2019 Oregon Wine Symposium | Outlook on the Wine Sector: Managing the Changing Generational Demographics and Market Dynamics

AVAs, Appellations, Regions,
GI’s, AOC’s, DOC’s, etc
Tony Correia, The Correia Company

Appellations and AVAs
• What is an Appellation, or Geographic Indication?
• An appellation is a legally defined and protected geographical indication
used to identify where the grapes for a wine were grown; other types of
food often have appellations as well. ... The rules that govern
appellations are dependent on the country in which the wine was
produced. AOCs, DOCs, Gis
• In Italy;
• Indicazione Geografica Tipica – IGT
• Denominazione di Origine Controllate – DOC
• Denominazione di Origine Controllate e Garantita - DOCG

AOCs of France
• France's current list of AOC wines has some four hundred entries.
99 of these are grown in Burgundy. In addition Burgundy has
nearly 600 "climats" classed as Premier Cru. This astonishing
diversity is unique to Burgundy and is one of her greatest assets.
• The key to the system is that
as quality increases, locality of production is
more tightly restricted and exactly specified,
with a consequent decrease in quantity produced.

Appellations and AVAs
• What is an American Viticultural Area (AVA)?
• A viticultural area for American wine is a delimited grape-growing region having
distinguishing features as described in the Code of Federal Regulations (CFR) at
27 CFR part 9 and a name and delineated boundary as established in part 9 of
the regulations. These designations allow vintners and consumers to attribute a
given quality, reputation, or other characteristic of a wine made from grapes
grown in an area to its geographic origin.
• Some premium American wine regions are not AVAs.
• Some vintners choose not to use their specific AVA.
All AVAs are Appellations, not all Appellations are AVAs.

Care and Feeding of the Oregon AVA
AVA PRs
•Promote
• VisitMcMinnville.com
• Destination Wedding
•Protect
• Solidarity
•Preserve

Tax Considerations of AVAs?
For § 197 purposes, the right to use an AVA designation is a license,
permit, or other right granted by a governmental unit and is not an
interest in land. Therefore, the right to use an AVA
designation is a § 197 intangible and the amount of the
vineyard’s purchase price allocated by Taxpayer to the
right to use the AVA designation is an
amortizable § 197 intangible.
Office of Chief Counsel, Internal Revenue Service
Memorandum Number: 201040004
Release Date: 10/8/2010
date: June 24, 2010
subject: Treatment of American Viticultural Area Designation Under Section 197

How can we develop the value of an
AVA?
Rigorous, Robust Econometric
Analyses
Conditional Heteroskedastic Hedonic
Price Analyses
Geo-spatial Multi-Variable Regression

$0
$5,000
$10,000
$15,000
$20,000
Jan-04 Jul-09 Dec-14 Jun-20
Willamette Valley Vineyard LAND; Price per Acre
Source: Carl Stillman, MAI, ARA

$0
$10,000
$20,000
$30,000
$40,000
$50,000
Jan-04 Jul-09 Dec-14 Jun-20
Oregon Vineyard LAND; Price per Acre
Dundee Hills
Willamette Valley

Relative Values of Oregon Vineyard LAND, by AVA;
Actual Transactions; 2005 - 2018
Willamette Valley = 1.00
3.34
3.25
2.35
1.80
1.55
1.00
0.94
- 1.0 2.0 3.0
Dundee Hills
Ribbon Ridge
Chehalem Mountain
Yamhill-Carlton District
Eola-Amity Hills
Willamette Valley
McMinnville

Relative Values of Oregon VINEYARDS, by AVA;
Oregon State + Harvard Study; 1995 – 2007;
1.00
1.18
1.63
1.69
1.79
2.51
- 0.50 1.00 1.50 2.00 2.50
Willamette Valley
McMinnville
Eola-Amity Hills
Chehalem Mountain
Dundee Hills

Relative Values of Oregon VINEYARDS, by AVA;
Actual Transactions; 2005 - 2018;
3.33
2.64
2.06
1.99
1.58
1.39
1.00
- 1.00 2.00 3.00
Ribbon Ridge
Dundee Hills
Chehalem Mountain
Eola Amity Hills
McMinnville
Willamette Valley

Relative Wine Bottle Prices, from Oregon State + Harvard Study;
2006 Pinot Noir, from Wine Spectator;
0.87
1.00
1.05
1.11
1.12
1.27
- 0.50 1.00
McMinnville
Willamette Valley
Eola-Amity Hills
Chehalem Mountain
Dundee Hills

Relative Wine Bottle Prices,
2010 - 2014 Pinot Noir, from Wine Spectator;
1.00
1.17
1.20
1.44
- 0.50 1.00 1.50
Willamette Valley AVA
Yamhill-Carlton AVA
Eola-Amity Hills AVA
Dundee Hills AVA

Thank you!
And Drink
More Oregon
Wine!!!

Outlook on the Wine Sector
Managing the …. Market Dynamics

Damien Wilson/OWS/Market Trends & Solutions
More Wine Business for Oregon
20
This Photo by Unknown author is licensed
under CC BY-SA-NC.
1. Get out your smart devices,
and prepare to have your
questions answered....
2. Market Trends and Oregon
3. Oregon’s varietal
specialization as an
overindexing softener
4. Wine Consumer Behavior
5. Conjunctive Labeling
6. Oregon 1st then sub-AVAs

Post questions during the presentation
21
Here’s what you do in Socio
1. Search for Socio in your smart device browser
2. Search for and find Oregon Wine Symposium
3. Select Join Now
4. Go to the session on the app. Submit your questions as
they come to mind, and I’ll find a time in which to present
them. Feel free to include your name if you wish the
question to be acknowledged from you

Part 1 – Pertinent State of the Industry

Pertinent Question for Oregon wine
23
Gretchen Boock informed us of OR overindexing in quality
At 34:27 of the 2018 SVB State of the Wine Industry
Videocast this feature of Oregon wine was announced
‘~1.5% of US production responsible for 20% of Wine
Enthusiast’s 90+ point wine reviews’ – Boock [paraphrased]
Great news, right?

Let’s start with a Look at Danny’s findings
24
What does that comment mean in relation to new consumers?

33
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<$4.00
$8-$10.99
$11-$14.99
$15-$19.99
$20-$24.99
$25+
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
-8
$4-$7.99
-6 -4 -2 0 2 4 6 8 10
VolumePercentCha
ng
e
Value Percent Change
Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 12-29-2018 (Bubble =
Annual $ Size); Table Wine Glass
42% of $; 22% of volume
Bottle Growth Led From Higher End
Total U.S. Off Premise
Copyright©2019TheNielsenCompany.Confidentialandproprietary.

34
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On-premise – Also Slowing Growth
-6
-4
-2
2
0
4
6
8
10
12
14
2014 2015 2016 2017
Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 12-1-2018
2018 Lat 26 wks
$8-$11 with the biggest drop…
Table Wine Glass Dollar Growth Rates – by Price Tier
$15-$20
$11-$15
$20-$25
$4-$8
<$4
$8-$11
$25+
$11-$15
$15-$20
$20-$25
$25+
$8-$11
$4-$8
<$4
Copyright©2019TheNielsenCompany.Confidentialandproprietary.

Dilemma of the Modern Wine Bifurcation
27
The loyalty paradox in wine consumption frequency
• Regular Wine Consumers are consuming more
frequently, but…
• Occasional wine consumers are consuming less
frequently
‘Wine Market Council (2018)’
Oregon wines are squarely directed at high value consumers

Check the history of another high value region
28
When thinking of top quality wines, what area comes to mind?

Strategic Options for OR wine producers
• Premiumization – attracting
highest-margin consumers
• Economization – attracting
highest-turnover
consumers
• What about all that space
in the middle?
Price
Volume
- Domaine Serene
- Archery Summit
- Like DRC, Etc…
- Charles Shaw
- Black Box, etc…

Global Case in Wine Business Strategy
• Premiumization
• France

The Numbers on French Wine
• Wine Production for France
• Peaked in 1872 at
~6 million acres under vine
• Post-phylloxera recovery, by 1929 it was
~4 million
• AOC launched as a means to verify production
(consumers see this as a symbol of quality)
• By 1970, just over 3 million
• By 2000, just over 2 million
• Now it’s 1.9 million acres
• Which is fine if value has increased at least 3 times
in real terms…

It hasn’t: Euromonitor shows 13% fall 2000-15
The Green Bars are regular consumer changes over time
In 1980, more
than 80% of
the French
population
drank wine at
least monthly,
with 51%
drinking
almost daily...
By 2015, 2/3 of
the French
population
drank wine at
least monthly,
but only
16% drinking
almost daily...

But an even bigger problem is pending…
Wine Consumption by Age Group in France, 2015
The concern for
France is that Less
than 10% of those
under 50 years of
age consume wine
almost daily. In 1980
it was more than
50% of the entire
population
In 2015, almost
60% of French
under 25 years of
age didn’t drink
wine at all. In 1980
that value was
around 30%.

Notice a trend here….
From d’Hauteville 2003
~200
AOCs
in 1960
~320
AOCs
in 2000

In case you missed it…
• One aim in creating AOCs was to convey an
image of prestige. The number of AOCs in France
has doubled c.1950s
• But domestically, they failed to refresh their
consumer base since the 1980s
• So, as the prestige image of French wine has
increased, consumers have been alienated from
the increasing challenge to learn and know them.
• At some point in time, French wine became too
complex to appeal to new consumers

US Wine Consumers do not start with Oregon
36
Unless they live in or around this state, of course…….

Schematic for Learning
• Debutant
– Knows virtually nothing about wine
– Any experience is new and s/he does
not know how to commit to memory
• Learning
– As experience improves, categories
for evaluating wine develop
– Both categories of assessment and
size of category tends to grow

Until…
• Equilibrium
– Between interest and
experience
– Experience will improve,
but learning becomes
incremental at equilibrium
• Limits?
– The key to learning about any
concept is to help consumers
build on their existing
knowledge
Price
Winemaker
Occasion
Brand
TERROIR

Start with your Consumer
Then investigate their interest in wine
▪ Newbies
▪ Encouragement > Precision
▪ Wine styles are learned quickly
▪ Details require interest
▪ Discussing different grape varieties, harvest characteristics and/or
regionality indicate sufficient interest to focus on Oregon
This learning process begins with awareness
Ask questions about the frequency and length of time they’ve consumed wine

Part 3 – Conjunctive Labeling

Why Bother?
Sonoma county Vintners
• Why is Conjunctive Labeling Important?
Perceptions that….
• Builds brand equity for regional wines
• Preserves and strengthens a region’s position as a
recognized world-class wine region
• Increases sales of wines produced from a region’s grapes
• Increases recognition for every AVA within a region,
…both well-known and less familiar, and
• Helps ensure that consumers understand where they are.
41

Sonoma County
• A positively viewed region can provide a halo effect
to its smaller appellations.
• Survey to investigate the conjoining of Sonoma County and specific AVAs to
• Raise expectation of
• Better tasting wine
• Better quality grapes
• Purchasing intent
• 66% of respondents preferred some form of Sonoma County
on the label.
• Sonoma reputation had been underutilized.
42

Conjunctive Labeling
• Require “Sonoma County” to appear in
addition to Appellation
• Printed on all wines produced in
Sonoma County
• Law passed in 2012
• Full compliance in 2014
• Joint Marketing Efforts
• Sonoma County Tourism
• Sonoma County Vintners
• Sonoma County Winegrape Commission
43

Data Collection for the Research Project
2008 Survey
Before Conjunctive Labelling
• 409 respondents
• 47.3% male
• 52.8% female
• National Sample – 46 states
• All consumed at least 1 bottle in
the past year
• 67% drink wine at least once a
week
2016 Survey
After Conjunctive Labelling
• 403 respondents
• 45.4% male
• 54.6% female
• National Sample – 46 states
• All consumed at least 1 bottle in
the past year
• 74% drink wine at least once a
week
44

Analysis of differences before and after
• General differences in information on the wine label used to gauge
the quality inside the bottle.
• Differences in awareness of specified regions and appellations.
• Differences in awareness over time
• by Consumption Frequency
• by Price usually Paid
45

Awareness and Consumption Frequency
Core
2008
Core
2016 Difference
Marginal
2008
Marginal
2016 Difference
Sonoma County 3.12 3.43 0.31 2.37 2.62 0.25 (ns)
Russian River Valley 1.78 2.24 0.46 0.90 1.42 0.52
Dry Creek Valley 1.54 2.30 0.76 0.88 1.46 0.53*
Carneros 1.41 1.92 0.51 0.71 1.05 0.34**
Green Valley 1.29 2.17 0.88 0.72 1.40 0.68
46
Differences in bold are significant for the Mann-Whitney test of difference
BOLD--99% confidence
* 95%
** 90%

Awareness and Wine Price
Under $15
2008
Under $15
2016 Difference
Over $15
2008
Over $15
2016 Difference
Sonoma County 2.73 2.86 0.13 3.27 3.62 0.37
Russian River Valley 1.27 1.57 0.30 (ns) 2.05 2.58 0.53
Dry Creek Valley 1.10 1.52 0.42 (ns) 1.90 2.69 0.79
Carneros 1.01 1.23 0.22 (ns) 1.65 2.21 0.56*
Green Valley .88 1.46 0.58 (ns) 1.68 2.56 0.88
47
Differences in bold are significant for the Mann-Whitney test of
difference
BOLD--- 99% confidence
* 95% confidence
Underlined 90% confidence
(ns) Not significant

• Synergistic effect found between Region and AVAs
– Both region and AVAs exhibited
differences in awareness
– The smaller AVAs saw a greater
difference in awareness than region
– Awareness difference was greater with
• Core consumers, and
• Higher price spenders
Linking Region and AVAs
48

✓Positive Trend - Respondents increased Sonoma County wine purchases over the
past few years to a greater extent than their purchases of wines from competing
regions.
✓Purchase Across Price Segments - Most respondents have purchased a Sonoma
County wine that costs between $15 - $30 in the past year.
▪ Regular Sonoma County wine buyers were less apt to have purchased in the
under $15 category.
▪ Occasional Sonoma County wine buyers were more likely to have bought in the
under $15 category.
KEY TAKEAWAYS
Sonoma County Vintners 2017
49

• Conjunctive labeling has been beneficial for Sonoma County wineries
• Wine purchases have increased more than competitors
• Reaching the right target market
• Other regions could benefit from conjunctive labeling
– Mendocino County considering
– Lodi Implementing
– Monterey County – effective 2019
What about Oregon?
Implications
50

Presenter Contact Details
Damien Wilson – Hamel Family Chair, Wine Business Institute, SSU –
Tweet @WineBusProf #OWS
Let’s Get to those
questions…
THANK YOU

2019 Oregon Wine Symposium | Outlook on the Wine Sector: Managing the Changing Generational Demographics and Market Dynamics

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2019 Oregon Wine Symposium | Outlook on the Wine Sector: Managing the Changing Generational Demographics and Market Dynamics