““The American Dream -The American Dream -

Strategies for U.S. Success”Strategies for U.S. Success”

““The American Dream -The American Dream -

Strategies for U.S. Success”Strategies for U.S. Success”

John Grant, PresidentJohn Grant, President

Kendall-Jackson Wine EstatesKendall-Jackson Wine EstatesJohn Grant, PresidentJohn Grant, President

Kendall-Jackson Wine EstatesKendall-Jackson Wine Estates

July 2001

AgendaAgenda

• Why care about the U.S. market?Why care about the U.S. market?

• Who has been successful?Who has been successful?

• Why?Why?

• Keys for future success.Keys for future success.

Source: California Wine Institute, August 2000

       

   1998 COUNTRY RANK 1998 1997 1996

Average % Change91-95 98 v 91-95

985,656 -5%    1.  FRANCE 937,839 937,839 919,214

   

 2.  ITALY 845,376 815,127 916,520

492,458 2% 3.  UNITED STATES 549,494 536,285 545,347

927,853 -9%486,250 13%

407,868 -3% 4.  GERMANY 501,149 5.  SPAIN 396,270 385,412 381,978

501,255 494,809

 6.  ARGENTINA 358,017 353,737 353,077

158,508 -2% 7.  UNITED KINGDOM 219,058 215,492 198,135

415,291 -14%176,050 24%

153,568 -14% 8.  RUSSIA 155,866 9.  PORTUGAL 132,090 137,981 153,224

155,866 155,866

10. ROMANIA 116,134 155,576 190,474

96,452 6%11. CHINA 104,087 91,750 78,831

144,691 -20%80,522 29%

84,855 13%12. SOUTH AFRICA 102,15813. AUSTRALIA 96,267 91,723 86,836

106,253 107,151

Source: California Wine Institute, August 2000

       

   1998 COUNTRY RANK 1998 1997 1996

Average % Change91-95 98 v 91-95

985,656 -5%    1.  FRANCE 937,839 937,839 919,214

   

 2.  ITALY 845,376 815,127 916,520

492,458 2% 3.  UNITED STATES 549,494 536,285 545,347

927,853 -9%486,250 13%

407,868 -3% 4.  GERMANY 501,149 5.  SPAIN 396,270 385,412 381,978

501,255 494,809

 6.  ARGENTINA 358,017 353,737 353,077

158,508 -2% 7.  UNITED KINGDOM 219,058 215,492 198,135

415,291 -14%176,050 24%

153,568 -14% 8.  RUSSIA 155,866 9.  PORTUGAL 132,090 137,981 153,224

155,866 155,866

10. ROMANIA 116,134 155,576 190,474

96,452 6%11. CHINA 104,087 91,750 78,831

144,691 -20%80,522 29%

84,855 13%12. SOUTH AFRICA 102,15813. AUSTRALIA 96,267 91,723 86,836

106,253 107,151

World Wine Consumption World Wine Consumption Actual 1996-1998 Actual 1996-1998

Average 1991-1995Average 1991-1995In Thousands of Gallons (000sIn Thousands of Gallons (000s))

It’s Big! It’s Big! • Ranked No. 3 in terms of aggregate wine consumption and Ranked No. 3 in terms of aggregate wine consumption and

is showing strong growth.is showing strong growth.

PopulationPopulation(MMs)(MMs)

82 8178 7978

82 82 78 77 7964

7184

94100

31 34 35 36 40

0

20

40

60

80

100

1990 1995 2000 2005 2010

`

Source: U.S. Department of Census

20-3920-39

40-64 40-64

65+ 65+

Growth inGrowth in40-6440-64

Year OldsYear Olds

1990-20001990-200020 MM20 MM

2000-20102000-201016 MM16 MM

It’s Growing!It’s Growing!• ““Baby-Boomers” are entering the peak wine Baby-Boomers” are entering the peak wine

consumption age - a long term category growth driver.consumption age - a long term category growth driver.

2000 U.S. Shipment Growth by Origin2000 U.S. Shipment Growth by Origin

CaliforniaCalifornia172 Million Cases172 Million Cases

Other StatesOther States21 Million Cases21 Million Cases

ImportsImports42.3 Million Cases42.3 Million Cases

+2%+2%

+3%+3%

+17%+17%

Source: Gomberg-Fredrikson & Associates

… … And they are not parochial!And they are not parochial!

It’s Growing!It’s Growing!

Australian Wine ExportsAustralian Wine Exports1999 Major Markets1999 Major Markets(M liters and US $)(M liters and US $)

$3.81

$1.91

$3.60

$2.71$2.68

$0$50

$100$150$200$250$300$350$400

UKUSA

New Z

eala

nd

Canad

a

Germ

any

Do

llar

Sa

les

(U

S)

$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50

US

$ P

er L

iter

US $

$/L

Source: International Wine Associates

It’s Profitable!It’s Profitable!• U.S. recorded the highest price per liter paid for U.S. recorded the highest price per liter paid for

Australian wine.Australian wine.

……and is becoming more profitable with consumer and is becoming more profitable with consumer “trade up”“trade up”

Source: Gomberg-Fredrikson Price Segment Surveys

-3%

1999 Table Wine Sales1999 Table Wine Sales

7%

20%

14%

28%

36%

-10% 0% 10% 20% 30% 40%

Jug <$3

Popular Prem. 3-$7

Premium $7-$10

Super Prem. $10-$14

Ultra Prem. $14-$25

Luxury $25+

Premium Plus

5-Year CAGR

It’s Profitable!It’s Profitable!

Australian Brands, Then and NowAustralian Brands, Then and Now12 weeks ending 5/20/01 vs 12 weeks ending 3/31/9612 weeks ending 5/20/01 vs 12 weeks ending 3/31/96

Who has been successful?Who has been successful?• Traditionally--first mover exporters. Lately--importers Traditionally--first mover exporters. Lately--importers

with distribution muscle.with distribution muscle.

$ Share of Australian

Varietal Wine

Point Chg in $ Share of

Australian Var

Avg Price per

Unit

ACV where

legal

ACV Gain since

3/31/96 TOTAL AUSTRALIAN VARIETALS 100.0 0.0 8.46$ 73 27Lindemans Varietals 30.6 (11.6) 7.96$ 76 26Rosemount Estates Varietals 26.3 9.1 9.13$ 70 40Jacobs Creek Varietals 12.3 1.5 7.90$ 55 34Black Opal Varietals 6.2 (3.7) 9.84$ 42 19Mcphearson Varietals 2.5 2.5 7.18$ 43 43Penfolds Varietals 2.3 (0.1) 10.54$ 22 16Stonehaven Varietals 2.2 2.2 7.71$ 35 35Wyndham Estate Varietals 2.0 (4.4) 9.00$ 18 9Alice White Varietals 1.9 1.9 8.53$ 16 16Oxford Landing Varietals 0.5 (1.2) 7.90$ 9 5

$ Share of Australian

Varietal Wine

Point Chg in $ Share of

Australian Var

Avg Price per

Unit

ACV where

legal

ACV Gain since

3/31/96 TOTAL AUSTRALIAN VARIETALS 100.0 0.0 8.46$ 73 27Lindemans Varietals 30.6 (11.6) 7.96$ 76 26Rosemount Estates Varietals 26.3 9.1 9.13$ 70 40Jacobs Creek Varietals 12.3 1.5 7.90$ 55 34Black Opal Varietals 6.2 (3.7) 9.84$ 42 19Mcphearson Varietals 2.5 2.5 7.18$ 43 43Penfolds Varietals 2.3 (0.1) 10.54$ 22 16Stonehaven Varietals 2.2 2.2 7.71$ 35 35Wyndham Estate Varietals 2.0 (4.4) 9.00$ 18 9Alice White Varietals 1.9 1.9 8.53$ 16 16Oxford Landing Varietals 0.5 (1.2) 7.90$ 9 5

Source: IRI Infoscan

Why successful?Why successful?

• Domestic supply constraint - particularly Domestic supply constraint - particularly in reds below $10.in reds below $10.

• California has planted its way out of shortage.California has planted its way out of shortage.

California TotalCalifornia TotalTons of High Varietals CrushedTons of High Varietals Crushed

1990-2004F1990-2004F

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

90 91 92 93 94 95 96 97 98 99 '00 01f 02f 03f 04f

Zinfandel

Syrah

Pinot Noir

Merlot

Cab Sauv

Sauv Blanc

Chard

Source: California Dept Food & Agriculture, Motto, Kryla & Fisher

CAGR: 90-96 = 10%CAGR: 97-00 = 9%CAGR: 01F-04F = 2%

Why successful?Why successful?• Domestic supply constraint - particularly Domestic supply constraint - particularly

in reds below $10.in reds below $10.

• Favorable exchange rates.Favorable exchange rates.

• ““First mover” distribution advantage.First mover” distribution advantage.

• Unique product offerings - Shiraz and Unique product offerings - Shiraz and blended varietals.blended varietals.

• Relatively strong brand support at retail.Relatively strong brand support at retail.

Index of Share of Wine DisplaysIndex of Share of Wine Displaysby Country of Originby Country of Origin

Total U.S. Grocery Current 52 weeks ending 5/20/01Total U.S. Grocery Current 52 weeks ending 5/20/01

35

69

77

79

89

90

103

131

0 20 40 60 80 100 120 140

Germany

Spain

France

Italy

All Imports

Chile

U.S.

Australia

Index of Display Share to $ Share of Table Wine

Source: IRI Infoscan

• Australian category getting strong retail display Australian category getting strong retail display support, driving distribution and impulse impact.support, driving distribution and impulse impact.

Success for the FutureSuccess for the Future

• Incumbents require:Incumbents require:– Continued weak Australian dollar.Continued weak Australian dollar.– Rapid economic recovery in the U.S.Rapid economic recovery in the U.S.– Poor 2001 harvest in U.S.Poor 2001 harvest in U.S.

• Entrants need to be Entrants need to be niche-niche-focused:focused:

– VOLUMEVOLUME opportunities “played out”: opportunities “played out”:• Major distributor books fullMajor distributor books full• Alliance partners with distribution muscle scarceAlliance partners with distribution muscle scarce• Acquisitions prohibitively expensiveAcquisitions prohibitively expensive

– VALUEVALUE opportunities are opening up: opportunities are opening up:• Build appellation awareness - industryBuild appellation awareness - industry• Deploy top-end ShirazDeploy top-end Shiraz• Target “on-premise” - hand sellTarget “on-premise” - hand sell• Seek out “regional” distributorsSeek out “regional” distributors

Success for the FutureSuccess for the Future

Conclusion:Conclusion:• U.S. market is large, profitable, and growing.U.S. market is large, profitable, and growing.

• Volume players are well defined - they are the few Volume players are well defined - they are the few with “distribution muscle.”with “distribution muscle.”

• Australian category volume growth will be Australian category volume growth will be challenged by emerging domestic over supply and challenged by emerging domestic over supply and softening economy.softening economy.

• Niche opportunities are opening upNiche opportunities are opening up– Industry focus on appellationsIndustry focus on appellations– Suppliers focus on targeted hand-sellSuppliers focus on targeted hand-sell

• On-premiseOn-premise• Specialist local distributorsSpecialist local distributors

Take OutTake Out

Strategy for success in the U.S.:Strategy for success in the U.S.:

““Niche-Market … Up Market!”Niche-Market … Up Market!”

Thank YouThank You