continues to rise U.S. wine consumption (Mn cases & USD Bn) 2005- 2012 400 40 350 35 Million 9 lt. cases 300 30 250 25 USD Billion 38% 200 20 150 15 100 10 50 5 30% 0 0 2005 2006 2007 2008 2009 2010 2011 2012 Vol (Mn 9 lt. cases) Value (USD Bn.) Source: Wine Institute

“ Frag-solidation ” trends in the U.S. wine market Registered wineries in the U.S. Market share top 3 US wineries 7,000 50% 48.8% 6,000 49% 5,000 48% 38% 4,000 47% 3,000 46% 45.3% 2,000 45% 1,000 44% 30% 0 43% 2005 2011 2005 2012 Source: Wine Business Monthly Source: Gomberg Fredrikson Report, 2013

Wine sales becoming concentrated in chains Wine selling locations: Independents vs. Chains, 2004- 2012 38% 30% Source: The Nielsen Company, 2012

Canada emerging as a highly attractive market Ranking of global markets for branded wines, 2012 Rank Country 1 U.S. 2 Canada 3 China 38% 4 Hong Kong 5 Japan 6 Switzerland 7 Korea 30% 8 Nordics 9 Germany 10 Denmark Source: Rabobank, 2012

Wine rising and taking share from beer and spirits Canadian wine consumption per Market share of alcoholic capita, 1995- 2012 beverages in Canada. 1995- 2012 18 60 16 50 14 40 12 30 10 8 20 6 10 4 0 2 Spirits Beer Wine 0 1995 2012 1995 2012 Source: Statistics Canada, 2013

… and pricing is compelling for most suppliers Avg export price (USD/ case) for various suppliers to Canada, 2012 $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Chile (Btld) USA (Btld.) Espana (Btld DOP) New Zealand Exports to Canada Total Avg exports Source: Vinos de Chile, Gomberg Fredrikson, OEMV, New Zealand Wine Growers, 2013

Exchange rates to provide support for imports Projected exchange rate EUR-CAD, July 2013- June 2015 CAD 1.40 CAD 1.35 CAD 1.30 CAD 1.25 CAD 1.20 CAD 1.15 CAD 1.10 Oct-13 Jan-14 Mar-14 Jun-14 Oct-14 Jan-15 Mar-15 Jun-15 Jul-13 Aug-13 Sep-13 Nov-13 Dec-13 Feb-14 Apr-14 May-14 Jul-14 Aug-14 Sep-14 Nov-14 Dec-14 Feb-15 Apr-15 May-15 Source: Rabobank, 2013

Canada’s position in the global market… Canadian Wine Market

Driving growth at home

Canadian wines in the Ontario market Market share of wines in LCBO and Vintages by origin, 2012 ICB/ Non- VQA, 16% New VQA, 6% World, 44% Europe, 34% Source: LCBO, 2013

Canada faces high production costs Cost ($/lt) of wine landed in Canada from various origins, 2013 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Chile Australia Argentina US South Canada Spain France Africa Avg. bulk price In-country transport Freight to market Source: Ciatti Company data and Rabobank analysis, 2013

ICB and VQA competing for different consumers Average price ($/ bottle) for wines of various sources in LCBO, 2013 $30.00 $26.64 $25.00 $20.00 $14.67 $15.00 $12.43 $12.33 $8.59 $10.00 $5.00 $0.00 Europe New World ICB VQA Vintages Source: LCBO, 2013

Driving VQA- Continual focus on quality Average price/ bottle Canadian Growth rate Canadian vs vs European wines (LCBO) 2013 European wines (LCBO) 2013 $16.00 10% 9% $14.00 8% $12.00 7% $10.00 6% $8.00 5% 4% $6.00 3% $4.00 2% $2.00 1% $0.00 0% Europe Canada Europe Canada

Driving VQA- Leveraging your greatest asset

Driving VQA- Millennials vs Boomers

Contact details Rabobank International “The financial link in the Stephen Rannekleiv global food chain”™ Senior Beverage Analyst Food & Agribusiness Research and Advisory t. 212-808-6823 e. Stephen.Rannekleiv@Rabobank.com DISCLAIMER Professional advice is recommended for all financial and strategic decisions. However, this information is not professional advice and has not been prepared to be used as the basis for, and should not be used as the basis for, any such decisions. This information is general in nature only and does not take into account an individual’s personal circumstances. No representation is made that any forecast or projected information is correct or will eventuate. Although reasonable efforts have been taken to ensure the accuracy of the contents of this publication, no warranty is given in regard to the total accuracy of the printed contents. The persons involved in the preparation and distribution of this information and their related persons disclaim all liability for any loss or damage suffered due to any use of or reliance on the information.