SVB 2011-2012 Wine Report Webinar Slides
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The document summarizes the 2011 state of the wine industry. It predicts steady, long-term growth in fine wine sales after the industry hit bottom in 2010. The economic recovery is gaining momentum as consumer spending, hiring, and retail sales increase, though unemployment remains high. The fine wine industry saw improved sales growth and profit margins in 2010 compared to prior years, indicating it may be past the worst effects of the recession but still faces challenges from high inventory levels and an uneven economic recovery.
SVB 2011-2012 Wine Report Webinar Slides
- 1. 2011-2012 State of the Wine Industry Rob McMillan, EVP & Founder, SVB Wine Division April 27, 2011 Join the conversation on Twitter by following @SVB_Financial and using #SVBonWine. “We believe we are at the beginning of another long-term steady growth pattern in fine wine sales.” Twitter: #SVBonWine
- 2. Speakers Rob McMillan Paul Mabray EVP & Founder Chief Strategy Officer, Digital Guru Silicon Valley Bank, Wine Division VinTank Paul Mabray is an independent third party and is not affiliated with SVB Financial Group. Twitter: #SVBonWine 2
- 3. THE EXPLODING WARRANTS Twitter: #SVBonWine 3
- 4. Agenda • Review of Previous Predictions • Economic Thumbnail o A case for increasing demand • Industry Financial Performance o Past the bottom? • Pricing – Discounting, Price Resets, and upside • Inventory Levels o It’s always something … too much or not enough? • Digital Practices o What does that even mean? Twitter: #SVBonWine 4
- 5. And the winner this year is … Twitter: #SVBonWine 5
- 6. In 2010 We Predicted • Trading-down will end but profitability will be impacted • “L” shaped recovery • Improving affluent consumption – with a continuing gulf • Price pressure on wines in distribution • Slightly too much inventory. Growers will be impacted. • Modest improvement in restaurant sales • Distribution continues ambivalent toward small wineries • Discounting into Q3 2010 • Sales growth in the 8% - 12% range overall for Fine Wine Twitter: #SVBonWine 6
- 7. Economic Opportunity … Smells Like Recovery • Government Still Spending on Stimulus • Factories Producing More • Consumers Spending More – Going Out More • Companies Hiring More – Unemployment dropping • Retail Sales Improving • Stability of the Tax System/Rates • Improved Consumer and Business Sentiment … But • Huge Unknowns in Macro and National Economies, Geo- Political Risk, and Securitizations Twitter: #SVBonWine 7
- 8. Monthly Growth in Retail Sales - Consumers Spending More Source: http://www.calculatedriskblog.com/ Twitter: #SVBonWine 8
- 9. ECRI Weekly Leading Indicator Index Source: Economic Cycle Research Institute Twitter: #SVBonWine 9
- 10. Restaurant Same Store Sales Source: Demeter Group Twitter: #SVBonWine 10
- 11. Overall Restaurant Performance Index Source: http://www.calculatedriskblog.com/ Twitter: #SVBonWine 11
- 12. Layoffs Dropping & Job Openings Increasing Source: http://www.calculatedriskblog.com/ Twitter: #SVBonWine 12
- 13. Long Term Credit Rating Tim Geitner, 2/8/2010: “The U.S. is in no danger of losing its Aaa debt rating” S&P, 4/18/2011: We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013. If an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer Source: Bianco Research, LLC „AAA‟ sovereigns Twitter: #SVBonWine 13
- 14. Unemployment Trends - Will Take Time Still 2016 ? Source: Bureau of Labor Statistics Twitter: #SVBonWine 14
- 15. Uneven Recovery Source: NAR Twitter: #SVBonWine 15
- 16. Total Asset Backed Security Issuance Source: Bianco Research, LLC Twitter: #SVBonWine 16
- 17. HR1161 … Keeping our communities safe Twitter: #SVBonWine 17
- 18. HR 1161 (www.TheCareAct.org) Twitter: #SVBonWine 18
- 19. Who Buys Your Wine? Twitter: #SVBonWine 19
- 20. Demographic Sketch of Wine Drinkers Race/Ethnicity Unemployment Rate % of Population % of Wine White 8.50 68.90 78.50 Hispanic 13.00 13.40 8.90 African Americans 15.80 10.80 7.30 Age 21-24 15.30 7.40 4.00 25-34 10.10 18.70 13.60 35-44 7.80 19.60 16.30 45-54 7.50 20.60 22.00 55+ 6.90 33.70 44.10 Education High school diploma 15.30 19.20 10.20 No College 10.60 28.40 20.20 College Grad 4.90 24.30 39.90 Source: Nielsen Beverage Division Twitter: #SVBonWine 20
- 21. Affluent Spending Represents: • 50% of Nation’s Income • 40% of All Consumer Spending • 90% of Discretionary Income spent on non-essentials • 80% of all Premium Wine Sales DJLUX Source: www.bigcharts.com Twitter: #SVBonWine 21
- 22. Window of Affluence: 35-54 Age Consumers 86,000 85,000 84,000 Consumers 83,000 82,000 81,000 80,000 79,000 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 45-54 38750 41050 41900 43250 44100 44000 42900 42000 41000 39400 35-44 44750 43750 42800 41650 40000 39000 38900 38900 39100 40150 Source: Unity Marketing Twitter: #SVBonWine 22
- 23. The Exploding Warrants Live from the Fillmore Twitter: #SVBonWine 23
- 24. Financial Condition of Wineries Twitter: #SVBonWine 24
- 25. Change in the Financial Condition of Wineries 35% 30% 25% 20% 2011 15% 2010 10% 5% 0% Rock Solid Very Strong Strong Good Slightly Very Weak On Life Dead Weak Support Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 25
- 26. How is the Fine Wine Industry Really Doing? 70.0% 59.0% 60.0% 57.0% Sales Growth and Pretax Profit 50.0% 55.0% 40.0% Gross Margin 53.0% 30.0% 51.0% 20.0% 49.0% 10.0% 0.0% 47.0% -10.0% 45.0% 12/31/2002 12/31/2003 12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 Gross Margin 51.5% 50.2% 51.5% 52.8% 54.5% 57.1% 55.3% 52.4% 53.70% Sales Growth 5.2% 17.6% 25.5% 19.4% 21.2% 22.3% 2.0% -3.8% 10.80% Pretax Profit 3.2% 6.3% 7.6% 12.6% 11.3% 16.3% 9.5% 2.2% 6.70% Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 26
- 27. Credit Availability Since the Market Crash 40% 35% 30% 25% 20% 2011 15% 2010 10% 5% 0% Much Easier Somewhat Unchanged Somewhat Much more Almost easier more difficult difficult impossible to get Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 27
- 28. Bottle Pricing Changes Twitter: #SVBonWine 28
- 29. Trading Down? Source: Nielsen Beverage Twitter: #SVBonWine 29
- 30. Overall Belief of Pricing Upside Price Changes in 2011 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Reduce the shelf price Reduce the shelf price a Hold my shelf price Selective price increases Shelf price increases on significantly little most or all wines. Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 30
- 31. Price Changes by Price Point 35% 30% 25% 20% Reduce Prices 15% Increase Prices 10% 5% 0% >$15 $15-$20 $21-$25 $26-$30 $31-$40 $41-$70 >$70 Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 31
- 32. Inventory Levels Twitter: #SVBonWine 32
- 33. Ranked Inventory Imbalance Net Imbalance 47.37% 27.27% 18.49% 18.18% 14.44% 13.70% 12.82% 11.11% 10.00% 5.80% 1.85% 0.00% -23.08% Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 33
- 34. Changes in Inventory Positions YOY 60% 50% 40% 30% 2011 2010 20% 10% 0% We have way too We have too much We are roughly in Are short on wine Are very short on much wine wine balance wine Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 34
- 35. Inventory Position by Price Point 40% 35% 30% 25% 20% Excess Wine Short on Wine 15% 10% 5% 0% <$15 $15-$20 $21-$25 $26-$30 $31-$40 $41-$70 >$70 Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 35
- 36. Current Supply From Survey and Brokerage 2006 2007 2008 2009 2010 2011 Chardonnay Sauvignon Blanc Cabernet Merlot Pinot Noir Syrah Zinfandel Overall Premium Source: Turrentine Wine Brokerage, Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 36
- 37. Bearing vs. Non-Bearing West Coast Fine Wine Source: Premiere Pacific Vineyards, 2011 Twitter: #SVBonWine 37
- 38. Grape Purchases vs. Price in 2011 59% Expect to buy more 64% Expect to spend less Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 38
- 39. THE EXPLODING WARRANTS Twitter: #SVBonWine 39
- 40. Changes and Impact in Digital Twitter: #SVBonWine 40
- 41. Actively Participate in a SM Platform and Interact Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 41
- 42. Don’t Actively Use SM as a Tool Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 42
- 43. Use a CRM and Track Buying Patterns and Demographics Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 43
- 44. We have a Digital Marketing Plan in Place Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 44
- 45. A Dedicated Employee to Execute using Digital Tools Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 45
- 46. Survey Customers to Discover Post-Purchase Experiences Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 46
- 47. 2011 Will be … 2011 vs. 2010 Outlook 50% 45% 40% 35% 30% 25% 20% 2011 15% 2010 10% 5% 0% The best One of our A good year A year of A One of our The most year in our better years treading disappointing most difficult year history water year challenging in our history years ever Source: Silicon Valley Bank Proprietary Research Twitter: #SVBonWine 47
- 48. Predictions for 2011-2012 • Growth in luxury goods will outpace the rest of the economy • Trading up trend will accelerate in higher priced wine • Marginally improved pricing power at the producer level • Boomers and Gen X will support most of the fine wine recovery • Improving restaurant sales, specifically in full-serve restaurants • Producer level inventory closer to balanced than most seem to think • Shifting threats to the legal landscape for direct shipping • Flat or declining pricing on grape contracts except in best properties • Sales growth of 11% - 15% with marginally improving profits • Slowly improving economy, but several issues that hold back prediction of a rapid return to the good old days. Twitter: #SVBonWine 48
- 49. Good Luck. We’re All Counting On You. Twitter: #SVBonWine 49
- 50. Questions? Rob McMillan, EVP & Founder SVB Wine Division RMcMillan@svb.com 707.967.1367 @SVBWine Twitter: #SVBonWine 50
- 51. Disclosures This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction. Silicon Valley Bank is not selling, marketing or distributing wine or wine-related products. Through its SVBwines.com Web site, Silicon Valley Bank provides information to clients, employees and other parties and refers those users to wineries and other wine industry service providers. These communications are for informational purposes. Silicon Valley Bank is not responsible for (or a participant in) the sales of any of the wineries' products in any fashion or manner, and makes no representations that any promotion or sales of alcoholic beverages will or will not be conducted in a lawful manner. Further, Silicon Valley Bank disclaims any responsibility or warranty for any products sold by wineries or other wine industry service providers. ©2011 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. Silicon Valley Bank is a member of SVB Financial Group. SVB>, SVB>Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. 0211- 0012 Twitter: #SVBonWine 51
- 52. Twitter: #SVBonWine 52