change is here –a new market paradigm · $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 $22 $24 0 200,000...

CHANGE IS HERE – A NEW MARKET PARADIGM“Intelligence is the ability to adapt to change”- Stephen Hawking

UNIFIED WINE AND GRAPE SYMPOSIUMJANUARY 30, 2019

PROFESSIONAL BROKERS IN 9 COUNTRIES

LOCALLY BASED TO HELP BUILD YOUR BUSINESS WORLDWIDE

CALIFORNIA BULK MARKET

CALIFORNIA MARKET

v SLUGGISH SALES GROWTH

v HISTORIC 2018 CROP

v BULK MARKET ACTIVITY SLOW

v BULK INVENTORIES INCREASING

vMARKET IS ADJUSTING TO NEW PARADIGM

CIATTI

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

JAN. 2015 JAN. 2016 JAN. 2017 JAN. 2018 JAN. 2019

BULK

GAL

LONS

AVA

ILAB

LE

CABERNET SAUVIGNON CHARDONNAY MERLOT PINOT NOIR ZINFANDEL

CALIFORNIA BULK WINE INVENTORY

CIATTI

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

JAN. 2017 JAN. 2018 JAN. 2019

PR

ICE

PE

R G

ALL

ON

BU

LK G

ALL

ON

S A

VAIL

AB

LE

Bulk Chardonnay Bulk Cabernet Sauvignon Bulk Merlot

Price Per Gallon CH Price Per Gallon CS Price Per Gallon ME

CENTRAL VALLEY

CIATTI

BULK CHARDONNAY

PRICE PER GALLON CH PRICE PER GALLON CS PRICE PER GALLON ME

BULK MERLOTBULK CABERNET SAUVIGNON

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$22

$24

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

JAN. 2017 JAN. 2018 JAN. 2019

PR

ICE

PE

R G

ALL

ON

BU

LK G

ALL

ON

S A

VAIL

AB

LE

Bulk Chardonnay Bulk Cabernet Sauvignon Bulk Pinot Noir

Price Per Gallon CH Price Per Gallon CS Price Per Gallon PN

CENTRAL COAST

CIATTI

BULK CHARDONNAY

PRICE PER GALLON CH

BULK CABERNET SAUVIGNON

PRICE PER GALLON CS

BULK PINOT NOIR

PRICE PER GALLON PN

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$22

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

JAN. 2017 JAN. 2018 JAN. 2019

PR

ICE

PE

R G

ALL

ON

BU

LK G

ALL

ON

S A

VAIL

AB

LE

Bulk Chardonnay Bulk Cabernet Sauvignon Bulk Merlot

Price Per Gallon CH Price Per Gallon CS Price Per Gallon ME

LAKE / MENDOCINO

CIATTI

BULK CHARDONNAY

PRICE PER GALLON CH

BULK CABERNET SAUVIGNON

PRICE PER GALLON CS

BULK MERLOT

PRICE PER GALLON ME

$0

$4

$8

$12

$16

$20

$24

$28

$32

$36

$40

$44

$48

$52

$56

0

100,000

200,000

300,000

400,000

500,000

600,000

JAN. 2017 JAN. 2018 JAN. 2019

PR

ICE

PE

R G

ALL

ON

BU

LK G

ALL

ON

S A

VAIL

AB

LE

Bulk Chardonnay Bulk Cabernet Sauvignon Bulk Merlot

Price Per Gallon CH Price Per Gallon CS Price Per Gallon ME

NAPA

CIATTI

BULK CHARDONNAY BULK CABERNET SAUVIGNON

PRICE PER GALLON CS

BULK MERLOT

PRICE PER GALLON MEPRICE PER GALLON CH

$0$2$4$6$8$10$12$14$16$18$20$22$24$26$28$30$32

0

100,000

200,000

300,000

400,000

500,000

600,000

JAN. 2017 JAN. 2018 JAN. 2019

PR

ICE

PE

R G

ALL

ON

BU

LK G

ALL

ON

S A

VAIL

AB

LE

Bulk Chardonnay Bulk Cabernet Sauvignon Bulk Merlot

Price Per Gallon CH Price Per Gallon CS Price Per Gallon ME

SONOMA

CIATTI

PRICE PER GALLON PN

BULK PINOT NOIRBULK CHARDONNAY

PRICE PER GALLON CH

BULK CABERNET SAUVIGNON

PRICE PER GALLON CS

v SLOW ACTIVITY WITH WEAKENING PRICING

v BUYERS LOOKING FOR DEALS, SELLERS STARTING TO REALIZE NEW MARKET

v COASTAL MARKET MORE AFFECTED THAN CENTRAL VALLEY

v RENEWED NEGOTIANT ACTIVITY

v WINERIES ALSO LOOKING TO MOVE EXCESS INVENTORY

CALIFORNIA BULK MARKET

CIATTI

GLOBAL MARKET

v LARGE 2018 HARVEST CHANGED MARKET BACK QUICKLY!

v 2017– VERY SMALL 2017 HARVEST CAUSED MARKET TO TIGHTEN– DEMAND/PRICES INCREASED

v 2018– YIELDS UP 13%– PRICES AND DEMAND FOR BULK WINE HAVE DECLINED IN ALMOST ALL

REGIONS

v BACK TO NORMAL?

GLOBAL MARKET

CIATTI

210

220

230

240

250

260

270

280

290

300

2011 2012 2013 2014 2015 2016 2017 2018

WINE PRODUCTION

WINE CONSUMPTION

MIL

LIO

N h

L

VINTAGE

Source: OIV 2018, Ciatti Estimates

GLOBAL SUPPLY / DEMAND

CIATTI

Source: OIV 2018, Ciatti Estimates

GLOBAL WINE PRODUCTION BY COUNTRY

0

200

400

600

800

1,000

1,200

1,400

1,600

France Italy Spain Argentina Australia Chile China South Africa USA

2011 2012 2013 2014 2015 2016 2017 20182011 – 2016

CIATTI

MIL

LIO

N G

ALLO

NS

Source: OIV 2018

GLOBAL GRAPE ACREAGE

7.5 MILLION HA

CIATTI

(18.5 million acres)

Source: OIV 2018

GLOBAL ACREAGE TRENDSCOUNTRY 2013-17 % ∆ COMMENTS

SPAIN -1% HIGHER PRODUCTIVITY

FRANCE -1% REMOVED YIELD RESTRICTIONS – VDF APPELLATION

ITALY -1%

CHINA +15% WINE GRAPE PLANTING SLOWING 11% GRAPE VARIETIES

USA -3%

ARGENTINA -1% MORE REMOVALS EXPECTED

CHILE +4% CABERNET SAUVIGNON, SAUVIGNON BLANC, MERLOT, PINOT NOIR

AUSTRALIA -8% TREND COULD REVERSE GIVEN DEMAND?

SOUTH AFRICA -6% DROUGHT ISSUES

NEW ZEALAND +4% SAUVIGNON BLANC, PINOT NOIR

CIATTI

Source: OIV 2018

GLOBAL WINE CONSUMPTION TRENDS

CIATTI

0

5

10

15

20

25

30

35

USA France Italy Germany China UK Spain Argentina Russia Australia

Chart Title

2010 2011 2012 2013 2014 2015 2016 20172010 – 2016

MILL

ION

hL

vQUALITY CONTINUES TO IMPROVE, ESPECIALLY ON THE HIGH END

v STRONG PLAYER IN CS, ME, PN, AND SB FOR US MARKET

v FREE TRADE WITH MOST COUNTRIES

CHILE�14 �15 �16 �17 ’18

1.5 M 2.0 M 1.5 M 1.4 M 2.0 M$ / GAL. DLVD TREND

CABERNET SAUVIGNON $3.00 – 4.10 ↓MERLOT $3.10 – 4.20 ↓CHARDONNAY $3.60 – 4.20 ↓PINOT NOIR $4.10 – 5.10 ↓

CIATTI

AUSTRALIA

v EXPORTS TO CHINA AND THE UK ARE KEY DRIVERS OF GROWTH

v CHARDONNAY AND PINOT GRIGIO IMPACT US MARKET

v BULK PRICES HAVE REMAINED STRONG

v 2019 HARVEST LOOKS GOOD – WATER BECOMING AN ISSUE AGAIN

�14 �15 �16 �17 ’181.9 M 1.8 M 2.0 M 2.1 M 2.0 M

$ / GAL. DLVD TRENDCHARDONNAY $3.20 – 3.60 ↓SHIRAZ $4.60 – 5.10 ↔PINOT GRIGIO $3.75 – 4.25 ↓

CIATTI

FRANCE

v BULK BUYER ACTIVITY LIMITED AS EUROPEAN BUYERS MOVE TO SPAIN

v PRICES HAVE WEAKENED, BUT PREMIUM AREAS ARE STABLE

v PROVENCE ROSÉ REMAINS IN DEMAND BUYERS MOVED TO OTHER AREAS

v STRONG EXPORTER TO CHINA

�14 �15 �16 �17 �18 Est.

7.2 M 7.3 M 6.9 M 5.6 M 7.1 M$ / GAL. DLVD TREND

CHARDONNAY $5.10 – 6.00 ↓CABERNET SAUVIGNON $4.85 – 5.90 ↔MERLOT $4.70 – 5.55 ↔ROSÉ $4.70 – 6.00 ↔

CIATTI

ITALY

v BULK MARKET SLOW TO DEVELOP

v LOW ALC/ENTRY LEVEL WINES UNDER PRICING PRESSURE FROM SPAIN, WITH SOME QUALITY CONCERNS

v HIGH QUALITY DOC AREAS – DEMAND AND PRICING RELATIVELY STABLE

v PROSECCO CONTINUES TO GROW ESPECIALLY INTO THE US

v BULK ORGANIC WINE EXPERIENCING STRONG DEMAND

�14 �15 �16 �17 �18 Est.

6.8 M 7.7 M 7.8 M 6.0 M 7.4 M$ / GAL. DLVD TREND

CHARDONNAY $3.85 – 5.10 ↓CABERNET SAUVIGNON $4.05 – 5.25 ↓MERLOT $3.85 – 5.10 ↓PINOT GRIGIO $5.10 – 6.00 ↓

CIATTI

SPAIN

v FOCUSED ON GENERIC MARKET

v MAJOR BULK SUPPLIER TO THE EU AND CHINA

v LEADING ACTIVITY OVER OTHER EUROPEAN BULK SUPPLIERS GIVEN PRICING

v DEMAND DEVELOPING FOR VALUE ROSÉ’S AND ORGANICS INTO EUROPE

�14 �15 �16 �17 �18 Est.

6.7 M 6.4 M 6.4 M 5.4 M 6.3 M$ / GAL. DLVD TREND

CHARDONNAY $4.25 – 5.05 ↓

CABERNET SAUVIGNON $3.75 – 4.40 ↓

GENERIC RED/WHITE $2.75 – 3.50 ↓

CIATTI

v ITALY/SPAIN GROWING – COULD THIS CONTINUE?

v USA REMAINS THE MOST DESIRABLE AND PROFITABLE MARKET

v CHINA’S ECONOMIC CHANGES COULD AFFECT WINE CONSUMPTION GROWTH

v UK – BREXIT UNKNOWN EFFECT FOR U.S. SUPPLIERS

v ALL MARKETS WILL GET MORE COMPETITIVE

CIATTI

FUTURE CONSUMPTION GROWTH?

Source: CA Wine Institute, Gomberg Fredrickson, BW 166, SVB CIATTI

NON-GROWING US WINE CONSUMPTION?M

ILLIO

NS O

F GA

LLON

S

CIATTI

THE GREATEST CONSUMING NATION WE ARE STILL THE TARGET

CIATTI

IMPORTS STILL GAINING

PERC

ENT

MAR

KET

SHAR

E

CIATTI

THE MARKET HAS CHANGED!vGLOBAL AND U.S. GROWTH SLOWING?

vWINE IS READILY AVAILABLE AROUND THE WORLD

vBUYERS ARE CAUTIOUS

vSELLING GRAPES & BULK WINE WILL BE MORE CHALLENGING

CIATTI

ADAPT TO THE CHANGEvADJUST YOUR EXPECTATIONS

vMANAGE INPUTS AND ASSETS TO MAINTAIN PROFITABILITY

vDEVELOP A STRATEGY :

- SHORT TERM – ADAPT and ADJUST

- LONG TERM – PROSPERITY and PROFITABILITY

CIATTI

GLOBALLY THINKING

Source: OIV 2018

WINE TRADED INTERNATIONALLY / GLOBAL WINE CONSUMPTION

CIATTI

QUESTIONS WE NEED TO ANSWER!v ARE WE A VALUE TO THE CONSUMER

v MILLENNIALS - HOW DOES THE WINE INDUSTRY CAPTURE THEIR ATTENTION

v CAN WE DEVELOP NEW AND INNOVATIVE PRODUCTS TO UTILIZE THIS AVAILABLE SUPPLY

v CAN WE GROW BY TAKING MARKET SHARE FROM OTHER ALC BEVERAGES (CRAFT BEER AND SPIRITS), IMPORTS, AND EXPAND EXPORTS

v HOW DO WE BECOME MORE INNOVATIVE AND COMPETITIVE

CIATTI

FINAL THOUGHT

DON’T BE FEARFUL

TODAY’S CHALLENGES ARE TOMORROW’S OPPORTUNITIES

PUT ON YOUR BOOTS AND GET TO WORK

Subscribev CALIFORNIA MARKET REPORT v GLOBAL MARKET REPORT

201 ALAMEDA DEL PRADO SUITE # 101NOVATO, CA 94949

THANK YOU

GLENN PROCTORGLENN@CIATTI.COM

415/458-5150