Wine Import Analysis – Team 8 Bret Allen Melanie Bisson David Dickel Jared Johnson Elizabeth Taylor

Wine Industry US wine demand is $20 Billion. $5.7 Billion is imported (2016). France, Italy, Spain are considered Tier 1 wine exporting countries. The highest quality and most expensive wine, in general, comes from these countries. Australia, New Zealand, and Argentina are considered Tier 2 wine exporting countries. Source: IBISWorld Global Wine Manufacturing November 2016

Import Market The largest import markets are United States, United Kingdom, Germany, and China. Demand for wine is related to the consuming country’s GDP and is highly dependent on consumer disposable income. Factors that affect consumer disposable income are savings, unemployment rate, employment levels, interest and tax rates. Source: IBISWorld Global Wine Manufacturing November 2016

Industry Players 10% market share comes from large conglomerates like Diageo, Constellation, and LVMH. Larger companies have improved their product portfolios through brand acquisition and can negotiate well with retailers. In contrast, the smaller wineries are often looking for places to distribute their product on a local level. The profit margin for the industry averages ~12%. Source: IBISWorld Global Wine Manufacturing November 2016

Key Industry Performance Indicators Economic Country Indicators Country GDP: USA, France, Italy, Spain Trade Figures – Import/Export/FDI Unemployment Rates Demographics – Consumer Profile Savings Rate Tax Rates Industry Trend/Forecast Supply – Buyer’s/Seller’s Market Demand – Internal/External Split Business Financials: Growth Trends, Competitive analysis Critical Issues/Business Challenges Trade regulations – Shipping/Tax/Local Laws Environment – Weather/Land/Pests/Land Capital Costs – Equipment/Labor/Materials Consumption habits Industry Opportunities Traditional varieties/fusion flavors

Wine Industry Performance Indicators A high correlation exists between levels of consumer income and the amount spent on wine. During the late 2000s recession, demand for premium wines decreased. Americans consumed the same amount of wine, but changed to less-expensive brands. As the economy improves, many consumers are trading up to brands at higher price points. Sales of premium wines priced above $20 per bottle rise and producers raise prices in response to growing demand. Meanwhile, fewer consumers are buying wines that cost less than $10 a bottle, putting downward pressure on prices in the value segment. Source: IBISWorld Global Wine Manufacturing November 2016

US Wine Demand & Key Indicators Economic and Industry Indicators US Market 2016 US wine demand was 1.1B gallons and grew 3.8% over the past 10 years Considerable increase in year-over-year demand in 2011 at 10.4% likely as a result of the US economic recovery from the 2007-2008 recession started to take hold

US Wine Demand & Key Indicators Economic and Industry Indicators US Market Key indicators relationship to US wine demand by volume shows strong relationship to disposable personal income with a correlation of 0.94 Disposable income growth is projected to track evenly with Gross Domestic Product at 2.2% CAGR from 2006 to 2021

US Wine Demand & Key Indicators The Tier 1 and Tier 2 Countries correlate very different with GDP TIER 2 TIER 1 France, Spain and Italy are premium wines and generally more expensive Australia, New Zealand, and Argentina are generally less expensive wines US imports of wine were 320 million gallons in 2016, with a valued of $5.7 billion Imports by volume represented 30% of demand, while exports accounted for 13% of domestic production France represents 42% of imports which declined sharply in 2009 as the recession took hold French wine tops the list of countries for premium wine in taste and price and is impacted greater in a recession with the availability of lower priced substitutes (show regression of GDP and YoY change) French imports had the most dramatic YoY drop in 2009 of 27% with Spain and Italy at 15% and 8% respectively

Year over Year Growth – Tier 1 Countries YoY Growth 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Correlation GDP | United States 1.8% -0.3% -2.8% 2.5% 1.6% 2.2% 1.7% 2.4% 2.6% Tier 1 | France, Italy, Spain 7.8% -3.8% -19.2% 4.0% 14.1% 6.7% 3.8% 4.3% r2 0.83 Tier 2 | Australia, New Zealand, Argentina 8.1% -6.7% -1.0% 3.1% -0.1% 6.0% -4.6% -5.4% -4.7% -0.54

Cumulative Growth – Tier 1 Countries 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP | United States 1.8% 1.5% -1.3% 1.2% 2.8% 5.1% 6.8% 9.4% 12.2% 14.0% Tier 1 | France, Italy, Spain 7.8% 3.7% -16.2% -12.8% -0.5% 1.9% 8.7% 12.8% 14.8% 19.8% Tier 2 | Australia, New Zealand, Argentina 8.1% 1.4% 0.4% 3.5% 3.3% 9.3% 4.7% -0.6% -0.7% -5.5%

Year over Year – Tier 2 Countries YoY Growth 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Correlation GDP | United States 1.8% -0.3% -2.8% 2.5% 1.6% 2.2% 1.7% 2.4% 2.6% Tier 1 | France, Italy, Spain 7.8% -3.8% -19.2% 4.0% 14.1% 6.7% 3.8% 4.3% r2 0.83 Tier 2 | Australia, New Zealand, Argentina 8.1% -6.7% -1.0% 3.1% -0.1% 6.0% -4.6% -5.4% -4.7% -0.54

Cumulative Growth – Tier 2 Countries 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP | United States 1.8% 1.5% -1.3% 1.2% 2.8% 5.1% 6.8% 9.4% 12.2% 14.0% Tier 1 | France, Italy, Spain 7.8% 3.7% -16.2% -12.8% -0.5% 1.9% 8.7% 12.8% 14.8% 19.8% Tier 2 | Australia, New Zealand, Argentina 8.1% 1.4% 0.4% 3.5% 3.3% 9.3% 4.7% -0.6% -0.7% -5.5%

US Wine Demand & Key Indicators

CONCLUSION When GDP increases, people purchase more expensive wine. When GDP decreases, people continue to purchase wine but drink less expensive brands.

DB 1: US GDP vs. Wine Demand Tier 1 Wine Year-over-Year Demand “More Expensive Wine Imports” Tier 1 Wine Cumulative Demand “More Expensive Wine Imports” Tier 2 Wine Year-over-Year Demand “Less Expensive Wine Imports” Tier 2 Wine Cumulative Demand “Less Expensive Wine Imports”

DB 2: US Unemployment vs. Wine Demand Tier 1 Wine Year-over-Year Demand “More Expensive Wine Imports” Tier 1 Wine Cumulative Demand “More Expensive Wine Imports” Tier 2 Wine Year-over-Year Demand “Less Expensive Wine Imports” Tier 2 Wine Cumulative Demand “Less Expensive Wine Imports”

DB 2: US Income (per capita) vs. Wine Demand Tier 1 Wine Year-over-Year Demand “More Expensive Wine Imports” Tier 1 Wine Cumulative Demand “More Expensive Wine Imports” Tier 2 Wine Year-over-Year Demand “Less Expensive Wine Imports” Tier 2 Wine Cumulative Demand “Less Expensive Wine Imports”

Wildcard Slide

Appendix

US GDP | Matrix Calculation Methodology 2009 GDP Base Year, Manufacture Imports 2009 CPI Adjusted

US Unemployment Rate | Matrix Calculation Methodology Manufacture Imports 2009 CPI Adjusted

US Income (per capita) | Matrix Calculation Methodology 2009 Income Base Year, Manufacture Imports 2009 CPI Adjusted