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State of the Spirits Industry

2013

Spirits Continues to Gain U.S. Market Share at the Expense of Beer


Supplier $ Share (Billions)

Beverage Alcohol Market Share

2005 2011 CAGRs

2000

Wine: 3.4%
Spirits: 3.7%
Beer: 2.2%
$49.9

$52.2
$8.6

$8.3
$16.0

2011

Wine
16%

$17.2

$54.9

$56.6

$57.0

$57.6

$59.2

$9.2

$9.4

$9.5

$9.8

$10.2

$18.2

$18.7

$18.7

$19.2

$19.9

Wine
17%

Spirits
29%

$25.6

$26.3

$27.5

2005

2006

2007

$28.5

2008

Beer

Spirits

$28.8

$28.6

$29.2

2009

2010

2011

Spirits
34%

Wine

Servings (Billions)(1)

Growth in Servings
2011 2015P
CAGR: 0.3%

2005 2011 Absolute Growth:

118.2

120.8

123.7

124.5

123.9

123.6

124.6

126.0

17.0

17.6

18.3

18.4

18.5

18.7

19.2

20.3

34.9

36.2

37.5

38.0

38.5

39.1

40.2

42.6

3.6%

66.9

67.8

68.2

66.9

65.7

65.1

Beer: (1.7%)
Spirits: 15.0%
Wine: 13.1%
6.1%

4.0%

1.0%

66.2

Beer
49%

Beer
55%

3.6% 3.8%
1.3%

1.1%
0.5%

1.4%
0.4%

2006

2007

2008

Beer

2009

Spirits

2010

2011

(1.8%)

2006

2015P

2007

Wine

Source: Beer Marketers Insights, DISCUS, IMPACT Spirits Databank.

(1)

1.7%

0.7%

2.7% 2.5%
1.3%

(0.9%)

63.1

Beer

2005

5.7%

Serving size: Beer 12 oz; Spirits 1.5 oz; Wine 5 oz.


2

2008

2009

(1.8%)
Spirits

(3.1%)

Wine

2010

2011

2015P

Vodka and Whiskey are Large and Driving Spirits Industry Growth
Spirits Industry Market Size

Varieties of Spirits

(cases in millions)

185

179

172

3.6%

187

193

190

2005

203

198

Brandy
7%

3.6%

3.0%

Cocktails &
Mixed
Drinks
4%

Gin
6%

2.7%

2005

2006

2007

2008

1.7%

1.4%

2009

2010

9 Liter Cases Consumed

2011

Growth by Spirit Variety


2005 - 2012P
CAGR:

80

$108

$97

45 +0.5%
40

26
21
13
11
10
8

20
0
Vodka
Tequila

Source: IMPACT Spirits Databank.

Whiskey
Brandy
(1)

2009
Rum
Gin

2010

2011

$140

$133

60

2008

Whiskey
22%

$160

69 +5.2%

2007

Rum
13%

Whiskey
25%

Average FOB by Spirit (2011 vs. 2010)

(cases in millions)

2006

Vodka
34%

Cordials &
Liqueurs
10%

Rum
13%

Growth %

Brandy
6%

Tequila
6%

Cordials &
Liqueurs
12%

2012P

Cocktails &
Mixed
Drinks
4%

Gin
5%

Vodka
28%

Tequila
5%

2.2%
1.1%

2005

2012P

$118

$9.17

$96

$4.25

+2.6%
(0.1%)
+4.7%
(0.3%)
(0.6%)
+2.3%

2012P

Cordials
Cocktails

$2.60

$1.60

$0.88

$1.38

Gin

Cocktails
& Mixed
Drinks

($0.11)

Vodka

Whiskey

Rum

Cordials & Tequila


Liqueurs

2011 Average FOB

Serving size: Beer 12 oz; Spirits 1.5 oz; Wine 5 oz.

$60

$1.28

Brandy

$ Increase from 2010

Vodka is the Fastest Growing Spirit (05 12P CAGR: +5.2%)


Overview

Vodka Market Size (Consumption)


(9L eqv. cases in millions)

Vodka has grown at a faster rater since 2005 than any other
spirit (+5.2%); 4 of the top 5 brands are gaining size
The Vodka market is approximately 60% domestic and 40%
imported
Imported Vodka is pushing industry growth with a CAGR
approaching 10% since 2005; Domestic Vodka is also
growing strong at a 3% CAGR
3 of top 5 Vodkas are imported, with Svedka growing over
10%
Beams Pinnacle will enter the top 10 in 2012 and is growing
nearly 50%
Diageos Smirnoff is the industrys dominant brand, >2x the
size of the 2nd largest Vodka brand

2005 2012P CAGRs


Imported: 9.9%
Domestic: 3.0%
48.4
13

17

19

20

Constellation
5%

Sazerac
8%

Beam
6%

Source: IMPACT Spirits Databank and IRI 52 Weeks Ending December 2, 2012.
4

66.2
24

22

5.3%

69.0
26

5.0%

5.1%

40

41

42

43

2009

2010

2011

2012P

3.6%

35

36

2005

2006

38

39

2007

2008

Domestic

Pernod
Ricard
9%

63.0

7.2%

4.1%

Diageo
25%

Bacardi
6%

57.0

Imported

Top Brands

Nolet Spirits
4%

Campari
6%

15

55.0

6.0%

Top Producers
Other
31%

51.3

60.0

Growth %

4.2%

Vodka SKU-Magedon Growth Driven by Flavor Expansion


SKU Expansion Over Time

Select Vodka Brands Flavor SKU-ing Over Time


(9L Cases in Thousands)

2000

Citrus
13%

Vanilla
6%

2000

2010

Other
3%

Flavored
4%

Raspberry
12%

Other
38%

Flavors: 29
2010 Depletions: 9,550

Citrus
52%

Orange
30%

Orange
10%

Apple
3%

Raspberry
9%

Strawberry
3%

1.9 Million
9L Cases

Grape
5%

Vanilla
7%

Flavors: 18
2010 Depletions: 4,630

7.2 Million
9L Cases

Flavored
23%

Non-Flavored
77%

Non-Flavored
96%

Flavored
22%

Cherry
9%

2010

Flavored
26%

Non-Flavored
74%

Non-Flavored
78%

Flavored
5%

Flavors: 11
2010 Depletions: 2,700

Flavored
9%

Non-Flavored
95%

Non-Flavored
91%

Flavored
30%
Flavored
45%

Flavors: 20
2010 Depletions: 1,800
Non-Flavored
70%

Source: IMPACT Spirits Databank.


5

Non-Flavored
55%

Whiskey is Large and Steadily Growing (05 12P CAGR: +0.5%)


Overview

Whiskey Market Size(1) (Consumption)

Whiskey has grown at a CAGR of 0.5% since 2005; the top 3


brands are growing above the Whiskey average

The Whiskey market is approximately 50% domestic and 50%


imported

Domestic Whiskey is growing at a 2005 2012P CAGR of


1.0% whereas Imported Whiskey is flat

3 of top 5 Whiskies are domestic, with the top 3 brands


all growing above industry growth

(9L eqv. cases in millions)


2005 2012P CAGRs
Imported: 0.0%
Domestic: 1.0%

2005 2012P CAGR: 0.5%

43.9

44.3

44.6

44.5

44.7

44.9

45.2

45.4

24

24

24

24

24

24

24

24

0.4%

0.4%

0.9%

0.7%

0.0%

Diageo is the clear category leader with 2 of the top 5 brands


and 24% market share

0.4%

20

21

21

21

21

21

22

22

2005

2006

2007

2008

2009

2010

2011

2012P

Domestic

Top Producers
Campari
3%

0.7%

(0.2%)

Imported

Growth %

Top Brands

Other
11%

2011

Diageo
26%

Constellation
3%

2010 - 2011

Distiller / Importer

(Thousands)

Growth

Brown-Forman

4,860

2.0%

Diageo

4,185

1.0%

Beam

3,305

2.5%

Diageo

2,390

(1.0%)

Constellation

1,780

(0.6%)

Rank

Heaven Hill
4%
Pernod
Ricard
7%
Sazerac
7%

Depletions

Brown
Forman
21%
Beam
18%

Brand

Source: IMPACT Spirits Databank and IRI 52 Weeks Ending December 2, 2012.
(1) Domestic Whiskey includes Tennessee and Kentucky Whiskies, Bourbons, and Blends. Imported Whiskey includes Scotch, Canadian, Irish, Japanese, and other imported Whiskies.
6

Flavored Whiskies Seeing Hyper-Growth and an Explosion of SKUs


Overview

IRI Growth of Select Flavored Brands

Whiskey brands are SKU-ing into new flavors and un-aged to give
current drinkers expanded offerings and new consumers a more
mild Whiskey entry

Both line extensions (Jim Beam Red Stag, Jack Daniels Tennessee
Honey, etc.) as well as upstart brands (Ole Smoky Tennessee
Moonshine, Cabin Fever Maple Honey, etc.)

Typically a combination of flagship Whiskey mixed with


flavored liqueurs

Line extensions generally priced a few dollars premium to


the original product

Un-aged Whiskey, also known as White Whiskey or


Moonshine, easy to flavor, as well as attracting the Whiskey
enthusiast, looking for a higher proof Whiskey

BrownForman
80 Proof

Beam
80 Proof

Sazerac
125 Proof

BrownForman
70 Proof

Campari
71 Proof

($ in millions)

$10.5
$7.9

$0.5

Evan Williams
Cinnamon

Diageo
71 Proof

Source: IRI 52 Weeks ending December 2, 2012.


7

Heaven
Hill
70 Proof

$1.7

$0.9

Diageo
80 Proof

$2.3

Evan Williams
Honey

Beam
80 Proof

Heaven
Hill
70 Proof

Jim Beam
Red Stag

Diageo
71 Proof

Ole
Smoky
100 Proof

New Investment Anchoring Whiskey Brands with a Sense of Place for Authenticity
Jim Beam American Stillhouse (Beam)

Wild Turkey (Campari)

$30 million Jim Beam


Visitor Center and
Distillery opened
October 2012 in
Clermont, Kentucky

$4 million new Wild


Turkey Visitor Center
expected to open in
April 2013 in
Lawrenceburg, Kentucky

Offers visitors first ever


tour of adjacent
production facility
(expected to attract
200,000+ visitors
yearly)

Adjacent $40 million


bottling and packaging
operation also under
construction (125,000
sq. ft.)

Also will house new state-of-the-art Global Innovation


Center

Visitor Center 8x bigger


than previous facility

Evan Williams Bourbon Experience (Heaven Hill)

Independent Brand Visitor Centers

$10 million Evan Williams Visitor


Center expected to open in
September 2013 in downtown
Louisville, Kentucky
Artisanal distillery, immersive
tourism experience, and retail
location located in Heaven Hills
Bourbon Row Main Street
location

Ole Smoky Tennessee Moonshine


opened a retail / production facility in
Gatlinburg, Tennessee in July 2010

Michters Distillery opened a distillery,


bottling operation, and Visitor Center
($8 million) in Louisville, Kentucky in
July 2011

Four Roses Distillery completed 5,000


sq. ft. Visitor Center expansion ($2.4
million) in Lawrenceburg, Kentucky in
September 2012

Majority of Growth Coming from 6 of the Top 10 Players


Industry Growth by Supplier

Largest Growing Spirits Brands in 2012

Over 55% of the Industrys dollar growth has been driven


by the 6 of the Top 10 largest suppliers
Diageo
20%

Other
44%

Beam
10%

Sazerac
9%
Constellation
Brands
4%

Pernod
Ricard
6%

Brown
Forman
7%

Source: IRI 52 Weeks Ending December 2, 2012.


9

Global Spirits Companies Acquiring Market Makers, Typically in Emerging Markets

Acquired
Acquired
Acquired
December 2011

Acquired

February 2011

(Sichuan
Swelfun)
March 2012

September 2012

Acquired

January 2013
Acquired

Acquired

June 2011

Pending

Acquired

Acquired

August 2011

August 2012

10

Within the U.S., Beam is the Intriguing M&A Target, Especially for Pernod & Bacardi
Pernod Ricard Current

Bacardi Current

(Market Share % / Portfolio Overview)

(Market Share % / Portfolio Overview)

Diageo

Beam

Cocktails
3%

10%

Pernod Ricard

8%

Bacardi

8%

Brown-Forman

Rum
12%

Sazerac

6%
3%

Heaven Hill

3%

Constellation

3%

Vodka
34%

2%

Bacardi

19%

Sazerac

Heaven Hill

3%

Constellation

Tequila
6%

Cocktails
5%

Campari

3%
3%

Constellation

3%

2%

Moet Hennessey

2%

2%

Vodka
22%

18%
8%

Brown-Forman

7%

Sazerac

Rum
7%

Vodka
24%

11

Cocktails
5%

Gin
4%

Other
1%
Whiskey
33%

Cordials
7%

6%

Campari

3%

Heaven Hill

3%

Constellation
Cordials
10%

Source: IRI 52 Weeks ending December 2, 2012.

26%

Pernod Ricard

3%

William Grant & Sons

Whiskey
9%

Bacardi

Other
2%

Whiskey
39%

Gin
7%

6%
3%

Rum
50%

6%

Diageo

26%

Campari

Gin
7%

(Market Share % / Portfolio Overview)

Diageo

7%

Other
3%

Bacardi Pro Forma with Beam

(Market Share % / Portfolio Overview)

Brown-Forman

Tequila
4%

8%

Heaven Hill

William Grant & Sons

Whiskey
24%

Cordials
6%

7%

Sazerac

Pernod Ricard Pro Forma with Beam

8%

8%

Brown-Forman

Gin
14%

Bacardi

10%

Pernod Ricard

Cordials
13%

Pernod Ricard

26%

Beam

Other
2%

7%

Campari

William Grant & Sons

Diageo

26%

Tequila
7%

3%

William Grant & Sons

2%

Moet Hennessey

2%

Vodka
19%
Rum
24%

At the Same Time, Major Wineries Increasingly See Spirits as an Adjacency


Company

Select Brands

Commentary
Continuing spirits legacy of E. & J. Brandy, Gallo
launched New Amsterdam Gin in 2007 and New
Amsterdam Vodka in 2011

Launched Family Camarena Tequila in 2010


Launched Shellback Caribbean Rum in 2012

(Producer)

Launched Cupcake Vodka in 2011 and flipflop Rum and


Big House Bourbon in 2012, extending successful Wine
brands into Spirits

Housed under Underdog Wine & Spirits, The Wine

(Producer)

Groups Millennial-focused division

Acquired CRUZ Tequila in 2012 and developed


Trinchero Family Estates Spirits division

Signed agreement with Tres Agaves Tequila in 2012 to


import, sell, and market Tequila and non-alcoholic
mixes

(Producer)

Formed separate Spirits division in 2009


Launched 2011 joint venture with Adult Beverage
Company (Chocolate Milk, Limeade) with equity stake
(Distributor)

2011 core initiative to build Spirits division with focus


on acquiring small amounts of equity in distributed
Spirits brands

Sold equity stake in Skinnygirl Margarita to Beam

(Distributor)

in 2011

(Realized)
12

Demeter Group Recent Transactions (December 2010 2012)


Acquired by
Acquired by

$850 million

Acquired by

Completed Transaction Value

Acquired by

15

Acquired by

Completed
Transactions

Acquired by

67%
Completed Transactions
in Beverage Alcohol

Acquired by
Acquired by
Acquired by
Acquired by
Private Placement
Acquired by
Has Acquired
Acquired by
Joint Venture With
13

71%

36%

Transactions Marketed
to Fewer Than 5
Potential Buyers

Transactions
Marketed to
1 Buyer

Demeter Group Recent Beverage Alcohol Transactions

March 2011

May 2011

December 2010

July 2012

Acquired By:
Beam Global Spirits & Wine

Acquired By:
Crimson Wine Group

Acquired By:
Fiji Water

Acquired By:
Constellation Brands

September 2012

August 2012

June 2012

June 2012

May 2012

August 2011

Acquired By:
E. & J. Gallo Winery

Acquired By:
E. & J. Gallo Winery

Acquired By:
Accolade Wines

Acquired By:
E. & J. Gallo Winery

Acquired By:
Precept Wines

Acquired By:
Fiji Water

14

Jeff Menashe
Chief Executive Officer
menashe@demetergroup.net

220 Halleck Street, Suite 110


San Francisco, CA 94129
(415) 632-4400
www.demetergroup.net
15