1. Allied Grape Growers, 2015. All rights reserved. ASFMRA Outlook 2015 Agribusiness Conference Change in the Wine Business Jeff Bitter Allied Grape Growers April 17, 2015

2. Allied Grape Growers, 2015. All rights reserved. Presentation: Laying the Foundation & Segmenting the Business…… In order to identify trends (changes) and draw conclusions (direction).

3. Allied Grape Growers, 2015. All rights reserved. Laying the Foundation Acreage & Grape Supply

4. Allied Grape Growers, 2015. All rights reserved. Laying the Foundation Acreage & Grape Supply * *2015 non-bearing acreage includes an assumption that approximately 20,000 acres will be planted this year.

5. Allied Grape Growers, 2015. All rights reserved. Laying the Foundation Will new acres produce a multi-year surplus? Are we repeating the early 2000s? -Larger acreage base today -Quicker grower reaction to excess -Less speculative planting

6. Allied Grape Growers, 2015. All rights reserved. Laying the Foundation We have observed many new plantings statewide, BUT………..

7. Allied Grape Growers, 2015. All rights reserved. Laying the Foundation ……now we are beginning to see significant removals in the interior.

8. Allied Grape Growers, 2015. All rights reserved. Vineyard Removals It is primarily a SJV phenomenon. It may be a very tough decision based on vineyard age. The ground is not being replanted to grapes. Removal Data – From Observation and Public Records 30,000+ grape acres (20,000+ winegrapes) are estimated to be pulled out this winter in the SJV. During the 2014 calendar year the amount of vineyard removals tripled over that recorded in each of the five previous years. It is likely removals will continue at the current pace thru Spring, and even into next year, as growers plan to plant alternative crops. Laying the Foundation

9. Allied Grape Growers, 2015. All rights reserved. Laying the Foundation Assuming attrition rates of 2% coastal and 6% interior, We are forecast to produce along the demand trendline.

10. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business

11. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business <$10 – Everyday Wines – (The “Value” Category) The backbone of the industry Highly competitive (not only within the wine business, but among competing beverage industries) The bottom end of this segment has been declining in volume for decades Generally characterized by higher volume/lower margin Limited differentiation Lower portions of this segment may exist due to oversupplies of wine worldwide Competing interest – production agriculture Geographically – the interior regions (Grapes <$1,000/ton) Bottle Prices: Less than $10 / $10-20 / and above $20

12. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business $10-20 - Premium Segment (The “Mid” Category) Seemingly more mainstream to the U.S. consumer Consumer confidence and value are keys to success Grape buyers looking to average down their cost Growers challenging the paradigm of low-yield = high quality Geographically – coastal regions (Grapes $1,000-2,000/ton) Bottle Prices: Less than $10 / $10-20 / and above $20

13. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business >$20 - Luxury Segment (The “High” Category) Based on discretionary income Highly differentiated; provides unique experience Limited land & unique sites (grape growing/marketing) Ultimate place in the business for differentiation Grants the most ability to invest in quality & pass along cost Geographically – Very specific coastal areas (Grapes >$2,000/ton) Bottle Prices: Less than $10 / $10-20 / and above $20

14. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business Essentially, the California Coast Range is the geographic line that represents the +/- $10/bottle pivot point in the market. <$10 >$10 = <$10 = $10-20 = >$20

15. Allied Grape Growers, 2015. All rights reserved. Lodi – 12/14 Madera – 01/15 Is over-production limited to the interior regions? What Happened? Imports Large Crops/Ample Supply Shipment/Supply Imbalance Segmenting the Business Value Category

16. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business Value Category

17. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business

18. Allied Grape Growers, 2015. All rights reserved. Supply Potential - All Wine

19. Allied Grape Growers, 2015. All rights reserved. In Summary Market growth is currently at the upper end of the market. This is a prime opportunity to differentiate “California” and move up the price ladder; not just for the interior, but for all production areas of the state.

20. Allied Grape Growers, 2015. All rights reserved. For more information, visit us at: alliedgrapegrowers.org