2020 US Wine CurrentsOregon Wine Symposium

Rob McMillan, EVPSilicon Valley Bank

Presented 2/11/2020

Success & Consumer Changes

2

Oregon Is The Envy of Every Region!

Change in Oregon Industry Sentiment:Ebullience!

3

-12.5

48

1040

-23-17

2

-3

-32

13

-50

0

50

100

150

200

Net S

enti

men

t Ind

ex

2015 2016 *2017 2018 2019

Source: 2020 SVB State of the Wine Industry Survey

Overall Industry

Sentiment

Origin $ $ CYA$ % Chg

YA 9L EQ 9L EQ CYA9L EQ % Chg YA

DOMESTIC 10,638,323,208 69,990,043 0.7 119,123,670 -2,748,337 -2.3IMPORTED 3,826,915,144 7,880,107 0.2 39,527,114 -808,870 -2.0CALIFORNIA 9,579,368,020 61,409,984 0.6 110,526,363 -2,612,746 -2.3WASHINGTON 608,937,551 -14,836,957 -2.4 5,038,221 -174,550 -3.3OREGON 219,134,411 24,091,075 12.4 1,114,914 121,110 12.2ITALY 1,213,754,152 18,509,681 1.5 10,407,186 -112,246 -1.1AUSTRALIA 717,867,363 -15,208,046 -2.1 11,730,989 -326,820 -2.7NEW ZEALAND 507,401,792 38,619,451 8.2 3,635,764 258,289 7.6FRANCE 485,741,469 12,401,969 2.6 2,921,598 -75,274 -2.5ARGENTINA 323,728,442 -21,833,939 -6.3 3,510,600 -294,756 -7.7CHILE 254,015,872 -4,423,065 -1.7 3,842,281 -2,201 -0.1SPAIN 158,766,744 -9,992,295 -5.9 1,987,319 -110,564 -5.3

Off-Premise Sales By Origin: In Rare Company!52 Weeks as of 12-28-2019

Source: Nielsen 12-28-2019

Cases - VolumeDollars-Value

TOC

Edit Data Selections

Table of Contents

Market : All Outlets • BA_SUBCATEGORY(C) : TABLE • Product Share Basis : TABLE

Report Name : Report ID : RB01Source : Nielsen AnswersData Context : MFG BevAl Suite WineRun Date : 10/11/18 3:58:13 PM PDT

Copyright © 2018 The Nielsen Company

ReportMeta

Edit Data Selections

https://answers.nielsen.com/portal/site/answers/menuitem.0d4f8dc7a5fb276424fd3c70685072a0/?job_id=A936ABD5BCA94D67A03212F676372C75&open_selector=true

Market : All Outlets • BA_SUBCATEGORY(C) : TABLE • Product Share Basis : TABLE

Report1

Origin$$ CYA$ % Chg YA9L EQ9L EQ CYA9L EQ % Chg YA

DOMESTIC10,638,323,20869,990,0430.7119,123,670-2,748,337-2.3

IMPORTED3,826,915,1447,880,1070.239,527,114-808,870-2.0

CALIFORNIA9,579,368,02061,409,9840.6110,526,363-2,612,746-2.3

WASHINGTON608,937,551-14,836,957-2.45,038,221-174,550-3.3

OREGON219,134,41124,091,07512.41,114,914121,11012.2

ITALY1,213,754,15218,509,6811.510,407,186-112,246-1.1

AUSTRALIA717,867,363-15,208,046-2.111,730,989-326,820-2.7

NEW ZEALAND507,401,79238,619,4518.23,635,764258,2897.6

FRANCE485,741,46912,401,9692.62,921,598-75,274-2.5

ARGENTINA323,728,442-21,833,939-6.33,510,600-294,756-7.7

CHILE254,015,872-4,423,065-1.73,842,281-2,201-0.1

SPAIN158,766,744-9,992,295-5.91,987,319-110,564-5.3

Predicted 2019 Year-End Sales Growth: Oregon

5Source: SVB State of the Wine Industry Survey

10%

13%11%

10%

14%

9%11% 10% 10%

13%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2015 2016 *2017 2018 2019

Change in $ Sales Change in Case Sales

3.60%

9.20%13.20%

6.60%

35.73%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

Oregon: 2019 Direct to Consumer StatsEye-Popping Results!

Source: Wines & Vines, Savos 2020 Report

Average BritishColumbia Napa County New York OregonSonomaCounty Virginia Washington

2015 1237 1644 2507 527 1288 1096 7892016 1297 1369 2776 587 1099 1644 6562017 1114 1159 1497 2051 716 1039 2075 6182018 1160 1261 1453 712 1004 1482 8082019 1520 1815 1372 2729 1079 1098 1464 942

0

500

1000

1500

2000

2500

30002015 2016 2017 2018 2019

Average Monthly Visitors To the Tasting RoomOregon Taking from California?

7

*Only three years worth of information for British Columbia.*2017 New York did not have a significant number of responses to calculate average in 2018

Silicon Valley Bank and Wine Business Monthly 2019 Insights to Successful Consumer Wines Sales Survey

Trended Oregon Off-Premise Sales Growth by Value ($) 52 Weeks through December 2019

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

3/28

/15

6/28

/15

9/28

/15

12/2

8/15

3/28

/16

6/28

/16

9/28

/16

12/2

8/16

3/28

/17

6/28

/17

9/28

/17

12/2

8/17

3/28

/18

6/28

/18

9/28

/18

12/2

8/18

3/28

/19

6/28

/19

9/28

/19

12/2

8/19

Still Showing Handsome Annual Growth

Source: Nielsen

Great Results TodayBut Oregon is part of the Wine Industry

… and

the Industry is Hitting a Ceiling

Total US Table Wine Consumption Flat at BestConsumer Change Driving Trends

300

400

500

600

700

800

900M

illio

ns o

f Gal

lons

Source: California Wine Institute, Gomberg-Fredrikson

What Consumers Is Oregon Attracting?Oregon is Attracting the Same Age Consumers as Other Regions

11

1.3%

16.9%

34.6%

41.3%

6.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Gen Z (21-22) Millennials (23 - 38) Gen X (39 - 54) Boomers (55 - 73) Mature (74+)

2014 2015 2016 *2017 2018 2019

Source: SVB Winery Conditions Survey, 2019

This is a Problem

155,000,000

156,000,000

157,000,000

158,000,000

159,000,000

160,000,000

161,000,000

162,000,000

163,000,000

164,000,000

165,000,000

$12,000,000,000

$12,500,000,000

$13,000,000,000

$13,500,000,000

$14,000,000,000

$14,500,000,000

$15,000,000,000

Dollars Cases

Total US Off-Premise Wine Sales Trends 2014 - PresentVolume Turned Negative 2017. Value has flattened. Some Channel Shifting

Dollars

Cases

Copy

right

© 2

017

The

Nie

lsen

Com

pany

. Con

fiden

tial a

nd p

ropr

ieta

ry. 16.7%

16.6%

17.1%

17.5%17.7%

2015 2016 2017 2018 52 we 9/28/2019

Private Label Wine Growing StronglyPlays to Frugal Consumers Pocket Books

Source: Nielsen Retail Measurement Services, 2015, 2016, 2017, 2018 and 52 weeks ended 3/30/2019

Who is the Wine Consumer?

Exclusive Beer18% People/7% $

Exclusive Spirits6% People/2% $ Vol

Wine & Beer19% People/17% $

Wine & Spirits7% people/7% $

Beer & Spirits8% people/9% $

Exclusive Wine15% People/4% $

Sixty-One Percent of Alc. Bev. Consumers Regularly Drink From Two Categories Only 15% of Drinkers Are Exclusive to Wine. Competition is from Spirits & Beer

Source: Nielsen Homescan Panel, Total US: 52 weeks ending 06/29/19 Wine includes Still & Sparkling; Beer includes FMB and Ciders

WineBeerSpirits

Wine/Beer/Spirits27% People/55% $

Wine Beer

Spirits

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Male Female

MatureBoomerGen XMillennial

Gen

Z

Population is Hitting Key Points in MaturityThe New Consumer Opportunity is Younger

Source: U.S. Census Bureau

Num

ber o

f Peo

ple

Category Sales Growth. Spirits Are Winning the Battle (& Spiked Seltzer)Spirits Are Better at Marketing versus Wine

Source: Nielsen Syndicated Bev Al Databases 52 weeks ending 11-2-2019

2.8

1.31.7

2.1

5.8

2.6

BEER WINE SPIRITS

Wine is 2X more expensive than Beer or Spirits per serving

0

50

100

150

200

250

$-

$2,000.0

$4,000.0

$6,000.0

$8,000.0

$10,000.0

$12,000.0

$14,000.0

$16,000.0

4 Yr Ago 3 Yr Ago 2 Yr Ago 1 Yr Ago Lat. 52 weeks

Num

ber o

f Bra

nds

Mill

ions

of D

olla

rsDollar Sales Number of Brands

Annual Growth Rate in Spiked SeltzersEst. 40% of Spiked Seltzer Growth is Coming From Wine

Source: Nielsen, 11-16-2019

Copy

right

© 2

017

The

Nie

lsen

Com

pany

. Con

fiden

tial a

nd p

ropr

ieta

ry.

Wine in Cans – Occasion Driven?Ready to Drink Sizes Breaks Down Price Barriers for Frugal Consumers

Source: Nielsen Total U.S. 52 weeks ended 11-2-2019

0

100

200

300

400

500

600

$-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

4 Yr Ago 3 Yr Ago 2 Yr Ago 1 Yr Ago Lat 52 weeks

# of

Item

s Sel

ling

Dolla

r Sal

es

Dollar Sales # of Items

Led by …• White and Pink• 375 ml; 250 ml; 187ml

About 1% of dollars

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Wine On Premise Spirits On Premise

On Premise Sales Favoring Spirits ProducersBy-The-Glass Programs Suffer in Restaurants Today

Source: SipSource, 2019

Spirits

Wine

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

187 ML 375 ML 500 ML 750 ML 1.5 L 3 L 4 & 5 L

Shar

e of

For

mat

Gro

wth

Rat

e

Growth Rate Share

Growth and Share of FormatsSmaller and Alternative Formats Growing – Old & Younger Drinkers

21Source: Sip Source, 9-19Tetra Pak in 500ml

Varietal Growth & Share of MarketBubbles and Rosé Leading Growth – Both Skew to Younger Drinkers

22

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

Shar

e of

Mar

ket

Gro

wth

Rat

e

Growth Rate Share of Market

Source: SipSource, 12M rolling Sept 2019

Consumption Preference Alcohol & CannabisWill Younger Consumers Continue to Move to Wine as they Age?

Sources: Scarborough Research, SVB Analysis

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Millennials (22 - 37) Gen X (38 - 53) Boomers (54 - 72) Matures (73+)

Inde

x Ba

se =

100

Recent Beer Recent Liquor Recent Wine Recent Cannabis

Young Consumers Drinks Less AlcoholWhat Happened to the French Paradox and the Mediterranean Diet?

• Source: Nielsen Beverage

5%5%

9%10%

13%14%

15%17%

18%19%

21%24%

32%

0% 10% 20% 30% 40%

I/my partner is expecting or recently had a child

Other

Friends/family are drinking less

More interested in Cannabis

Consuming more non alcoholic beverages

Want to maintain clarity/control

Can't afford to drink as much

Don't want to be hungover

Health related reasons

Don't go out as much as I used to

Consuming more of a different Alcohol beverage

Lost interest in drinking alcohol in general

Opting for healthier lifestyle

Why Are Younger Consumers Are Cutting Back?Health Cited as the Main Reason

Survey conducted online by The Harris Poll in partnership with Nielsen (January 7-9, 2019); n=1,964U.S. adults21+

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

$200.00

White Hispanic AfricanAmerican

Asian

Young Consumers Are More Ethnically DiverseOpportunity is with Hispanic, African American and Asian Consumers

• Source: Nielsen Syndicated Bev Al Databases

Annual Wine Purchases by Ethnicity

Changing the Message

Millennials Aren’t BoomersIf You Want to Sell to Someone, Sell Features they Care About

Value Boomer Millennial Action

Support Group Family Friends Drive Club Socialization

Choice in Food Don't eat if it's bad for you Only eat if it's good for you Ingredients, Calories, "Better for You"

Business Capitalism is the path to individual wealth Wealth comes with social responsibility Define Social Reason You Exist

Diversity Civil Rights Movement drove change Social and ethnic diversity drives change Staffing, tasting room diversity, advertising

Landfills and Waste Disposable culture Green, reuse and repurpose culture Packaging, Carbon Footprint, Sustainability

Spending Conspicuously On important things Improve Wine Value. Hit Important Points

Fun Work Yes please Embed into Events, Tasting Room, Marketing

The Mixologist: An Example of Good Engagement

Curling lanes …Entertainment

More Fun Social Venues Popping Up Daily

More Fun Social Venues Popping Up Daily

Alcohol Occasions Increasingly ActiveIs Wine Something that is Shared in These Type Environments?

The Wine Industry's Idea of Fun is Dated

The Solution For Tasting Rooms?

Current Marketing for Non-Wine Products

Selling Features that Resonate with ConsumersServing Size, Calories, Low Sodium, Low Sugars, Green, Authentic, Natural, Causes

“Natural”, Non-GMO, Mixed Varieties (trial)

No Artificial Sweeteners, Certification Badges, Gluten Free

Plant-Based, Natural, No Sugar, Organic, Gluten Free

Moving Away from Long Days and Cool Nights

What’s the Secret to Alpha Growth?

41

1. Connect with Old and Young generations. Don’t create or perpetuate “Your parent’s tasting room.” (Consider activity and outdoors.)

2. Internet sales: We can do better than 3% when Luxury sells 17% on line3. Sell a destination, values, or a brand concept – then sell wine4. Boots on the Street in the US – Regional Focus. Take advantage of the “side

hustle” economy5. Big Data: Make DtC marketing and sales more efficient6. “On-ramp” your young consumers – “Two Lenses” for every event and project

Thank You!

Questions:Rob McMillanrmcmillan@svb.com

Slide Number 1Slide Number 2Change in Oregon Industry Sentiment:�Ebullience!Slide Number 4Predicted 2019 Year-End Sales Growth: OregonSlide Number 6Average Monthly Visitors To the Tasting Room�Oregon Taking from California?Trended Oregon Off-Premise Sales Growth by Value ($) � 52 Weeks through December 2019Slide Number 9Total US Table Wine Consumption Flat at Best�Consumer Change Driving TrendsWhat Consumers Is Oregon Attracting?�Oregon is Attracting the Same Age Consumers as Other RegionsSlide Number 12Private Label Wine Growing Strongly�Plays to Frugal Consumers Pocket BooksSlide Number 14Sixty-One Percent of Alc. Bev. Consumers Regularly Drink From Two Categories Slide Number 16Category Sales Growth. Spirits Are Winning the Battle (& Spiked Seltzer)�Spirits Are Better at Marketing versus WineSlide Number 18Wine in Cans – Occasion Driven?�Ready to Drink Sizes Breaks Down Price Barriers for Frugal ConsumersSlide Number 20Growth and Share of Formats�Smaller and Alternative Formats Growing – Old & Younger DrinkersVarietal Growth & Share of Market�Bubbles and Rosé Leading Growth – Both Skew to Younger DrinkersConsumption Preference Alcohol & Cannabis� Will Younger Consumers Continue to Move to Wine as they Age?Slide Number 24Slide Number 25Slide Number 26Slide Number 27Slide Number 28The Mixologist: An Example of Good EngagementMore Fun Social Venues Popping Up DailyMore Fun Social Venues Popping Up DailyAlcohol Occasions Increasingly Active�Is Wine Something that is Shared in These Type Environments? The Wine Industry's Idea of Fun is DatedThe Solution For Tasting Rooms?Slide Number 35Slide Number 36Slide Number 37Slide Number 38Slide Number 39Slide Number 40Slide Number 41Slide Number 42