Dollars and Sense

SVB Financial Group

Rob McMillan
EVP & Founder
SVB Wine Division

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Discussion Today

•Economy
•Winery Specific Look

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What We Predicted for 2010 ….

• Trading-Down will end but Profitability Impacted

• “L” Shaped Recovery
• Discounting into the fall
• 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
• Sales growth in the 8% - 12% range overall for Fine Wine

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Economic Opportunity and Obstacles

o Factories Producing More

o Consumers Spending More – Going Out More
o Companies Hiring More
o Stability of the Tax System/Rates
o Improved Consumer and Business Sentiment ….. But
o Lower Home Prices & Unsold Home Inventory
o Higher Commodity Prices
o Fed Has to Remove Stimulus
o Walking Zombie States and Municipalities
o Sovereign Debt Defaults (PIIGS)
o Higher Interest Rates ( …. Higher home and US Debt payments)
o Non-Functioning Asset Backed Debt System

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Wineries vs. Growers

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Monthly Growth in Retail Sales
- Consumers Spending More

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ECRI Weekly Leading Indicator Index

Source: Economic Cycle Research Institute 7

Luxury Spending Making a Comeback

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Restaurant Same Store Sales

Source: Demeter Group 9

NRA Current Situation Index

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Job Creation –
Companies Hiring More

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Unemployment versus Wine Sales

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Window of Affluence

Source: Unity Marketing 13

Luxury Drought

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Unemployed and Underemployed

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Unemployment Trends - Will Take Time Still

2016 ?

Source: Bureau of Labor Statistics 16

Single Family Housing Starts Bumping on the Bottom

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Long Term Interest Rates

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Wineries versus Growers

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Financial Condition of Wineries

84% of Sonoma Wineries Good+.

Only 6% Very Weak

Source: Silicon Valley Bank Proprietary Research 20

Credit Availability Since the Market Crash

72% Said “More Difficult.”

Source: Silicon Valley Bank Proprietary Research 21

What Will You do with the Price of Your Wine?

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Inventory Positions in the Cellar

Source: Silicon Valley Bank Proprietary Research 23

Fine Wine Financial Snapshot Q2 2010

Source: Silicon Valley Bank PGA Data

Can Wineries and Growers Really Get Along?

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Actively Participate in a SM Platform and Interact

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Don’t Actively Use SM as a Tool

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Use a CRM and Track Buying Patterns and Demographics

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We have a Digital Marketing Plan in Place

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A Dedicated Employee to Execute using Digital Tools

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Survey Customers to Discover Post-Purchase Experiences

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2010 Will be ………….
50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%
The best year in our One of our better A good year A year in which we A disappointing One of our most The most difficult
history years will be pretty much year challenging years year in our history
treading water

Source: Silicon Valley Bank Proprietary Research 32

A Better Tomorrow ……. After tomorrow anyway

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2011 Will be …………….

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Grape Purchases vs. Price in 2011

60 % Expect to buy more 65% Expect to spend less

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Early Predictions for 2011

• Slowly Improving Restaurant Sales

• Slowly Improving Economy with a Hangover
• Continued Distribution Issues
• Large Euro and US Economic Challenges
• High Costs to Produce Wines with Lowed Price Points
• Inventory Closer to Balanced than most think
• Improving Consumer Economy with Hangover
• Flat Pricing on Grapes except in Best Properties
• Double Digit Growth in Fine Wine Sales and Flat Profit

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Presentation or Banking Questions:
Email: Rob McMillan
Twitter: @svbwine
RMcMillan@svb.com
707-967-1367

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