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Wine_Industry_Research - Institutional Equity Research WINE...

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Please refer to page 2 of this report for detailed disclosure and certification information. INDUSTRY UPDATE Institutional Equity Research W INE I NDUSTRY R EPORT April 9, 2007 Prices: (4/9/07) Industry: Food & Beverage Timothy S. Ramey, CFA 503.603.3027 [email protected] State of the Wine Industry – Super and Ultra-Premium Wines – Let the Good Times Roll! Silicon Valley Bank (SIVB-$47.94), perhaps the primary lender to the boutique wine community, publishes an annual “State of the Wine Industry” report we find both proprietary to them and quite insightful. SVB is in a unique position to comment on the wine industry, as it uses proprietary non-public data provided by its clients to come up with broad industry metrics. The conclusions are insightful with regard to the $10 and up wine segment and probably very true for the $20 and up producers. We would caution against extrapolating directly to Constellation Brands (STZ – $21.68-BUY) and Brown-Forman (BFB-$64.00-BUY) , both of which are growing in the ultra-premium segment but are, in aggregate, skewed to the sub-$10 price points. From the Silicon Valley Bank report, which may be accessed at www.svb.com/pdfs/wine/SVBWinesForecast07.pdf , we glean the following observations: There is a popular perception that the wine industry has excess wine and planted acres – but this is only true at the very low end of the business. Planted acreage for the ultra-premium wines has lagged the growth of the wines significantly. Grape shortages “are already surfacing in higher-priced segments in Sonoma and Oregon, in particular.” Most wineries have “about the right amount” (60.5%) or “insufficient” (29%) inventory to meet their sales projections for the 2007 year.
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