1. OIV Paris Apr 2015 Personal presentation and my view of the German Wine Market Prof. Dr. Marc Dressler, MBA OIV Paris April, 2015

2. OIV Paris Apr 2015 Global Wine Market German Wine Market 2 How to provide the picture of the German wine market in 10 minutes? Summary of my personal view production supply structures production supply structures consumption demand cluster consumption demand cluster export import trends competition distribution (channels) distribution (channels) strategic landscape strategic landscape

3. OIV Paris Apr 2015 3 The German wine market … „is flat“ German wine market

4. OIV Paris Apr 2015 4 The German wine market … „is flat“ – production capacity at about 100.000 hectares German wine market - production

5. OIV Paris Apr 2015 5 The German wine market … „is flat“ – stable wine consumption German wine market - consumption

6. OIV Paris Apr 2015 6 Is it „flat“? – let´s dive beneath the surface to explore the iceberg German wine market Competition Positioning Trends Demand Supply Production/ Consumption

7. OIV Paris Apr 2015 7 Fluctuation in production – high yield but low predictability Volatility differs also in different wine regions Source: DWI, Deutsche Weinstatistik 2013/2014 Ahr Baden Frankonia Hess. Bergstraße Mittelrhein Mosel Nahe Palatinate Rheinhau Rheinhessen Saale-Unstrut Saxonia Württemberg Germany Production

8. OIV Paris Apr 2015 8 A significant crowding out Structural change in the German Wine Industry Source: BMELV 2011 (acquisition of structual data every 10 years) 48.009 68.603 89.471 -46% Competition

9. OIV Paris Apr 2015 Despite structural changes, still a fragmented industry of small entrepreneurs Wine producers in Germany Total winegrowing estates 48.009 Total vineyard area 102.434 ha 12%70% 69%9% Competition

10. OIV Paris Apr 2015 … and joint, centralized production, marketing and sales … produced and marketed by „cellars“ Independent producers, covering the whole value chain Cooperatitves, with members „growing“ Independent bulk/crop production … 10 Three different types of providers with equal market contribution … but different approaches Competition

11. OIV Paris Apr 2015 Positioning 11 But a lot of positioning in the center – still a product centric industry Strategic landscape winegrowing estates* Source: Strategypanel 2013 // * wineries and cooperatives Quality Price- value Premium Competitive advantage Scope Whole market Niche DistinctivenessCosts Cost Leadership Niche player wine- cellars Import Positioning

12. OIV Paris Apr 2015 12 Producers are aware of the need to change … Main driving forces in wine industry Source: Strategypanel 2012 most– other industries least – other industries trends

13. OIV Paris Apr 2015 13 Despite possibly profiting from megatrends, customer changes are a big challenge Environment in a nutshell 1.Globalization 2.Demografic changes 3.Technological progress 4.Virtualization 5.Cultural changes 6.Climate changes 7.Urbanization Megatrends Loyality „Grip on client“ Fluctuation Efforts (marketing/sales) Efforts (marketing/sales) Orders/Volume MeConomy Simpli- Formance Mobile Community Sustainability Convenience Freedom& Own efficiency Clients Buz impact trends

14. OIV Paris Apr 2015 14 A portfolio of measures, dominated by product centric activities Measures to reach customers and to differentiate in the market Source: Strategypanel 2012 trends

15. OIV Paris Apr 2015 15 Complex buying behavior results in demanding multi-channel-distribution Distribution of wine in Germany Source: Strategypanel 2013 /* including cooperatives

16. OIV Paris Apr 2015 16 … strategically not easy due to power of retail and thereby imported products Quellen: Handelsblatt 19.10.15 sowie Weinwirtschaft Newsletter 16.10.15

17. OIV Paris Apr 2015 Despite competitive challenges and changing demand can German wineries improve in prosperity Earnings of wineries (before interests on equity and employers´ salaries) Quellen: Dr. Oberhofer in DDW, diverse Artikel

18. OIV Paris Apr 2015 - 9.000 € + 30.000 € Quelle: Agrarbericht 2014 Earnings of wineries (before interests on equity and employers´ salaries) We currently sense a rotation of profitability by regions …

19. OIV Paris Apr 2015 Where managing the structural changes apparently matters Structual landscape of German wine production regions Produktivity (hl/ha) Efficiency (ha/winery)

20. OIV Paris Apr 2015 Indeed, efficiency and professionalism drive the German wine profitability Source: Agrarbericht 2014

21. OIV Paris Apr 2015 Additionally, ownership strongly impacts profitability 21 Eigene Berechnungen aus unterschiedlichen Datenquellen; primär Weinführer

22. OIV Paris Apr 2015 A « full picture » from production to consumption: complex, changing, attractive 22 Total Wine Sales 17,7 Mill. hl Internet 0,3 Mill. hl Hospitality 3,1 Mill. hl Wine Shops 1,2 Mill. hl Supermarkets 5,1 Mill. hl Discounters 5,7 Mill. hl German Wine Production 9 Mill. hl German Wine Production 9 Mill. hl German Wine Import 15,5 Mill. hl German Wine Import 15,5 Mill. hl German Wines 7,2 Mill. hl International Wines 10,5 Mill. hl Retail in total 12 Mill. hl Direct sales national 2,4 Mill. hl Direct sales national 2,4 Mill. hl Direct sales international 0,2 Mill. hl Direct sales international 0,2 Mill. hl winecellars - wholesaling Export 4 Mill. hl Export 4 Mill. hl

23. OIV Paris Apr 2015 23 The German is not „flat“: attractive, but conquering the market is certainly a challenge Summary Despite stable production capacity and comparatively high yields … => Volatility high => Competition intense => Positioning important Consumption, stable but … => Explorative consumers: open-minded and curious for wines from all over the world => Changing customer landscape => Decreasing loyalty Market very competitive on quality and on price, but characterized overall by an increasing profitability where ancient “underperformers” can turn out to be “outperformers” The business model, efficiency and professionalism are key to success Despite stable production capacity and comparatively high yields … => Volatility high => Competition intense => Positioning important Consumption, stable but … => Explorative consumers: open-minded and curious for wines from all over the world => Changing customer landscape => Decreasing loyalty Market very competitive on quality and on price, but characterized overall by an increasing profitability where ancient “underperformers” can turn out to be “outperformers” The business model, efficiency and professionalism are key to success

24. OIV Paris Apr 2015 Thank you for your kind attention The German Wine Market