Silicon Valley Bank 2015 State of the Wine Industry Presentation

Survey Results and Economic Slides

2015 Silicon Valley Bank State of the Wine Industry

2015 Annual Wine Conditions Survey 26 January 2015 2

Table of Contents Summary 3

Survey Respondent Profile 4

Demographics 9

2015 Price Projections 13

2014 Sales and Case Growth 18

Sales Channel Distribution 24

2014 Fiscal Year Review 29

Financial Health 33

Potential Sales 37

2014 Harvest 43

2015 Grape Expectations 47

California Drought Issues 51

Wholesale Representation 54


Summary

• 82% of wineries reported overall financial health of "good" or better for 2014. This is up 7% over the previous year. This trend is expected to continue as the grapes from three strong harvests (2012,2013, and 2014) make their way into the market.

• Consensus view of 2014 shows 79% of respondents reporting having a good year or better. The Sierra Foothills, CA region reported the largest proportion of disappointment which correlates directly to issues felt during the California drought. Over 41% of respondents from that region reported feeling some issues from the drought.

• 60% of all wineries are projecting price increases per retail bottle with only 6% projecting a decrease in 2015. The majority of increases are expected to be small across all price points except the >$69 range. Wines with a price point >$69 are the most bullish with 45% reporting increases of moderate to strong.

• Wine sales continue to be dominated by the Baby Boomer generation contributing to 44% of all sales with Gen-X’erscoming in at 29%. Three year trends indicate little change amongst the generational buyers in the market today.

• Overall, 93% of wineries reported the quality of grapes harvested as good/excellent for 2014. Wineries in the Pacific Northwest further benefited from the 2014 harvest with 62% of Washington wineries and 85% of Oregon wineries reporting higher yields than average. The next closest region was Napa, CA with 43% of wineries reporting higher than average yields.

• Only 36% of California wineries reported a measurable affect from the 2014 California drought with the most significant issues being felt in the Central Valley, CA, Central Coast, CA, and Sierra Foothill, CA regions.


Survey Respondent Profile

• The number of winery responses totaled 582. If there were too few respondents from a participating region, the data was deemed insignificant based on the sample size and placed into “Other” categories or combined with a neighboring region as defined below.

- Lodi & Other Delta Counties, CA includes (Livermore and Contra Costa, CA)

- Central Coast, CA includes (San Luis Obispo/Paso Robles/Santa Barbara)

- Mid-Coastal, CA includes (Santa Cruz/Monterey,/Santa Clara)

- Central Valley, CA includes (Solano, CA)

- Other includes (Alabama, Arizona, British Columbia, California, Connecticut, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Mexico, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Ontario, Pennsylvania, Peru, South Dakota, Tennessee, Texas, Vermont, and Virginia)


Production Level of Survey Participants

32.5%

18.9%

13.6%

14.4%

7.0%

4.6%

5.3%

3.6%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

1 - 2,500

2,501 - 5,000

5,001 - 10,000

10,001 - 25,000

25,001 - 50,000

50,001 - 100,000

100,001 - 250,000

>250,000

Source: Silicon Valley Bank Wine Conditions Survey


7%

15%

27%

19%

21%

11%< $15

$15 - $19

$20 - $29

$30 - $39

$40 - $69

> $69

Retail Price Points of Participants



16%

25%

24%

10%

7%

18%< 5 Years

5-9 Years

10 – 14 Years

15 – 19 Years20-25 Years

25+ Years

Operating Years of Experience of Survey Participants



21.1%

18.0%

14.9%13.2%

8.9%7.7%

5.2%2.7% 2.2% 2.1% 2.1% 1.7%

0%

5%

10%

15%

20%

25%

Region of Survey Participants


Demographics


14%

29%44%

13%

Millennial (21-36 year olds)

Gen X (37-48 year olds)

Boomers (49-66 year olds)

Matures (67+)

Average Sales by Demographic



Year Over Year Demographic Sales Trends

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Millennial (21-36 year olds) Gen X (37-48 year olds) Boomers (49-66 year olds) Matures (67+)

2012 2013 2014



Average % of Direct Sales by Age Group Compared to Bottle Price

0%

10%

20%

30%

40%

50%

60%

< $15 $15 - $19 $20 - $29 $30 - $39 $40 - $69 > $69

Millennial (21-36 year olds)

Gen X (37-48 year olds)

Boomers (49-66 year olds)

Matures (67+)


Increases/Decreases to Retail Bottle Price

2015 Price Projections


2015 Retail Bottle Price Projections

1% 1%4%

34%

44%

14%

2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Strong Decrease ModerateDecrease

Small Decrease Hold Prices Small Increase ModerateIncrease

Strong Increase



3 Year Bottle Price Projection Trends

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Strong Decrease ModerateDecrease

Small Decrease Hold Prices Small Increase ModerateIncrease

Strong Increase

2012 2013 2014



2015 Retail Price Projections by Price Point

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< $15 $15 - $19 $20 - $29 $30 - $39 $40 - $69 > $69

Strong Decrease

Moderate Decrease

Small Decrease

Hold Prices

Small Increase

Moderate Increase

Strong Increase



Price Projections: 5 Year Comparison

0%

10%

20%

30%

40%

50%

60%

70%

2010 2011 2012 2013 2014

Decrease Prices Increase Prices


*Case growth refers to increase/decrease of cases sold over previous year

2014 Sales and case growth*


Predicted End of Year Sales Growth vs. SVB Actual Sales Growth

2011 2012 2013 2014Predicted End of Year Sales Growth 13.70% 14.90% 13.00% 13.08%SVB Actual Sales Growth 12.20% 7.70% 9.20% 10.00%

0%

2%

4%

6%

8%

10%

12%

14%

16%Sa

les

Gro

wth

SVB forecasted

6-10% growth in

2014



2014 Predicted Sales Growth by Years in Business

22%

15%

13%

8%

7%

9%

0%

5%

10%

15%

20%

25%

< 5 Years 5-9 Years 10 – 14 Years 15 – 19 Years 20-25 Years 25+ Years

Years In Business

Wine Sales Growth



Indicates regions where price increases could be taken

2014 Predicted Sales and Case Growth by Region

0%

5%

10%

15%

20%

25%

Wine Case Growth Wine Sales Growth



2014 Predicted Sales and Case Growth by Price Point

0%

2%

4%

6%

8%

10%

12%

14%

16%

< $15 $15 - $19 $20 - $29 $30 - $39 $40 - $69 > $69




2014 Predicted Sales and Case Growth by Production

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1 - 2,500 2,501 - 5,000 5,001 -10,000

10,001 -25,000

25,001 -50,000

50,001 -100,000

100,001 -250,000

>250,000 Overall



Tasting Room, Wine Club, Wholesale, Export, Other

Sales channel distribution


2014 Average Sales per Distribution Channel

31%

22%

38%

3%6%

Tasting Room

Wine Club

Wholesale

Export

Other



Average Direct Sales per Channel by Production

1 - 2,500 2,501 -5,000

5,001 -10,000

10,001 -25,000

25,001 -50,000

50,001 -100,000

100,001 -250,000 >250,000

Other 9% 3% 6% 4% 8% 2% 5% 7%Wine Club 26% 26% 25% 21% 19% 10% 10% 6%Tasting Room 39% 37% 33% 24% 17% 11% 11% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%


SP17

Slide 26

SP17 indicate what x axis represents?Sona Pai, 1/7/2015


Average Wholesale/Export Sales per Channel by Production

1 - 2,500 2,501 - 5,000 5,001 -10,000

10,001 -25,000

25,001 -50,000

50,001 -100,000

100,001 -250,000 >250,000

Export 2% 2% 3% 4% 4% 9% 4% 6%Wholesale 24% 32% 33% 47% 51% 68% 71% 75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%



% of Sales from Restaurants

15%

23%

30% 31%

36%40%

31%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

< $15 $15 - $19 $20 - $29 $30 - $39 $40 - $69 > $69 Overall


Overview of 2014

2014 Fiscal Year Review


Yearly Success in 2014

7%

14%

79%

A disappointing year

A year of treading water

A good year



Regional Detailed Overview of 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% The most difficult year inour historyOne of our mostchallenging years everA disappointing year

A year of treading water

A good year

One of our better years

The best year in ourhistory



-1.2%

5.3%

15.9%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

A disappointing year A year of treading water A good year

Average Growth of Wine Sales Based on 2014 Success


Wineries view of the overall financial condition of the business

Fiscal health


Financial Health: Year Over Year Comparison

Rock Solid Very Strong Strong Good Slightly Weak Very Weak On LifeSupport Dead

2013 9.7% 17.8% 23.5% 24.8% 17.6% 5.3% 1.4% 0.0%2014 12.0% 21.1% 24.1% 25.1% 13.3% 2.6% 1.4% 0.3%

0%

5%

10%

15%

20%

25%

30%



2014 Financial Health by Region

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

100%

Poor/WeakGood/StrongSource: Silicon Valley Bank Wine Conditions Survey


Financial Health by Price Point

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< $15 $15 - $19 $20 - $29 $30 - $39 $40 - $69 > $69

Poor/Weak

Good/Strong


Potential Sale of winery in the next 5 years along with Succession Planning (passing control to children of owners)

Potential sale


Potential Sale of Winery In the Next 5 Years

8%3%

26%

38%

25%A strong consideration

Will hopefully happen

Possible

Very unlikely

Not going to happen



Potential Sale of Winery in the Next 5 Years*

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

It is being discussed Not Sure Probably will not happen

*original data consolidated into 3 categories Source: Silicon Valley Bank Wine Conditions Survey


Potential Sale Based on Financial Health*

10%

24%

66%

Good/Strong

It is being discussed

Not Sure

Probably will nothappen

17%

37%

46%

Poor/Weak

It is being discussed

Not Sure

Probably will nothappen

*original data consolidated into 3 categories



0% 5% 10% 15% 20% 25% 30%

There is a plan in place

We are discussing the possibility seriously

A hope, but we really don't know

Only a remote possibility

No chance

Succession Planning (Children to Take Over Operations)



Succession Planning by Region

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

No chance

Only a remote possibility

A hope, but we really don't know

We are discussing the possibility seriously

There is a plan in place


Quality and Yield summary from the grape harvest

2014 harvest


Quality of 2014 Grape Harvest

61%

32%

5%

2%

Excellent

Good

Average

Below Average



Quality of 2014 Grape Harvest by Region

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

100%

Below Average

Average

Good

Excellent



Yield of 2014 Grape Harvest

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

100%

Low Yields

Ave Yields

High Yields


Purchase and Price expectations for next year’s harvest

2015 Grape expectations


Grape Purchase Expectations In 2015

20%

50%

30% Less Tonnage

Equal Tonnage

More Tonnage



Grape Purchase Expectations by Region

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

More Tonnage

Equal Tonnage

Less Tonnage



2015 Price per Ton Expectations

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

100%

Lower Price/Ton

Equal Price/Ton

Higher Price/Ton


Current effects felt from the drought

California drought issues


Issues from California Drought

16%

47%

33%

4%

No Issues at All

Negligible Issues

Some Issues

Significant Issues



0%

10%

20%

30%

40%

50%

60%

70%

SignificantIssuesSome Issues


Issues From California Drought by Region

Finding Wholesale and Overall Satisfaction with Representation

Wholesale Representation


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%We do not try to useWholesale

Not a Problem

Some Effort

Difficult/Impossible


Obtaining Wholesale Representation by Region


60%

30.3%

37.32%

14%

36.7%

21.87%26%

33.0%

40.82%

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014

Satisfied Ambivalent Disappointed

Satisfaction with Wholesale Representation (YoY)Adjusted to remove all wineries < 2,500 case production



< $15 $15 - $19 $20 - $29 $30 - $39 $40 - $69 > $69Satisfied 45% 28% 30% 35% 28% 49%Ambivalent 29% 26% 23% 19% 27% 21%Disappointed 26% 46% 48% 46% 45% 30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Satisfaction with Wholesale Representation (By Price Point)Adjusted to remove all wineries < 2,500 case production



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Satisfied

Ambivalent

Disappointed

Satisfaction with Wholesale Representation (By Region)Adjusted to remove all wineries < 2,500 case production



Financial performance of premium wineries

Source: Silicon Valley Bank Peer Group DatabaseSource: Silicon Valley Bank Wine Conditions Survey

Economic Graphs


U.S. dollar index

72

74

76

78

80

82

84

86

88

90

92

DXY Curncy PX_LOW

DXY Curncy PX_last

DXY Curncy PX_HIGH

Source: Bloomberg, Silicon Valley Bank


U.S. GDP

2.5

-1.5

2.9

0.8

4.6

2.3

1.6

2.5

0.1

2.7

1.8

4.5

3.5

-2.1

4.6

3.9

-3

-2

-1

0

1

2

3

4

5

3/1/11 9/1/11 3/1/12 9/1/12 3/1/13 9/1/13 3/1/14 9/1/14



ICE Brent Crude Oil

0

20

40

60

80

100

120

140

1/3/14 2/3/14 3/3/14 4/3/14 5/3/14 6/3/14 7/3/14 8/3/14 9/3/14 10/3/14 11/3/14 12/3/14

ICE Brent Generic



10 year treasury rates

0

0.5

1

1.5

2

2.5

3

3.5

Date 12/23/13 2/3/14 3/17/14 4/28/14 6/9/14 7/21/14 9/1/14 10/13/14 11/24/14

Rat

e %



Diffusion indexes of employment change

0

10

20

30

40

50

60

70

80

90

1/1/

918/

1/91

3/1/

9210

/1/9

25/

1/93

12/1

/93

7/1/

942/

1/95

9/1/

954/

1/96

11/1

/96

6/1/

971/

1/98

8/1/

983/

1/99

10/1

/99

5/1/

0012

/1/0

07/

1/01

2/1/

029/

1/02

4/1/

0311

/1/0

36/

1/04

1/1/

058/

1/05

3/1/

0610

/1/0

65/

1/07

12/1

/07

7/1/

082/

1/09

9/1/

094/

1/10

11/1

/10

6/1/

111/

1/12

8/1/

123/

1/13

10/1

/13

5/1/

14

EMDINP1M Index Manufacturing Payrolls

EMDINP1M Index Total Private



Workforce in 2015

4.9

14.8

17.8 17.7 16.8 16.5 17.1 17.716.1

10.9

5.4

2.31.2 0.40

2

4

6

8

10

12

14

16

18

20

16-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+Millennials Generation X Boomers Silent Generation

Siz

e in

mill

ions

Projected size of U.S. labor force (in millions) by age

Source: Department of Labor


Unemployed persons per job opening

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14



Job openings and employment

126,000

128,000

130,000

132,000

134,000

136,000

138,000

140,000

2000

2500

3000

3500

4000

4500

5000

5500

Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14

Job Openings

Employment



Total private job openings, hires, openings and quits

0

1,000

2,000

3,000

4,000

5,000

6,000

1/1/

045/

1/04

9/1/

041/

1/05

5/1/

059/

1/05

1/1/

065/

1/06

9/1/

061/

1/07

5/1/

079/

1/07

1/1/

085/

1/08

9/1/

081/

1/09

5/1/

099/

1/09

1/1/

105/

1/10

9/1/

101/

1/11

5/1/

119/

1/11

1/1/

125/

1/12

9/1/

121/

1/13

5/1/

139/

1/13

1/1/

145/

1/14

9/1/

14

Hires

Openings

Quits

Total private job openings, hires and quits (seasonally adjusted, in thousands)



Hires, total separations and employment

128,000

130,000

132,000

134,000

136,000

138,000

140,000

3000

3500

4000

4500

5000

5500

6000


Employment

Hires

Total Separations



Quits, layoffs and discharges

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Layoffs and discharges

Quits



Quits per layoff and discharge

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

12/1/04 12/1/05 12/1/06 12/1/07 12/1/08 12/1/09 12/1/10 12/1/11 12/1/12 12/1/13



Economic confidence

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

Jan-

12

Feb-

12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Upper-income Americans ($90K+ in annual household income)

Middle- and lower-income Americans (less than $90k in annual household income)



U.S. Unemployment rate

5.6

5.8

6

6.2

6.4

6.6

6.8

7

7.2

5.6

5.8

6

6.2

6.4

6.6

6.8

7

7.2

11/1/13 12/1/13 1/1/14 2/1/14 3/1/14 4/1/14 5/1/14 6/1/14 7/1/14 8/1/14 9/1/14 10/1/14 11/1/14 12/1/14

Source: Bureau of Labor Statistics


Gas Prices – 9 Month Average Retail

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

1/7/07 1/7/08 1/7/09 1/7/10 1/7/11 1/7/12 1/7/13 1/7/14

PX_LAST

Regular gas price ($USD/gallon)



Daily oil production

Millions of barrels per day



Potential fine wine consumer by age

Source: U.S. Census Bureau, Silicon Valley Bank

Percentage of families in group


Trends in export volumes 2008-2013

Source: L’Organisation Internationale de la Vigne et du Vin

Six-year span (2008-2013)


Worldwide production vs. consumption



Global consumption trends


2000-2013


Bulk wine available by region

Source: Turrentine Brokerage

Millions of gallons


Supply and demand 2013 vs. 2014

Source: Turrentine Brokerage


Financial performance of premium wineries

Source: Silicon Valley Bank Peer Group DatabaseSource: Silicon Valley Bank Wine Conditions Survey


About Silicon Valley Bank Wine Division

Silicon Valley Bank is the premier commercial bank for emerging, growth and mature companies in the technology, life science, venture capital, private equity and premium wine industries. Its Wine Division specializes in commercial banking for premium wineries and vineyards and the industries that support them. SVB has the largest team of commercial bankers dedicated to the wine industry of any bank nationwide. Founded in 1994, SVB’s Wine Division has offices in Napa and Sonoma counties and serves clients in the fine wine producing regions of California, Oregon and Washington. By virtue of its dedication to the wine industry, Silicon Valley Bank is able to support its clients consistently through economic and growth cycles, and offer guidance on many aspects of their business, beyond traditional banking services. Silicon Valley Bank is a member of global financial services firm SVB Financial Group (Nasdaq: SIVB), with SVB Analytics, SVB Capital and SVB Private Bank. More information on the company can be found at www.svb.com/winedivision

Silicon Valley Bank is the California bank subsidiary and the commercial banking operation of SVB Financial Group. Banking services are provided by Silicon Valley Bank, a member of the FDIC and the Federal Reserve System. SVB Private Bank is a division of Silicon Valley Bank. SVB Financial Group is also a member of the Federal Reserve System.


Disclaimer

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 investment decision. Nothing relating to the material should be construed as asolicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply anddemand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other 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.

©2014 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-14-13290 Rev. 01-15-15.

Date post:	14-Jul-2015
Category:	Documents
Upload:	silicon-valley-bank
View:	6,326 times
Download:	0 times

Silicon Valley Bank 2015 State of the Wine Industry Presentation

Documents