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Silicon Valley Bank Annual State of the Wine Industry 2012-2013 Presentation
1. Join the conversation on Twitter by following
@SVB_Financial and using #SVBWine
Rob McMillan, EVP & Founder
April 17, 2012
2. Speakers
Rob McMillan Tony Correia Paul Mabray
EVP & Founder Agricultural Property Valuation Expert Chief Strategy Officer, Digital Guru
Silicon Valley Bank, Wine Division The Correia Company VinTank
Tony Correia and Paul Mabray are independent third parties and are not affiliated with SVB Financial Group.
Twitter: #SVBWine
21. 2010 Wineries Short on Inventory By Bottle Price
40.0%
35.0%
30.0%
25.0%
20.0%
2010 Short Inventory
15.0%
10.0%
5.0%
0.0%
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
22. 2010-2011 Change in Wineries Short on Inventory
40.0%
35.0%
30.0%
25.0%
20.0%
2011 Short Inventory
2010 Short Inventory
15.0%
10.0%
5.0%
0.0%
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
23. 2011 Inventory Positions Sorted by Region
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0% Excess Inventory
Not Enough Inventory
10.0%
5.0%
0.0%
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
24. Net Inventory Levels
40.0%
30.0%
20.0%
10.0%
0.0%
Washington Santa Sierra Oregon Lodi County Napa Paso Sonoma Lake County Mid-Coastal
State Barbara Foothills Robles/SLO CA
-10.0%
-20.0%
-30.0%
-40.0%
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
31. Grape Pricing and Purchase
Expectations, and the Impact
on Land Values
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32. 2012 Volume Purchase Expectations By Case Size
80.0%
70.0%
60.0%
50.0%
40.0% More Tonnage
Less Tonnage
30.0%
20.0%
10.0%
0.0%
1 -2,500 2,501 - 5,000 5,001 - 10,001 - 25,001 - 50,001 - 100,001 - >250,000
10,000 25,000 50,000 100,000 250,000
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
33. 2012 Grape Pricing Expectation Price Point
80.0%
70.0%
60.0%
50.0%
Pay More
40.0%
Pay Equal
Pay Less
30.0%
20.0%
10.0%
0.0%
< $15 $15 - $20 $21 - $30 $31 - $40 $41 - $70 > $70
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
34. Sonoma County
District 3 Values vs. Grape Prices
$150 $3,500
Pinot Noir
Vineyard Values, Thousands
$3,000
$120
Average Grape Price
$2,500
$90
Cabernet
$2,000
$60
Chardonnay $1,500
$30
$1,000
$0 $500
1994 96 98 2000 02 04 06 08 10
Sources: CASS Grape Crush Reports, Annual Land Value Trend Surveys, ASFMRA
Twitter: #SVBWine
35. Napa County
District 4 Values vs. Grape Prices
$350 $5,000
Vineyard Values, Thousands
$300
Cabernet
Average Grape Price
$4,000
$250
$200 Merlot
$3,000
$150
$100
$2,000
$50
Chardonnay
$0 $1,000
1994 96 98 2000 02 04 06 08 10
Sources: CASS Grape Crush Reports, Annual Land Value Trend Surveys, ASFMRA
Twitter: #SVBWine
36. Monterey County
District 7 Values vs. Grape Prices
$2,000
$37,000 Chard. $
Cab. Sauv. $
$1,750
$32,000 Pinot Noir $
Average Grape Prices
$1,500
Vineyard Values
$27,000
$22,000
$1,250
$17,000
$1,000
$12,000
$750
$7,000
$2,000 $500
1994 96 98 2000 02 04 06 08 10
Sources: CASS Grape Crush Reports, Annual Land Value Trend Surveys, ASFMRA
Twitter: #SVBWine
37. San Luis Obispo & Santa Barbara Counties
District 8 Values vs. Grape Prices
Chard. $ $3,000
$52,000
Pinot Noir $
Average Grap Price
$2,500
Vineyard Values
$42,000 Cab. Sauv. $
$32,000 $2,000
$22,000 $1,500
$12,000 $1,000
$2,000 $500
1994 96 98 2000 02 04 06 08 10
Sources: CASS Grape Crush Reports, Annual Land Value Trend Surveys, ASFMRA
Twitter: #SVBWine
38. Sales Growth & Financial
Condition of Wineries
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39. Winery Sales Growth Expectations in 2012
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
40. Reported Financial Condition of Wineries in 2011
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
7% Very Weak or Worse
0.0%
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
41. Reported Financial Condition By Case Size
100.0%
90.0%
80.0%
70.0%
Rock Solid
60.0% Very Strong
Strong
50.0% Good
Slightly Weak
40.0%
Very Weak
On Life Support
30.0%
Dead
20.0%
10.0%
0.0%
1 -2,500 2,501 - 5,000 5,001 - 10,001 - 25,001 - 50,001 - 100,001 - >250,000
10,000 25,000 50,000 100,000 250,000
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
42. Winery Financial Condition
Gross Margins Squeezed
Sales Up
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
46. Reported Wine Sales by Cohorts
45.0%
40.0%
35.0%
30.0%
25.0%
41.5%
20.0%
15.0% 29.8%
10.0%
14.3% 14.4%
5.0%
0.0%
Millennial (21-34 year olds) Gen X (35-46 year olds) Boomers (47-64 year olds) Matures (65+)
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
47. Wealth of Cohorts as of 2009
$300,000
$250,000
$263,716
$200,000
$150,000 $170,494
$100,000
$50,000
$39,601
$3,662
$-
Millennials Gen-X Boomers Matures
Source: U.S. Census Bureau
Twitter: #SVBWine
48. Current Cohort Sales Sorted by Avg. Bottle Price
50.0%
45.0%
40.0%
35.0%
30.0%
Millennial (21-34 year olds)
25.0% Gen X (35-46 year olds)
Boomers (47-64 year olds)
20.0% Matures (65+)
15.0%
10.0%
5.0%
0.0%
< $15 $15 - $20 $21 - $30 $31 - $40 $41 - $70 > $70
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
50. General Perception of Social Media By Case Size
90.0%
80.0%
70.0%
60.0%
50.0%
Negative
40.0% Positive/Active
30.0%
20.0%
10.0%
0.0%
1 -2,500 2,501 - 5,000 5,001 - 10,001 - 25,001 - 50,001 - 100,001 - >250,000
10,000 25,000 50,000 100,000 250,000
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
51. The 5th Column
โข The 5th Column consists of disparate companies with online solutions
to help sell and market wines such as:
โข E-commerce sites (Wine.com, Winelibrary.com)
โข Flash Sale Sites (Lot18, WineAccess, Cinderellawine, Winestillsoldout.com)
โข Consumer information sites (Winesearcher.com, Cellartracker.com)
โข Mobile applications (HelloVino, Drync, Vivino)
โข Software solutions (Vin65.com, Shipcompliant, Vinespring.com, Vinovisit.com)
โข Social Media Solutions (Social-Candy.com, VinTank)
Twitter: #SVBWine
52. Challenges For the 5th Column
โข For software solutions for the wine industry:
โข Total addressable audience: ~ 7500 wineries in the US
โข Very little digital acumen
โข Fragmented
โข Behave differently by region
โข Slow adoption
โข Under resourced to manage any of the 5th column players
โข Primarily focused on tasting room sales, wine club or traditional 3 Tier sales
โข Salary rates for digital employees is at least 40% below comparable positions
45-90 miles away
โข Many Investors are gun shy of the category
Twitter: #SVBWine
53. Challenges For the 5th Column
โข For Online Sales Companies
โข Regulation
โข Margin erosion
โข Cost of carrying inventory
โข Total wines available in the US (150K+ annually)
โข Consumer behavior
โข Cost and challenges with shipping
โข Winery resistance
โข Wholesaler and retailer friction
โข Limited nature of luxury wines thus stunting the ability to scale
โข Investors WERE gun shy of the category (Lot18 recently received over $40M in
funding)
Twitter: #SVBWine
54. The Future of the 5th Column
โข Pandoraโs Box is now open and success is obtainable
โข The past failures have left a roadmap for success to new contenders
โข The recession has forced wineries to explore alternative solutions in the digital
sphere
โข Winery management is getting younger and more open to digital
โข The juggernaut of digital is pressing on the wine industry
โข Silicon Valley (only 90 miles away from CA North Coast) grows ever closer to
the wine industry
Twitter: #SVBWine
56. Reported Bottle Pricing Expectations
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
57. 2012 Bottle Price Expectations by Avg. Price Point
70.0%
60.0%
50.0%
40.0%
Reduce Prices
Hold Prices
30.0% Increase Prices
20.0%
10.0%
0.0%
< $15 $15 - $20 $21 - $30 $31 - $40 $41 - $70 > $70
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
58. Net Bottle Price Change By Average Price Point
50.0%
40.0%
30.0%
< $15
$15 - $20
$21 - $30
20.0%
$31 - $40
$41 - $70
> $70
10.0%
0.0%
-10.0%
Source: Silicon Valley Bank Proprietary Research
Twitter: #SVBWine
59. Summary
โข Domestic wine inventories evolving into shortage. Will last for some
time.
โข ย
Increasing prices for grapes and bulk juice
โข ย
Increasing difficulty for nรฉgociants to find wine of consistent quality
for the price point
โข Fewer private labels
โข ย ore transitions, sales and mergers taking place than at any time in
M
memory
โข ยontinuation of new mergers among wholesalers
C
โข ย
Increasing plantings to feed the looming grape shortage
โข Modest retail bottle price increases
Twitter: #SVBWine
60. Summary Continued
โข ย
Increasing difficulty for third-party marketers whoโve sold with a
culture of discounting
โข The 5th Column is a viable and improving channel.
โข ยhe wealth divide is really more of a demographic divide.
T
โข Millennials are the future. Gen-X is now. Boomers largest but will start
to decline
โข The euro will enter a weakening trend versus the U.S. dollar
โข ย
Imports gain a larger market share
โข The U.S. economy will gradually positively evolve with more middle
class consumers jumping on the moving train
โข 2012 sales growth rates of 7-11 percent, a slight drop from the prior
year
Twitter: #SVBWine
61. Disclosures
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
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there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are
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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. The material is
based upon information which we consider reliable, but we do not represent that it is accurate or
complete, and it should not be relied upon as such.
ยฉ2012 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-12-12064. Rev. 04-12-12.
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