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

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Luxury Spending Making a Comeback

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Restaurant Same Store Sales

Source: Demeter Group

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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

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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

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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

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Credit Availability Since the Market Crash
72% Said “More Difficult.”

Source: Silicon Valley Bank Proprietary Research

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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

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

Source: Silicon Valley Bank Proprietary Research

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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 If you tweet about this report, please use #SVB
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