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
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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
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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
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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
• The 5th Column consists of disparate companies with online solutions
to help sell and market wines such as:
• E-commerce sites (Wine.com, Winelibrary.com)
• Flash Sale Sites (Lot18, WineAccess, Cinderellawine, Winestillsoldout.com)
• Consumer information sites (Winesearcher.com, Cellartracker.com)
• Mobile applications (HelloVino, Drync, Vivino)
• Software solutions (Vin65.com, Shipcompliant, Vinespring.com, Vinovisit.com)
• Social Media Solutions (Social-Candy.com, VinTank)
Twitter: #SVBWine
52. Challenges For the 5th Column
• For software solutions for the wine industry:
• Total addressable audience: ~ 7500 wineries in the US
• Very little digital acumen
• Fragmented
• Behave differently by region
• Slow adoption
• Under resourced to manage any of the 5th column players
• Primarily focused on tasting room sales, wine club or traditional 3 Tier sales
• Salary rates for digital employees is at least 40% below comparable positions
45-90 miles away
• Many Investors are gun shy of the category
Twitter: #SVBWine
53. Challenges For the 5th Column
• For Online Sales Companies
• Regulation
• Margin erosion
• Cost of carrying inventory
• Total wines available in the US (150K+ annually)
• Consumer behavior
• Cost and challenges with shipping
• Winery resistance
• Wholesaler and retailer friction
• Limited nature of luxury wines thus stunting the ability to scale
• Investors WERE gun shy of the category (Lot18 recently received over $40M in
funding)
Twitter: #SVBWine
54. The Future of the 5th Column
• Pandora’s Box is now open and success is obtainable
• The past failures have left a roadmap for success to new contenders
• The recession has forced wineries to explore alternative solutions in the digital
sphere
• Winery management is getting younger and more open to digital
• The juggernaut of digital is pressing on the wine industry
• 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
• Domestic wine inventories evolving into shortage. Will last for some
time.
•
Increasing prices for grapes and bulk juice
•
Increasing difficulty for négociants to find wine of consistent quality
for the price point
• Fewer private labels
• ore transitions, sales and mergers taking place than at any time in
M
memory
• ontinuation of new mergers among wholesalers
C
•
Increasing plantings to feed the looming grape shortage
• Modest retail bottle price increases
Twitter: #SVBWine
60. Summary Continued
•
Increasing difficulty for third-party marketers who’ve sold with a
culture of discounting
• The 5th Column is a viable and improving channel.
• he wealth divide is really more of a demographic divide.
T
• Millennials are the future. Gen-X is now. Boomers largest but will start
to decline
• The euro will enter a weakening trend versus the U.S. dollar
•
Imports gain a larger market share
• The U.S. economy will gradually positively evolve with more middle
class consumers jumping on the moving train
• 2012 sales growth rates of 7-11 percent, a slight drop from the prior
year
Twitter: #SVBWine