The US Wine Industry

Liz Borodofsky John Dalton John Roeder James Vineyard

Table Of Contents

Background Market Information Nature Of Customers Competition Company Profiles Other Environmental Information Sources

Background

Industry History

American wine first gained prominence in the 19th century. Ohio was the first state to successfully grow wine grapes. Spanish missionaries brought grapes to California and Texas. The wine industry has not regained its size prior to prohibition.

Wine in the US

Wine competes with several substitute beverages in the US, primarily other alcoholic beverages. The American culture historically has seen wine as a luxury beverage, not suitable for consumption on a daily basis.

Wine in the US
Global Wine Consumption Per Capita
U.S. Austria Argentina Spain Italy France 0 2 4 6 8 Gallons 10 12 14 16

Market Information

Market Sectors

Still Red and White wines are the largest market sectors.
Wine Sales by Sector - 2001
Fortified Wine 5% Non-grape 1% Sparkling 5% Red 37%

Rose 17%

White 35%

Market Forecasts 2001-2006

Wine sales in the U.S. are forecasted to remain flat for 2003, but increase steadily into 2006.
2200 2180 2160 2140 2120 2100 2080 2060 2040 2001 2002 2003 2004 2005 2006 Million Liters

Wine Sector Forecast 2002-2006

per million liters

Almost all projected growth will be in the Still Red and White wine sectors.
1000 900 800 700 600 500 400 300 200 100 0 2002 2006 Still Red Wine Still White Wine Still Rose Wine Fortified Wine/Vermouth Sparkling Wine Non-grape Wine

How the Economy affects the US Wine Industry

Wine consumption does not decrease during economic downturns. Demand softens for ultra-premium and luxury wines and increases for lower priced wines. Vintners and growers cited a continued economic downturn as the most significant constraint to industry growth (ahead of global competition, wine/distributor consolidation, and production constraints).

2001 Regional Wine Consumption

The majority of U.S. wine consumption is concentrated in the Northeast and Pacific regions.
160 140 120 100 80 60 40 20 0 Total (million gallons) Northeast South East Central West Central West Southwest Pacific

2001 Regional Wine Consumption Per Capita

3 2.5 2 1.5 1 0.5 0 Per Capita (gallons) Northeast South East Central West Central West Southwest Pacific

U.S. Wine Consumption Per Capita

Nature of Customers

Customer Demographics

Target: US Population over 21 years old

Consumer Profile - % of US adults consuming Wine in the Past 7 Days (2001)
Categories Domestic Table Wine 13.20 20.50 23.60 24.20 21.50 17.70 21.00 21.80 19.80 Imported Table Wine 4.70 6.30 7.50 9.00 7.10 4.40 6.60 6.90 6.30 Champagne and Sparkling Wine 9.20 12.00 12.00 12.20 7.70 5.40 10.10 10.90 9.30

18-24 years 25-34 years 35-44 years 45-54 years 55-64 years 65 + years All Adults Females Males Source: Euromonitor

Market Segments By Price

Purchasing Habits

A majority of US Retail Wine purchases occur at the local grocery store.

Wine Distribution in 2001
Other Food Retailers 15% Discounters 19%

Supermarkets/ Hypermarkets 43%

Specialist outlets 23%

Source: Euromonitor

Competition

Competitive Landscape

E&J Gallo is the largest Volume Seller.

Market Share by Volume
E&J Gallo 25% Constellation Brands 10%

Fosters 5% Robert Mondavi 5% The Wine Group 5%

Other 50%

Competitive Landscape

Despite lower volume sales, Constellation and Fosters generate more revenue than E&J Gallo.
Market Share by Revenue
E&J Gallo 8% Constellation Brands 10% Fosters 10% Other 64% The Wine Group 1% Robert Mondavi 2%

Industry Trends

Medium and large wineries are experiencing significant consolidation while small wineries proliferate (750+ in California alone). Worldwide grape-glut putting downward pressure on prices. Import wines gain market share. Wines from Italy and Australia, now represent 1 in 3 bottles sold in supermarkets. The Super Premium category ($7-$14) is experiencing the highest growth.

Example Segmentation the Robert Mondavi brands

Everyday Beverage: Woodbridge ($6-$8) Super Premium: Robert Mondavi Private Selection ($11) Ultra Premium: Robert Mondavi Winery ($20-$30) Luxury: Robert Mondavi Reserve and District wines ($23-$150)

Company Profiles

Gallo is the worlds largest winemaker. Traditionally focused on lower price categories, particularly jug wines. Newer brands such as Turning Leaf and Gallo of Sonoma are targeted at higher priced segments. 2001 Revenues of $1.65 billion. Major Brands: Carlo Rossi, Gallo, Gallo Reserve, Night Train, Ballatore, Rancho Zabaco.

Constellation Brands

Formerly known as Canandaigua Wine Company (Now a subsidiary). The Canandaigua arm focuses on the lower-priced segments while the Franciscan arms targets Super Premium and Luxury segments. Markets more than 125 brands, including beers, wines, and spirits. 2001 Revenues of $3.2 billion, net income of $97.3 million. Major Brands: Ravenswood, Estancia, Simi, Inglenook, Almaden, Franciscan, Talus. Listed on the NYSE as STZ.

Robert Mondavi

Has ownership in luxury producing wineries like Opus One (California), Ornellaia (Italy), and Sena (Chile). Mondavi primarily targets price segments over $8. Markets brands in each price segment. 2001 Revenues of $0.5 billion, net income of $43 million. Listed on the NASDAQ as MOND.

The Wine Group

Primarily owns low-end brands, but has recently acquired some higher-end brands. Major brands include Franzia, the leading box wine in the US, and Corbett Canyon. 2001 Revenues $300 million, down 14% from 2000. Formerly part of Coca Cola. The Wine Group recently purchased the Glen Ellen and MG Vallejo brands from Diageo.

Other Environmental Information

Government Regulations

The Bureau of Alcohol, Tobacco and Firearms (ATF) regulates the industry. Wine is taxed at the state and federal levels. Individual States determine the regulations regarding the sale, marketing, and shipping of alcoholic beverages. Sales occur through state owned and operated stores in some states.

Direct Shipping of Wine

Wine may not be shipped directly to customers in most US states.

These restrictions are currently being debated at the state and federal levels.

Direct Shipping of Wine

In 2002, US district judges overturned "discriminatory" interstate shipping bans in Virginia, North Carolina, Texas, and even in New York. In 2002, the US House and Senate passed a provision into the Department of Justice Appropriations Authorization Act allowing wine purchased while visiting a winery, to be shipped to another state.

Sources

Euromonitor.com: Information concerning recent trends in sectors, market segment data, forecasts, market share information, customer demographics and company profiles. Business Source Premier article Moving Forward: Regional data of US wine consumption History-of-Wine.com: Everything from the history of wine, wine production around the world, the popularity of wine in various regions Winebusiness.com: Retail wine sales information from the end of September 2002.

Sources
cont.

Hoovers.com: Company Profiles WineryExchange.com: Market Segments RobertMondavi.com: Price Segment offering information, company information Constellationbrands.com: Company Information Gallo.com: Company Information California Association of Winegrowers (cawg.org): Industry News, per capita consumption statistics Forbes, January 6, 2003, p 118: Seeing Stars.: Company information

Sources
cont.

Wineinstitute.org Mindbranch.com Wine Business Monthly