THE UNINTENDED CONSEQUENCES OF PREMIUMIZATION Erin Kirschenmann, Assistant Editor Wine Business Monthly, Moderator Robert Trone, Co-Owner Total Wine & More Tony Correia, Owner The Correia Company
The Premiumization of California Wine Vineyards Wine Industry Financial Symposium September 26, 2017 Tony Correia THE CORREIA COMPANY tony@correiaco.com 707.933.9915
HISTORY Those who cannot remember the past are condemned to repeat it.
Premium Markets - Short 2010 and 2011 crops fostered The Great Grape Shortage of 2012 2012 > Early 2017; The New Grape Sourcing Market The Pursuit of Fruit Wineries returned to the market, aggressively contracting for grapes, and buying vineyards, and land to plant new vineyards. Higher grape prices push vineyard and land prices even higher. Higher land and vineyard prices push grape prices EVEN higher. Sea Change in grape and vineyard pricing
Why is this man smiling? How one big deal triggered a major scramble in the North Coast wine industry
Premium Markets 2017 The Stagecoach Vineyard Sale fostered The Great Grape Shortage of 2017 2017; The Even Newer, Improved Grape Sourcing Market The Pursuit of Fruit Stagecoach supplied premium fruit to 100 ± Wineries, who will soon need to replace that fruit source. Higher grape prices push vineyard and land prices even higher. Higher land and vineyard prices push grape prices EVEN HIGHER. Sea Change in grape and vineyard pricing
$ Growth is at the Top = Premiumization > $20 $15-20 $12-15 $9-12 $6-9 $3-6 < $3 Growth (%) of Wine Sales, by Price Segment -4.1% -2.8% 0.5% 4.8% 7.0% 9.5% 8.5% 52 Weeks ending June 17, 2017-4% -1% 2% 5% 8%
Annualized Growth Rates, by $ Segment 16% 14% 12% 10% 8% 6% 4% Dec-12 Sep-13 Jun-14 Mar-15 Dec-15 Sep-16 Jun-17 $9-12 $12-15 $15-20 > $20
The Wine Cycle; California Chardonnay; 1976 > 2016 800,000 $1,400 700,000 600,000 500,000 400,000 300,000 200,000 100,000 $1,200 $1,000 $800 $600 $400 $200 0 $0 1976 80 84 88 92 96 2000 04 08 12 2016
Is the Cycle THIS TIME, Broken?? IT S DIFFERENT
Isn t this a lovely wine?? Parker 95. $350 a bottle What a cool guy!!!! 2007
2009 HWY 29 - RUTHERFORD
Isn t this a lovely wine?? COSTCO, $15 a bottle What a cool guy!!!! 2009
Isn t this a lovely wine?? Cult Napa Cab, $500 a bottle #cultcab #wineguy 2017 #thinkshesgetttinlucky
The Math of Grapes
180% 160% 140% 120% 100% 80% 60% 40% 20% 0% RISK California Chardonnay 2000-2016 Price Volatility vs Average District Price $- $500 $1,000 $1,500 $2,000 $2,500
$7,000 $6,000 Average Grape Prices $5,000 $4,000 $3,000 $2,000 $1,000 D4 CS D3 PN $0 1995 2000 2005 2010 2015
Napa Cabernet, Production vs Pricing 75 1,000 Tons 65 $ / Ton 55 45 35 25 1995 2000 2005 2010 2015 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0
$450 $400 $350 Napa County Cabernet Sauvignon Total Crop Value ($Millions) $300 $250 $200 $150 2005 2007 2009 2011 2013 2015
VINEYARD VALUES; PER-ACRE $400,000 $350,000 $300,000 NAPA COUNTY ~~ VINEYARD VALUE RANGES By Location Category 2007-2016. vs Average Napa Grape Prices Sources; Annual CALASFMRA "Trends" report, Annual Calif. Grape Crush Reports, Wine Industry Investment Consulting $8,000 $7,000 $6,000 $250,000 $5,000 $200,000 $4,000 $150,000 $3,000 $100,000 $2,000 $50,000 $0 Total Range Outlying Secondary Prime Cab Whites 96 98 2000 02 04 06 08 10 12 2014 2016 $1,000 $0
VINEYARD VALUES; PER-ACRE $400,000 $350,000 $300,000 $250,000 $200,000 NAPA COUNTY ~~ VINEYARD VALUE RANGES By Category 2007-2016. vs Average Napa Grape Prices Sources; Annual CALASFMRA "Trends" report, Annual Calif. Grape Crush Reports, The Correia Company, Wine Industry Investment Consulting $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $150,000 $4,000 $3,000 $100,000 $2,000 $50,000 $1,000 Total Range $0 Outlying Secondary Prime Cab Whites 90th % $0 2007 08 09 10 11 12 13 14 15 2016
Vineyard Values, Thousands Average Grape Price $175 $150 $125 $100 Sonoma; Dist 3; Vineyard Values vs. Grape Prices $3,500 Pinot Noir $3,000 Cabernet $2,500 $75 $50 $25 $0 Chardonnay 1994 96 98 2000 02 04 06 08 10 12 14 2016 $2,000 $1,500 $1,000
$100,000 $90,000 Mendocino County District One Anderson Valley $3,000 $80,000 $70,000 Pinot Noir $2,500 $60,000 $2,000 $50,000 All Varieties $1,500 $40,000 $30,000 $1,000 $20,000 $10,000 $0 Chardonnay Inland Mendocino 1994 96 98 2000 02 04 06 08 10 12 14 2016 $500 $0
$50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 Lake County District Two Cabernet Sauvignon 1994 96 98 2000 02 04 06 08 2010 12 14 2016 $2,500 $2,300 $2,100 $1,900 $1,700 $1,500 $1,300 $1,100 $900 $700
Vineyard Values, Thousands $72 $62 $52 $42 $32 $22 $12 $2 Monterey; District 7; Values vs. Grape Prices Pinot Noir Cabernet Chardonnay 95 97 99 01 03 05 07 09 11 13 2015 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 Average Grape Prices Thousands
Vineyard Values Average Grap Price SLO/SB; District 8; Values vs. Grape Prices $62,000 $3,000 $52,000 Pinot Noir $2,500 $42,000 $2,000 $32,000 $1,500 $22,000 $12,000 Chardonnay $1,000 $2,000 Cabernet 1994 96 98 2000 02 04 06 08 10 2012 14 2016 $500
Issues, Risks, Opportunities, and Challenges Premiumization (and Un-Premiumization?) Consolidation; the Big get BIGGER Empty Brands in search of grapes Blends allow more sourcing diversification
Impacts Hierarchy of Appellations, and Appellation Creep Vineyard Designations; Classification of Crus? Rising Tide Lifts All Boats; Premium areas expanding, bleeding into Secondary. but Marginal Areas always see greatest Strength and rising prices in Up Markets, but also always Suffer the most in Down Markets
Challenges Limited Amount of Vineyards and Land Available Napa essentially planted out Diminishing Supply of Independent Vineyards, so Fewer grapes available on the open market, amidst a Perception of Premium Grape Shortage Indexed Contracts and rising land prices will continue to drive grape prices up, can wine prices follow?
Thank you! And Drink More California Wine!!!
OVERVIEW Total Wine and More Overview Premiumization Sonoma/Napa Downside? 32 AMERICA S WINE SUPERSTORE
33 171 STORES NATIONWIDE
LOCATIONS 171 Stores 20 States 34 AMERICA S WINE SUPERSTORE
STORE COUNT Total Wine & More Store Count Historical Growth 35 AMERICA S WINE SUPERSTORE
SALES $3,000 Total Wine & More Sales Historical Growth ($ in Millions) 2,400 2,700 2,100 1,800 $1,500 660 790 900 1,100 1,300 1,500 $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 36 AMERICA S WINE SUPERSTORE
2016 SALES MIX 17% 2,500 Beer Items Total Wine & More Sales Mix 6,000-8,000 Wine Items 47% 32% 3,000 Spirits Items 37 CREATING AMERICA S FOCUS, INTENSITY, WINEAND SUPERSTORE ACCOUNTABILITY
PREMIUMIZATION Downside? 38 AMERICA S WINE SUPERSTORE
DOWNSIDE What if your cost goes up? the Premiumization trend changes? the consumers switch brands? 39 AMERICA S WINE SUPERSTORE
TREND CHANGES Stock market all time high Medium household income all time high 40 AMERICA S WINE SUPERSTORE
ECONOMIC CYCLE = TREND CHANGE When the economy has a downturn, consumers will switch to lower priced items 41 AMERICA S WINE SUPERSTORE
THE TREND HAS CHANGED Wine: 2015 wine $ 5.8%, Volume 2.2% - AUP + 3.6% 2016 wine $ 4.3%, Volume 1.7 % - AUP + 2.6% 2017 July YTD $ 2.3 %, Volume.4% - AUP +1.9% 42 AMERICA S WINE SUPERSTORE
OTHER TRENDS IMPACTING PREMIUMIZATION Greater Customer Openness to new brands Growth of new wine regions, Growth of new brands 43 AMERICA S WINE SUPERSTORE
TRENDS RETAIL NEW BRANDS Greater openness to new brands, when the new brands meet the consumers needs: Taste profile Emotional connection Favorable price/value relationship 44 AMERICA S WINE SUPERSTORE
CONSUMER SONOMA - NAPA LOYALTY How much brand equity does Sonoma/Napa county have? Will consumers switch from Sonoma/Napa wines? 45 AMERICA S WINE SUPERSTORE
DOWNSIDE Over time, other wine regions will continue to create wines matching the taste profiles of higherend consumers 46 AMERICA S WINE SUPERSTORE
WINE REGIONS - GROWTH New Zealand Sauvignon Blanc Paso Robles - Cabernet Italy Prosecco Argentina & Chile - Cabernet and Chardonnay France Pinot Noir, Rose Taste, Emotional Connection, Price\Value 47 AMERICA S WINE SUPERSTORE
NEW TRADITIONAL BRANDS New regions: New Zealand Whitehaven, Oyster Bay, Kim Crawford Australia 19 Crimes California Butter, Josh World sourced Cupcake France Rose Brands 48 AMERICA S WINE SUPERSTORE
NEW FOCUS/PRIVATE BRANDS Kirkland Trader Joe s Independent Wine Shops Kroger/Safeway 49 AMERICA S WINE SUPERSTORE
THANK YOU! 50 AMERICA S WINE SUPERSTORE