IMPORTANCE OF LODI WINES IN THE RETAIL CHANNEL AND OPPORTUNITIES FOR GROWTH. Curtis Mann Director of Wine & Beverage Raley s Family of Fine Stores

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1 IMPORTANCE OF LODI WINES IN THE RETAIL CHANNEL AND OPPORTUNITIES FOR GROWTH Curtis Mann Director of Wine & Beverage Raley s Family of Fine Stores

2 Raley s Overview 3 Billion Dollar Company 120 Stores across Northern California and Nevada 12,000 Employees Family Owned and Operated Health & Wellness Focused 2016 Wine Enthusiast Retailer of the Year

3 Raley s 2017 Wine Business New Items were critical to Raley s Growth While 80% of sales come from CA wines, emerging origins are incremental to growth 750 ML dominate sales, but alternative packaging driving growth $3,000,000 $2,500,000 9% $2,000, % 7% $1,500,000 $1,000,000 $500,000 $0 30 % 23% 8% 11% 31% 139% 3L Box +18% Tetra +3.5% Cans +$125K 187ml +10% Source: Raley s Scan 52 wk end 1/7/18

4 Retail Sales Analysis

5 Consumer Purchasing Behavior Customers are more exclusive to varietal or region than any other factor In a 12-week period, 73% of customers of a major chardonnay brand also purchased a competitive chardonnay brand Internal Raley s Data, 12 Weeks Ending 6/02/2018

6 Consumer of most Common Lodi Varietals tend to be White, Educated, with a Higher Income. (Adults age account for nearly 25% of Total Zinfandel consumption) Ethnicity Age Income Education Zinfandel White $100K College/Post Grad 175 Red Blend White $100K College/Post Grad 150 Cabernet White $75K College/Post Grad 175 *A Demand Index of 100 indicates % of consumption is on par with % of HHs Data Source: Nielsen Homescan Panel Data, Data Version: 2018 May

7 National Average Retail amongst leading red varietals Retail Avg CY Latest 52 wks ending 5/20/ ZINFANDEL $12.23 PINOT NOIR $11.85 MALBEC $10.82 DARK BLEND RED $10.61 CABERNET SAUVIGNON $10.52 BLEND RED $9.90 MERLOT $8.30 IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 5/20/2018

8 Over the latest 52 Weeks Zinfandel has experienced declines in both Retail Dollars and Units $145.1 M 11.9M -3.5% -5.2% IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 5/20/2018

9 Zinfandel ranks amongst the Top 10 Varietals in CA Retail Sales, however it drops to #16 at a National level #10 #16 $52 M, -6.3% $145.1 M, -3.5% Despite its higher dollar rank in CA, Zinfandel is trending down in dollars at nearly twice the rate of National average. IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 5/20/2018

10 Zinfandel s sales mix consists of predominantly Premium Plus priced wines Table Wine Dollar Share by Price Segment Latest 52 wks ening 5/20/18 Zinfandel Dollar Share by Price Segment Latest 52 wks ending 5/20/18 $3,000,000, $60,000, $2,500,000, % 27.2% $50,000, % 34.9% $2,000,000, $1,500,000, % 57.5% $40,000, $30,000, % $1,000,000, $500,000, $ % VALUE $0 - $ % 5.3% VALUE BOX $0 - $4.49 PREMIUM BOX $ POPULAR $ $7.99 PREMIUM $ $10.99 SUPER PREMIUM $ $ % ULTRA PREMIUM $ $ % 2.4% LUXURY $ $24.99 SUPER LUXURY $25.00 PLUS $20,000, $10,000, $ % 0.1% VALUE $0 - $3.99 VALUE BOX $0 - $ % 3.6% PREMIUM BOX $ POPULAR $ $7.99 PREMIUM $ $10.99 SUPER PREMIUM $ $ % ULTRA PREMIUM $ $ % 4.6% LUXURY $ $24.99 SUPER LUXURY $25.00 PLUS Average Price per Unit: $9.47 Average Price per Unit: $12.23 IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 5/20/2018

11 Ultra Premium Plus Zinfandel continues to grow, but not enough to offset declines in Popular, Premium and Super Premium segments Dollar Change in Thousands Latest 52 weeks ending 5/20/18 VALUE BOX $0 - $4.49 -$ PREMIUM BOX $ $1.82 VALUE $0 - $3.99 -$0.03 POPULAR $ $7.99 -$2, PREMIUM $ $ $1, SUPER PREMIUM $ $ $3, ULTRA PREMIUM $ $19.99 $ LUXURY $ $24.99 $ SUPER LUXURY $25.00 PLUS $ ,500-3,000-2,500-2,000-1,500-1, ,000 1,500 Thousands IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 5/20/2018

12 7 of the Top 10 Zinfandels are Premium Priced Products ($8.00 to $10.99) (All, but one, are trending down during the latest 52 weeks as Premium Zinfandel struggles) IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 5/20/2018

13 Zinfandel experiences the greatest cross purchase interaction with Cabernet and Red Blends 49.9% 2.6% of those Households also Purchase Red Blends of US Households Purchase Zinfandel 47.5% of those Households also Purchase Cabernet IRI, Household Panel Data, Total US All Outlets, Total US Households, 2017 Data Pkg

14 Cabernet is the #2 selling varietal across both CA and National Retail Sales. # 2 # 2 $329.7 M, +2.2% $1.6 B, +4.9% In both markets Cabernet ranks 2 nd to Chardonnay, but in both cases Cabernet is outperforming Chardonnay in both dollar and unit trends over the latest 52 weeks. IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 5/20/2018

15 Red Blend is the #3 varietal in dollar sales Nationally, but trails Pinot Noir by a slight margin in CA Retail sales. # 4 # 3 $140 M, +0.9% $811.1 M, +2.6% Red Blend accounted for $140 M (+3.19%) in CA over the latest 52 weeks. Fume/Sauvignon Blanc (+5.5%) trails Red Blend by less than $500K. IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 6/3/2018

16 Unlike Zinfandel, Red Blend and Cabernet are experiencing growth in Premium and Super Premium segments. Red Blend Dollar Change in Thousands Latest 52 Weeks ending 5/20/18 Cabernet Dollar Change in Thousands Latest 52 Weeks ending 5/20/18 VALUE BOX $0 - $4.49 1,579 VALUE BOX $0 - $4.49-2,061 PREMIUM BOX $ ,387 PREMIUM BOX $ ,347 VALUE $0 - $ VALUE $0 - $3.99 1,444 POPULAR $ $7.99-3,232 POPULAR $ $ ,454 PREMIUM $ $ ,697 PREMIUM $ $ ,011 SUPER PREMIUM $ $ SUPER PREMIUM $ $ ,462 ULTRA PREMIUM $ $ ,996 ULTRA PREMIUM $ $ ,582 LUXURY $ $ ,335 LUXURY $ $ ,622 SUPER LUXURY $25.00 PLUS 4,817 SUPER LUXURY $25.00 PLUS 6,444-6,000-2,000 2,000 6,000 10,000 14,000 Thousands -20,000-10,000 10,000 20,000 30,000 40,000 Thousands Total Red Blend $ Sales: +2.7% Vol Sales: +1.6% Total Cabernet $ Sales: +4.9% Vol Sales: +3.1% IRI Total US Mulo, Dollar and Unit Sales vs YA, Latest 52 Weeks ending 5/20/2018

17 Direct Sales Analysis

18 Thanks to strong YOY growth, D2C now accounts for 10% of Wine Retail Sales, and is continuing to grow. Wineries increased the volume and value of direct shipments by 15.3% and 15.5% respectively over 2016, outpacing the six year average increases of 11% for volume and 12% for the value of shipments Direct to Consumer Wine Shipping Report, Sovos and Wine & Vines

19 Zinfandel ranks much higher when looking at Direct to Consumer Sales, currently Top 5 overall

20 In 2017 Zinfandel and Cabernet were the fastest growing Top 5 varietals in Direct to Consumer sales in Direct to Consumer Wine Shipping Report, Sovos and Wine & Vines

21 Small Wineries account for nearly half the Direct to Consumer dollars and volume 2018 Direct to Consumer Wine Shipping Report, Sovos and Wine & Vines

22 However, during 2017 Medium Wineries experienced the greatest increases by trend in Dollars and Volume 2018 Direct to Consumer Wine Shipping Report, Sovos and Wine & Vines

23 Solutions for Retail Analysis

24 What does the future hold? In a competitive world how do wineries differentiate their products versus other wineries and other alcohol products?

25 Macro Trends Call to authenticity Demographic shifts Expansion of accounts Declines in trips to traditional accounts Desire for health related products Total CPG +1.1% Beer +3.4% Spirits +4.1% Wine +5.3%

26 Authenticity Implications for Retail Vineyard specific offerings Sustainable, Organic, Biodynamic Old vine Tech sheets Tasting room experience Old World appellation rules

27 Demographic Shifts Implications for Retail Packaging type Product delivery Sustainability of packaging Convenience Role of technology Varietals

28 Expansion of Accounts Implications for Retail More competitive pressure put on pricing Customers splitting up shops Who is cultivating your brand versus not Distribution management Promotional activity Supply chain In stock conditions Education

29 Decline in Trips Implications for Retail Increasing importance of Click and Collect Delivery options Digital assets Social media presence Convenience vs Price Certain package types Customer loyalty

30 Health Related Products Implications for Retail Lower alcohol wines? Drinking less Ingredient labelling Food and wine pairing Health benefits of wine over other products

31 Questions?

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