1. Macro-trends in the California Wine Business Segmenting the wine business and identifying threats and opportunities. Jeff Bitter Allied Grape Growers October 21, 2015

2. Quality, Integrity, Stability

3. Production vs. Shipments Includes estimated vineyard attrition rates for 2016 & 2017.

4. California Wine Shipment Trends Chart Source: The Gomberg Fredrikson Report

5. Segmenting the Business

6. 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

7. 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

8. 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

9. 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

10. Industry Observations We have observed many new plantings statewide, BUT………..

11. ……now we are beginning to see significant removals in the interior. Industry Observations

12. Lodi Madera What Happened? Imports Large Crops/Ample Supply Shipment/Supply Imbalance Industry Observations

13. Imports Chart Source: The Gomberg Fredrikson Report

14. Acreage & Grape Supply

15. Wine Industry Trivia To the nearest quarter of a ton, what does the average winegrape vineyard yield per acre in California? (according to Allied Grape Growers)

16. Supply Trends

17. Demand Value Category

18. Industry Update The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success:

19. Industry Update The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy

20. Industry Update

21. The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy Foreign competition Foreign competition

22. Industry Update The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy Foreign competition Foreign competition Categorical competition Categorical competition

23. Industry Update

24. Craft Beer

25. Beer Trends from CNBC.com "Over the last couple of years, the number of new brewery openings has been at near unprecedented levels," said Bart Watson, Ph.D., staff economist at Brewers Association, a craft beer industry group. "We're seeing breweries open at about a rate of 1.2 per day.“ Craft breweries have a few things working in their favor, perhaps the most important of which is a customer base that's financially well off. Nielsen reports that 58.9 percent of craft beer drinkers have annual incomes of $75,000 or more.

26. Competition Grows Craft beer grew by 16% this year so far – Brewer’s Association Craft beer grew by 16% this year so far – Brewer’s Association Cider shipments are up by about 13% for this first half of the year – GF Report Cider shipments are up by about 13% for this first half of the year – GF Report

27. Industry Update The California wine industry remains strong, but there are threats to our success: The California wine industry remains strong, but there are threats to our success: Dependence on Economy Dependence on Economy Foreign competition Foreign competition Categorical competition Categorical competition Costs of business and the scarcity/price of resources Costs of business and the scarcity/price of resources

28. Industry Update

29. There are not only threats, but also opportunities, before us: There are not only threats, but also opportunities, before us: There’s more consumption of wine today than ever in the U.S. There’s more consumption of wine today than ever in the U.S.

30. Industry Update

32. The California wine industry remains strong, and we do have opportunities before us: The California wine industry remains strong, and we do have opportunities before us: There’s more consumption of wine today than ever in the U.S. There’s more consumption of wine today than ever in the U.S. Millennial generation is significant. Millennial generation is significant.

33. Industry Update

35. The California wine industry remains strong, and we do have opportunities before us: The California wine industry remains strong, and we do have opportunities before us: There’s more consumption of wine today than ever in the U.S. There’s more consumption of wine today than ever in the U.S. Millennial generation is significant. Millennial generation is significant. Mid/high price segments are on fire, experiencing very strong growth. Mid/high price segments are on fire, experiencing very strong growth.

36. Segmenting the Business

37. Thank you for your attention Jeff Bitter Allied Grape Growers October 21, 2015