葡萄酒行业报告英文版

Standardizationofsanygroup#QS8QHH-HHGX8Q8-GNHHJ8-HHMHGN#葡萄酒行业报告英文版StateoftheWineIndustry2017WrittenbyRobMcMillan,EVPandFounderSiliconValleyBankWineDivisionContentsIntroduction7NoLifeguardonDuty.2SwimatYourOwnRisk.LandandM&A361OurPredictionsinReview48Shi46ImprovingEconomics292017SummaryForecast10WineryFinancial54Performance3Premiumizationand14RestaurantSales10FinalThoughts624Endnotes64VarietalDemand225HarvestYieldandQuality26AboutSiliconValleyBank67Disclosures696BulkWineandImports32Introduction2NoLifeguardonDuty.SwimatYourOwnRisk.“There’sbloodinthewater!”Thatominousphrasestrikesfearinswimmersthroughouttheworld.Butinbusiness,itmeansamarketopportunityexposedbyachangingtide.Thatbloodinthewatercouldbeabuyer’smarket?oodedwithpredatorybargainhuntersschemingtofeastonthecarcassesoftheweak.Oritcouldbeaseller’smarketburstingwithschoolingchalleng-ers,eachvyingforafewhighlydesirableassets.Ineithercase,theensuingfeedingfrenzyleadstoeitherexaltordemiseforparticipants.Weleadthisyear’sreportwithareminderthatwhilemarketconditionsappearstronginplaces,somemarketcomponentsareweakeninganddangerous,andstillothersareoverheatingascurrentsofchangegainmomen-tum.Onceagain,“average”isnotausefultermwhendescribingthewinebusiness.Youneedtolookbelowthesurfacebecausewhatyouseeontopbeliesrisksthatlurkinthedepths.In1975,the.winebusinesswasstillconsideredabackwater—quietbutsoontomakesomebigwaves.ItwastheyearbeforethehistoricJudgmentofParis1thatopenedtheeyesoftheworldtopremiumCaliforniawines.Newsofthatseminaleventcausedripplesthroughallproducingregions,rearrangingtheworldviewof?newine2andsettingthestageforunabatedgrowthinpremium.salesfordecadestofollow.1975wasalsotheyeartheblockbuster3movie“Jaws”wasStarringRoyScheider,RobertShawandRichardDreyfuss,the?lmwasaboutthesmallvacationislandofAmitythatseeminglyhadeverything:clearskies,gentlesurfandwarmwater.People?ockedthereeverysummer,makingittheperfectfeedinggroundforamaraudinggreatwhiteshark.Withalittlecreativelicense,weareusingthemovie“Jaws”asametaphortodescribetheups,downsandhid-denthreatsinthe.winebusiness.Youmightask,whywouldaseriousbusinessreportuseapopularmovieasametaphorIt’ssomethingwedoforfuntomakealongbusinessreportmorereadable.Byreading,wehopeyoucatchafewideasandavoidunforeseenbusinessrisk.Ifthereisbloodinthewater,wedon’twantittobeyours!Weinviteyounowtomakereadyandcasto?aswepresentSiliconValleyBank’sannualreviewanddiscussionofandpredictionsforthe.winebusinessin2017.?31TomCassidy:What’syournameagainChristine“Chrissie”Watkins:Chrissie.TomCassidy:Wherearewegoing？Christine“Chrissie”Watkins:Swimming!4OurPredictionsinReviewChrissieopenedthemovierunningtowardthemoonlitsurf,peelingo?herclotheswhilecoaxingherinebriatednewmalefriendtofollow.Clearlynother?rstencounterwiththatsectionofocean,sheseemedexpertinhersubjectmatterandcon?dentlypredictedtoheracquaintancethatthewaterwouldbe?ne.Sadly,Chrissie’soceanforecastmissedvitalanalyticcomponentsandhadundesiredconsequenceswhentheshark,risingupfromthedepths,struckherwithsuchforcethatsheappearedtobeanoceangoingragdollstuckinsideabigWaringblender.Obviously,thepredictionaboutthewaterbeing?neisoneshewouldhavelikedtorethink.?Withthetransactionswesawinthequeue,wesaidwewouldstarttheyearwithsomelargeandnotablesalesofpremiumvineyardsandwineries.Mergersandacquisitions(M&A)wouldremainactivethrough-outtheyear.?TensofthousandsofadditionalgrapeacreswouldbepermanentlyremovedfromCalifornia’sCentralValley.Wehavebeenresearchingthewinebusinesssince1991andmakingpredictionsformorethanadecade.Someyears,weproperlycharacterizeamarketchangeandcoaxothersintothedeepend.Inotheryears,weissuebeachwarningsandcautionmarketparticipantsaboutloomingrisks.Onrareoccasions,our?ndingsmightbeo?intimingorevenwrong,5butwealwaysreviewtheforecastsmadetheprioryearjusttomakesurethatnooneendedupbeing?shbait.Inparticular,thisyearakeyassumptionwegotwrongsetupabroaderdiscussionofthemarket.Hereiswhatwesaidinlastyear’sreport.?Astrongandstrengthening.dollar,availableforeignsupplyandwillingmillennialswouldencourageimportsatallpremiumpricelevels.?Growingmarketshareofbottledimportsshouldbeaheightenedconcernof.producers.?Thenarrowingsupplyofarablelandsuitableforhigher-endwineproductionwoulddrivevineyardpricesupward.?OregonandWashingtonwouldcontinuetoseehighinterestforvineyardacquisitionforpremiumandluxurywineproduction.Wine-Speci?cPredictions?Weforecastedasalesgrowthrangeof9to13percentforthepremiumwinesegmentin2016,downfrom14to18percentin2015.?Weexpectedtoseebottlepricesriseby4to8percentabovethe$10pricepointandbothvolumeandpricetodropbelowthe$8bottleprice.→?Growinglocalregulationsaroundtourismwouldcontinuetodamageopportunitiesforsmallwineriestoselldirect.5OurPredictionsinReviewcontinuedSupply?OurguessfortotalharvestinCaliforniain2016wasmilliontonscrushed,whichwouldhavebeenabout8percentlowerthanthemilliontonscrushedin2014.?Wesaidworldwidesupplywasbeginningtocreepupintouncomfortablyfamiliarterritory,particularlyintheEuropeanUnion.Areaundervinewasincreasing,whileworldandEUpercapitaconsumptionwasdecreasing.?Wenotedthatgrowthinrestaurantwinesalesfelldramaticallyin2015acrossallpremiumpricepoints.Weexpectedthattostabilizein2016.?WesaidtheGenXcohortwouldsurpassthebabyboomersaround2021tobecomethelargest?newineconsumerdemographicintheUnitedStates.Wealsosaidthatashort?veyearslater,by2026,millennialswouldsurpassGenXerstobecomethelargest?newine–consumingcohort.?Wesaidqualitywasexcellent,butsomearea-speci?cchallengeswouldbenotedfromsetissuesinthespring.Harvestwasearlyeverywhere.ThecropsizewasaverageintheSanJoaquinValleyandlightelsewhere.?WenotedthatOregon’sharvestwasearly,hugeandanotherconsecutive“VintageoftheDecade.”?OurearlyreadonWashington’sharvestsuggestedthatitwouldbesimilartoOregon’sintimingandqualitybutmoreofanormalyield.?Theyoungconsumerwasgivingblendsachanceand,fromourview,takingapagefromthematurecohort,whoplacedtheirtrustinbrandvs.varietal.Thathasimplicationsforproducersthathaveleanedonvarietallabelingtodevelopabrandidentity.?Wenotedthatthelowest-pricegenericsegmentthatappealedtoentry-levelconsumersofthe1960shadpermanentlylostitsappeal.Accordingtowinebrokerswithwhomwe’vespoken,producingcountriesareshowingnointerestinthatsegmenttoday.Demand?Percapitaconsumptionofwine(casevolumedividedbypopulationgrowth)intheUnitedStateswouldtemporarilyreversetrendasmillennials,whoconsumemorecrababyboomers,giventhelargerconsumerfocusplacedonpremiumvs.genericsalesoverall.?Wewouldseedeclineandstagnationinwinesoldbyvolume,asthepremiumizationtrendpersistedandwinebyvolumecontinuedtolosefavor.The$3to$6segmentappearsmostatrisk.→?Wesaidthatmillennialswerebeginningtoa?ectthelowerpricerangeofpremiumsales.Theyweremostvisibleinthe$8to$14redblendcategorybutwouldtrendhigherastheirincomesallow.Producingcountriesareshowingnointerestinthegenericwinesegment.?Wenotedthatmillennialsaremoreopentoworldwinescomparedwithbabyboomersatthesametimeintheirpalateevolution.6Shark?shinghasacertainriskattachedtoit,asdoesforecastingfuturebusinessconditions.Sometimesallthecorrectpreparationstillresultsinmissingthedesiredtargetandpullingupanoldboot.Thispastyear,wereeledinvirtuallyallofourforecasts,buttherewasonebigonethatgotaway.Whatwegotwrong...andhereiswhy…PercapitaconsumptionofwineintheUnitedStateswouldtemporarilyreversetrendasmillen-nials,whoconsumemorecrabeganreplacingretiringbabyboomers,giventhelargerconsumerfocusplacedonpremiumvs.genericsalesoverall.NielsenscandatathroughNovember2016showthattotalwinecasegrowthwasuppercent,whileestimatesfromtheWorldBankshowthatthe2016.populationwillendtheyearlargerbypercent.Withcasedvolumegrowthexceedingpopulationgrowthbyabout1percent,totalpercapitawineconsumptionwasactuallyslightlyhigheryearoveryearin2016,andwehavetocallthatamissedWhatwegotclose...andhereiswhy…Astrongandstrengthening.dollar,availableforeignsupplyandwillingmillennialswouldencourageimportsatallpremiumpricelevels.Thedollardidindeedstrengthen,butdomesticsalesgainedslightlyoverforeignmarketsharebypercent.Intheimportcategory,Franceinparticularhashadaverystrongyearduetoroséexports.OurguessfortotalharvestinCaliforniain2016wasmilliontonscrushed.Closeguess,butthe?nalnumbercameinatmillionWhatwegotright...andhereiswhy…Weforecastedasalesgrowthrangeof9to13percentforthepremiumwinesegmentin2016.Weexpect?nalsalesgrowth?gurestocomeinatabout10percentfor2016whenthe?nalnumbersarecalculated.SVBPeerGroupDatabaseinfor-mationshowsyear-to-datesalesgrowththroughSeptemberofpercent.RespondentstotheSVBStateoftheIndustrySurveyexpectyear-endsalesgrowthof7OurPredictionsinReviewcontinued30KgrapeacreswillberemovedinCalifornia’sCentralValleyby2018.Whatwegotright...continuedandhereiswhy…Growinglocalregulationsaroundtourismwouldcontinuetodamageopportunitiesforsmallwineriestoselldirect.ThiswasparticularlytrueinSantaBarbara,SonomaandNapacounties,withSantaBarbaraCountydemonstratingthemostrestrictiveanddamagingregulatoryclimate.,exceptforsomegrandfatheredwineries,tastingatawineryisessentiallynotallowedinSantaBarbara).Wewouldstarttheyearwithsomelargeandnotablesalesofpremiumvineyardsandwineries.M&Awouldremainactivethroughouttheyear.Thattrendwasquiteaccurateandremainspartoftheindustryfabricin2017.TensofthousandsofadditionalgrapeacreswouldbepermanentlyremovedfromCalifornia’sCentralValley.Thiswasaccurateandstillneededforbalanceinsupply.Currentestimatessuggestthat30,000acreswillberemovedbyWeexpectedtoseebottlepricesriseby4to8percentabovethe$10pricepointandbothvolumeandpricetodropbelowthe$8bottleprice.AccordingtoNielsen,below$9salesdiddropindollarsandvolume;above$9salesgrowthwaspercentthroughtheperiodendedOctober8,2016.Growthinrestaurantwinesalesfelldramati-callyin2015acrossallpremiumpricepoints.Weexpectedthattostabilizein2016.Byallmeasures,thisappearsaccurate,though“stabilizing”o?aprecipitousdeclineisnotpositiveforrestaurantwinesales.Totalrestaurantwinesalesandtra?carestilltrendinglower.8Steamingoutoftheharbortoward2017predictions,we?rsthavetotipourhattothegreatworkdonebythelargewinecompaniestomarketandsellinadi?cultpricesegment.Iamremindedthatthereismorethanonewaytoskinacat?sh.Figure1ChangesinCasedSalesofWinesBelow$9Source:Nielsen$0–$$3–$$6–$(%change)210–1–2–3–4–5–6WhileIwouldlovetoberightaboutalltheobservationsandforecasts,Iwilltakebeingmostlyrightinthiscase.$pricesegment,whichrepresents44percentoftotalvolume,turneddecidedlypositiveinJuly.Theinterestingmissformewasthelowerpercapitacall,whichisinstructivebecauseitshowshowthemacrotrendsIforecastedcanbeoverriddenbygoodmarketing.Giventhetrendsatthetimeforthevolumedropsinthebelow$9group,wepredictedthat2016wouldbethe?rstyearsince1994thatwewouldseedecliningpercapitaconsumption(see?gure1).Theoverallpercapitagrowthratein2015wasnearzero,andtherewasnothingtosuggestthatitwouldchange,butaninterestingeventtookplaceinthemiddleof2015:Thegrowthrateinthe$3toFishingforclues,wediscoveredthatthereversalintrendwasduetothepopularityandmarketingofthe3-literboxandTetraPakformatwinesfromConstellation,DelicatoandGallo.Withoutthelargeformats,thecategorywouldhaveremainednegativeingrowth,butthatdidspuraddedvolumeSteamingoutoftheharbortoward2017predictions,we?rsthavetotipourhattothegreatworkdonebythelargewinecompaniestomarketandsellinadi?cultpricesegment.Iamremindedthatthereismorethanonewaytoskinacat?sh.?92EllenBrody:WhatamIgoingtotellthekidsBrody:TellthemI’mgoing?shing.102017SummaryForecastForlongerthanIwanttoadmit,we’veresearchedthewinebusiness,andwehavebeenmakingourobservationsandforecastspublicformorethanadecadenow.In2017,weexpectimprovingbusinesscondi-tionswithsomenotablesinkholes,suchasaworseningregulatoryenvironment,interestratesthathavebeenincreasingoflateandpoormarketsforgenericwine.Otherwise,theforecastisforsunnyandmildbusinessconditions—idealforadeep-sea?shingtrip.WineBusinessPredictionsandObservations?Wepredictasalesgrowthrangeof10to14percentforthepremiumwinesegmentin2017,upfrom9to13percentin2016.Thecon?uenceofbetterretailconditionsintheeconomy,strongconsumerdemandandgoodsupplywillcollidetodeliverimprovingindustryperformance.?Fortheindustryaswhole,webelievethatdollarsaleswillriseby4to6percentwhilevolumeswillincrease2to3percent.Thegrowthwillbeexclusivelyinpremiumwine,withvolumeandpricedropsbelowthe$9bottlepricesegment.?Withthenewfederaladministration’sagendaforthe?rst100dayspossiblyincludingdeportation,webelievethatfarmlaborsupplyandcostswillbeamoredominantconcerninbothheadlinesandconferencesin2017.?EvenwithM&Afacinggreaterheadwindsfrominterestratesthathavetrendedhigher,weexpectacquisitionstoremainquiteactivethrough2017.?Astrongandstrengthening.dollar,availableforeignsupply,foreignin-countrymarketingsupportandwillingmillennialswillencourageimportgrowthinlowerpremiumpricepoints.?Federal,stateandlocalregulationswillcontinuetogarnerheadlinesinthetradepressin2017.PricingWiththemedianbabyboomerrollingtowardretirementwhileretainingwealthandthecash-strappedmillennialsgrowinginpurchasein?uence:?Under$9bottledwineswillcontinuetostruggle.Pricedropsforglassformatwinesaretobeexpected.?Winessoldbetween$12and$25willgrowindemand,andlimitedpriceincreaseswillbeavailable.?Winessoldbetween$35and$75will?ndpriceincreasesdi?cultwithoutthe.economydemon-stratingimprovedperformance.?High-endluxurywineswithanestablishedbrandwillhavenoproblemretainingvolumelevelsandtakingsmallpriceincreases.→112017SummaryForecastcontinuedSupply?OurguessfortotalharvestinCaliforniafor2017ismilliontonscrushed,whichisabout7percenthigherthanthemilliontonscrushedin2016.?Todaymillennialsarebeginningtoa?ectthelowerpricerangeofpremiumsales.Theirpresenceismostvisibleinthe$8to$redblendcategory,buttheywillgraduallymoveawayfromblendsandintovarietalwinesorimportsastheirincomesimprove.?Qualitywasexcellentin2016,andtheharvestsizewasaveragebutheavierthanthe2015lightharvest.Cropsizein2016wasslightlybelowaverageintheSanJoaquinValley,butthatisagoodthinggivendemandweaknessforgenerics.?Oregon,WashingtonandtheOkanaganValleyinBritishColumbiatakethe“VintageoftheDecade”honors,withallthreeregionsreportingconcurrentstrongqualityandyields.?Overallsupplyisbalancedwithshortagesofhigh-qualitypinotnoirandcabernet,butexcessesareevidentincertainnon-corevarietalsandforgrapesdestinedforlower-pricedwine.?Thenarrowingsupplyofarablelandsuitableforhigher-endwineproductioncombinedwithgoodbuyerinterestwilldrivevineyardpriceshigherinpremiumregions.?OregonandWashingtonvineyardswillcontinuetoseehighinterestfromlargerwinecompanies.?California’sCentralValleyhassomeadditionalacreagetoremove.?Growthinrestaurantwinesalesstabilizedsomewhatin2016butstilldroppedonceagainacrossvirtuallyallpremiumpricepoints.Theexceptionispremiumredandredblends,whichdemonstratedpositivesalesgrowthlastyear.Restaurantwinesalesshouldshownotolimitedgrowthin2017,whichisanimprovementoverrecentdecliningsales.?TheGenXcohortwillsurpassthebabyboomersaround2021tobecomethelargest?newineconsumerdemographicintheUnitedStates.Fiveyearslater,by2026,millennialswillsurpassGenXerstobecomethelargest?newine–consumingcohort.?Theyoungconsumerisgivingblendsachanceand,fromourview,istakingapagefromthematures,whoplacedtheirtrustinbrandvs.varietalwinethrough-outtheirbeverage-consumingyears.Ifpremiumblendsandbrandingaredonewell,thatapproachreducestheconfusionforentry-levelwineconsumers.Ifnewconsumersarecontentwithbrandsovervarietals,theobservationhasmassiveimplicationsforproducersthathaveleanedonthe?ghtingvarietal11todeveloptheirbrandidentity.Demand?Percapitaconsumptionfacescrosscurrentswithretiringwine-loyalbabyboomersbeingreplacedbylessa?uentmillennials,whoareambivalentabouttheiralcoholicbeverageofchoice.Ifeconomicconditionscontinuetoimprovein2017,wewillo?setthosecurrents,leadingtoslightlyhigherpercapitaconsumptionforanotheryear.?Thelowest-pricegenericsegmentthatappealedtotheentry-levelconsumersofthe1960shaspermanentlylostitsappeal.Accordingtowinebrokerswithwhomwe’vespoken,producingcountriesareshowingnointerestinthatsegmenttoday.?GenXersandmillennialswillremainthegrowthdemographicsforpremiumwine.Whilebabyboomerswillretaintheirdominanceinwineconsumption,theiroverallpurchaseswillcontinuetodecline.?12TheGenXcohortwillsurpassthebabyboomersaround2021tobecomethelargest?newineconsumerdemographicintheUnitedStates.133EllenBrody:Martinhatesboats.Martinhateswater.Martin...Martinsitsinhiscarwhenwegoontheferrytothemainland.Iguessit’sachildhoodthing.It’sa...there’saclinicalnameforit,isn’tthereBrody:Drowning.14PremiumizationandRestaurantSalesWhat’stheclinicalnameforbeingafraidofthewaterDrowning!Sometimesbusinessissimple,andifitwereashark,itwouldhavebittenyou!Figure2WineSalesGrowthbyPriceSegmentSource:Nielsen$0–$$3–$$6–$$9–$$12–$$15–$>$20(inmillions)$8$7$6$5$4$3$2$1$0–$1–$2151/1/151/2/151/3/151/4/151/5/156/1/157/1/158/1/159/1/15/1/10151/11/151/12/161/1/161/2/161/3/161/4/161/5/166/1/167/1/168/1/169/1/16/1/10161/11/Sometimesit’seasytoseetrendswhenrealitystaresyouinthefacelikethesteelgrayeyesofashark.Othertimesbusinesstrendsaren’twhattheyappeartobe,andthatsharkyousawswimmingatyoufromtheshadowswasjustseaweed.Inthecaseofpremiumization,it’stheformer.It’snowaveryclearbusinesstrendandanobviousdriverofconsumerPremiumwinedominatessalestodayandisresponsiblefornearlyallthegrowthinthetrade(see?gure2).Look-ingback,theonlytimeinrecentmemorywehaveseentradingdownasatrendwasduringtheGreatRecession,butinre?ectionthingsweren’twhattheyseemed.Duringthe?nancialcrisis,wineconferencediscussionscenteredaroundthedirectionofspending.Consumerswhowerehitbythe?nancialcollapsedidn’tgiveuptheirwine;theyjustswitchedtolessexpensivewines.Butinamarket-drivenparadox,manyofthelessexpensivewinesthatsoldduringtherecessionwereactuallythemoreexpensive?newinesfromproducerswhohadtodiscountthemtomoveproduct.Itdidn’tgivelower-costproducersatrueadvantage,sotheargumentcanbemadethattheconsumerhasnevertradeddown.→15PremiumizationandRestaurantSalescontinuedEvenifweacknowledgethesingletrading-downdatapointduringtherecessionasbeingtrue,there’snowaytocreateabusinessfromit.Amodelbasedonthehopeofrecessionisclearlyonrockyground,afacttowhichourgrowersintheCentralValleycanattest?rsthand.Thatsaid,aninterestingchangehastakenplaceinthenonpremiumsegmentbelow$9.Inthepastyear,thesegmenthasslowedtherateofdeclineinbothdollarsandcasevolume,goingagainsttheothertrends(see?gure1,page9).Whilestillnegativeinsalesvolumes,thebelow$3pricepointbottomedinMarch2016andthenstartedtrendingupward,andthe$6to$pricepointalsoendedtheyearonhigherground.ThegrowthcamefromConstellation,DelicatoandGallo,whousedtheirdistributionmuscletopush$18-plus3-literboxesandTetraPakformats.Therefore,thetrendisabitofamiragebecausebetterjuiceisbeingsoldmoree?cientlyinlargercontainers.Becausethepricesegmentrepresentssuchalargecomponentofvolumesales(44percent),itwasnoteworthytoseethegrowth,butthetrendshouldnotbeseenasareversalinpremi-umization.RestaurantWineSalesQuintinhiscolorfulwaywasreallysingingaboutthewaythingswere—thegoodolddayswhenadrinkwasabuckandacupofco?eewas10cents.Wecanalsoseehisrhymeasametaphorforrestaurantwinesales,whichinthegoodolddayswereahealthypartofa?newineproducer’srevenueexpectationsbutoverthepastdecadehavedroppedprecipitously:Hereliesthecorpseofrestaurantsales,sunktothebottomlikebricks.Fordecadestheywereimportant,butnowthey’vebeenAttheindividualproducerlevel,restaurantwinesaleshavebeendecliningforadecade,withthetrendacceleratingoflate(see?gure3).Restaurantsthemselveshavebeensu?eringfromdecliningsame-storesalesforsometime.Technomic’sgrowthforecastforwinesoldinrestaurantsfor201614wasjust2percent,butgivenrecentdown-wardrevisionsin2016foottra?candsame-storesalesexpectations,thatnumbershoulddeclinesomewhatwhenfull-yearresultsarereported.ForthemajorityoftheSanJoaquinValleyfarmers,thatlastpointisn’tcomfortingbecauseit’shardfortheaveragegrowertheretomakemoneybelow$abottle,butit’snonethelessencouragingtoseealower-pricedsweetspotforvalue-consciousconsumers.Separatecon?dentialmeasurestowhichweareprivysupporttheTechnomicfull-yearestimate.Thesereportsshowthatrestaurantwinesalesaregrowinglessthan1percentindollarsandareshrinking2percentbyvolume.