State of the Spirits Industry 2013

State of the Spirits Industry

2013

Beer49%

Spirits34%

Wine17%

Beer55%

Spirits29%

Wine16%

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

2

Supplier $ Share (Billions) Beverage Alcohol Market Share

Servings (Billions)(1) Growth in Servings

$25.6 $26.3 $27.5 $28.5 $28.8 $28.6 $29.2

$16.0 $17.2 $18.2 $18.7 $18.7 $19.2

$19.9

$8.3 $8.6

$9.2 $9.4 $9.5 $9.8 $10.2

$49.9 $52.2

$54.9 $56.6 $57.0 $57.6

$59.2

2005 2006 2007 2008 2009 2010 2011

Beer Spirits Wine

66.2 66.9 67.8 68.2 66.9 65.7 65.1 63.1

34.9 36.2 37.5 38.0 38.5 39.1 40.2 42.6

17.0 17.6 18.3 18.4 18.5 18.7 19.2 20.3

118.2 120.8 123.7 124.5 123.9 123.6 124.6 126.0

2005 2006 2007 2008 2009 2010 2011 2015P

Beer Spirits Wine

2011 2015P CAGR: 0.3%

Source: Beer Marketers Insights, DISCUS, IMPACT Spirits Databank. (1) Serving size: Beer 12 oz; Spirits 1.5 oz; Wine 5 oz.

2000 2011

1.0%1.3%

0.5%

(1.8%) (1.8%)

(0.9%)

(3.1%)

3.6% 3.6%

1.1% 1.4%1.7%

2.7%

6.1%

4.0% 3.8%

0.4% 0.7%1.3%

2.5%

5.7%

2006 2007 2008 2009 2010 2011 2015P

Beer Spirits Wine

2005 2011 Absolute Growth: Beer: Spirits:

Wine:

(1.7%)

15.0%

13.1%

Wine:

Spirits:

Beer:

3.4%

3.7%

2.2%

2005 2011 CAGRs

020

40

60

80

2005 2006 2007 2008 2009 2010 2011 2012P

Vodka Whiskey Rum Cordials

Tequila Brandy Gin Cocktails

$97

$133

$108 $118

$160

$140

$96

$60

$1.60

$4.25

$2.60 $1.28

($0.11)

$9.17

$0.88 $1.38

Vodka Whiskey Rum Cordials & Liqueurs

Tequila Brandy Gin Cocktails & Mixed Drinks

2011 Average FOB $ Increase from 2010

Vodka and Whiskey are Large and Driving Spirits Industry Growth

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Vodka34%

Whiskey22%

Rum13%

Cordials & Liqueurs

10%

Tequila6%

Brandy6%

Gin5%

Cocktails & Mixed Drinks

4%

172179

185 187 190193 198

203

3.0%

3.6% 3.6%

1.1% 1.4%1.7%

2.7%

2.2%

2005 2006 2007 2008 2009 2010 2011 2012P

9 Liter Cases Consumed Growth %

(cases in millions)

(cases in millions)

69

45

26 21 13 11 10 8

Source: IMPACT Spirits Databank. (1) Serving size: Beer 12 oz; Spirits 1.5 oz; Wine 5 oz.

+5.2%

+0.5%

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

2005 - 2012P

CAGR:

Spirits Industry Market Size Varieties of Spirits

Growth by Spirit Variety Average FOB by Spirit (2011 vs. 2010)

Vodka28%

Whiskey25%

Rum13%

Cordials & Liqueurs

12%

Tequila5%

Brandy7%

Gin6%

Cocktails & Mixed Drinks

4%

2005 2012P

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

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

4

(9L eqv. cases in millions)

35 36 38 39 40 41 42 43

13 15 17 19

20 22 24 26 48.4

51.3 55.0 57.0

60.0 63.0

66.2 69.0

4.1%

6.0%

7.2%

3.6%

5.3% 5.0% 5.1%4.2%

2005 2006 2007 2008 2009 2010 2011 2012P

Domestic Imported Growth %

Overview Vodka Market Size (Consumption)

Top Producers Top Brands

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

Diageo25%

Pernod Ricard

9%

Sazerac8%

Beam6%

Bacardi6%

Campari6%

Constellation5%

Nolet Spirits4%

Other31%

Imported:

Domestic:

9.9%

3.0%

2005 2012P CAGRs

Non-Flavored96%

Flavored4%

Non-Flavored95%

Flavored5%

Non-Flavored78%

Flavored22%

Non-Flavored70%

Flavored30%

Non-Flavored77%

Flavored23%

Non-Flavored91%

Flavored9%

Non-Flavored74%

Flavored26%

Non-Flavored55%

Flavored45%

Vodka SKU-Magedon Growth Driven by Flavor Expansion

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SKU Expansion Over Time Select Vodka Brands Flavor SKU-ing Over Time

Citrus13%

Raspberry12%

Orange10%

Cherry9%

Vanilla7%

Grape5%

Strawberry3%

Apple3%

Other38%

Citrus52%

Raspberry9%

Orange30%

Vanilla6%

Other3%

2000

1.9 Million

9L Cases

7.2 Million

9L Cases

2010

Flavors: 29

2010 Depletions: 9,550

Flavors: 18


Flavors: 11


Flavors: 20


2000 2010 (9L Cases in Thousands)

Source: IMPACT Spirits Databank.

20 21 21 21 21 21 22 22

24 24 24 24 24 24 24 24

43.9 44.3 44.6 44.5 44.7 44.9 45.2 45.4

0.0%

0.9%0.7%

(0.2%)

0.4% 0.4%0.7%

0.4%

2005 2006 2007 2008 2009 2010 2011 2012P

Domestic Imported Growth %

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

6

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

Diageo is the clear category leader with 2 of the top 5 brands and 24% market share

2005 2012P CAGR: 0.5%

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.

Overview Whiskey Market Size(1) (Consumption)

Top Producers Top Brands

(9L eqv. cases in millions)

Diageo26%

Brown Forman

21%

Beam18%

Sazerac7%

Pernod Ricard

7%

Heaven Hill4%

Constellation3%

Campari3%

Other11%

Imported:

Domestic:

0.0%

1.0%

2005 2012P CAGRs

Rank Brand Distiller / Importer

2011

Depletions

(Thousands)

2010 - 2011

Growth

1 Brown-Forman 4,860 2.0%

2 Diageo 4,185 1.0%

3 Beam 3,305 2.5%

4 Diageo 2,390 (1.0%)

5 Constellation 1,780 (0.6%)

Flavored Whiskies Seeing Hyper-Growth and an Explosion of SKUs

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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

$10.5

$2.3

$0.9

$7.9

$1.7

$0.5

Jim Beam Red Stag

Evan Williams Honey

Evan Williams Cinnamon

($ in millions)

Source: IRI 52 Weeks ending December 2, 2012.

Brown-

Forman

70 Proof

Campari

71 Proof

Diageo

71 Proof

Heaven

Hill

70 Proof

Diageo

80 Proof

Beam

80 Proof

Heaven

Hill

70 Proof

Diageo

71 Proof

Ole

Smoky

100 Proof

Brown-

Forman

80 Proof

Beam

80 Proof

Sazerac

125 Proof

New Investment Anchoring Whiskey Brands with a Sense of Place for Authenticity

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Jim Beam American Stillhouse (Beam) Wild Turkey (Campari)

$30 million Jim Beam Visitor Center and

Distillery opened

October 2012 in

Clermont, Kentucky

Offers visitors first ever tour of adjacent

production facility

(expected to attract

200,000+ visitors

yearly)

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

$4 million new Wild Turkey Visitor Center

expected to open in

April 2013 in

Lawrenceburg, Kentucky

Adjacent $40 million bottling and packaging

operation also under

construction (125,000

sq. ft.)

Visitor Center 8x bigger than previous facility

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

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

Majority of Growth Coming from 6 of the Top 10 Players

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Industry Growth by Supplier Largest Growing Spirits Brands in 2012

Source: IRI 52 Weeks Ending December 2, 2012.

Diageo20%

Beam10%

Sazerac 9%

Brown Forman

7%

Pernod Ricard

6%

Constellation Brands

4%

Other44%

Over 55% of the Industrys dollar growth has been driven by the 6 of the Top 10 largest suppliers

Global Spirits Companies Acquiring Market Makers, Typically in Emerging Markets

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August 2012

Acquired

Pending

Acquired

September 2012

Acquired February 2011

Acquired

June 2011

Acquired

March 2012

Acquired

(Sichuan

Swelfun)

December 2011

Acquired

August 2011

Acquired

January 2013

Acquired

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

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Pernod Ricard Current Bacardi Current

Pernod Ricard Pro Forma with Beam Bacardi Pro Forma with Beam

26%

10%

8%

8%

7%

6%

3%

3%

3%

2%

Diageo

Beam

Pernod Ricard

Bacardi

Brown-Forman

Sazerac

Campari

Heaven Hill

Constellation

William Grant & Sons

26%

10%

8%

8%

7%

6%

3%

3%

3%

2%

Diageo

Beam

Pernod Ricard

Bacardi

Brown-Forman

Sazerac

Campari

Heaven Hill

Constellation


26%

19%

8%

7%

6%

3%

3%

3%

2%

2%

Diageo

Pernod Ricard

Bacardi

Brown-Forman

Sazerac

Campari

Heaven Hill

Constellation


Moet Hennessey

26%

18%

8%

7%

6%

3%

3%

3%

2%

2%

Diageo

Bacardi

Pernod Ricard

Brown-Forman

Sazerac

Campari

Heaven Hill

Constellation


Moet Hennessey

Source: IRI 52 Weeks ending December 2, 2012.

Vodka34%

Whiskey24%

Gin14%

Cordials13%

Rum12%

Cocktails3%

Other2%

Rum50%

Vodka22%

Whiskey9%

Gin7%

Cordials6%

Tequila4%

Other3%

Whiskey39%

Vodka 24%

Cordials10%

Rum7%

Gin7%

Tequila6%

Cocktails5%

Other2%

Whiskey33%

Rum24%

Vodka 19%

Tequila7%

Cordials7%

Cocktails5%

Gin4%

Other1%

(Market Share % / Portfolio Overview)




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

Company

(Producer)

(Distributor)

(Distributor)

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)

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

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 in 2011

Formed separate Spirits division in 2009

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

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(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 Groups Millennial-focused division

(Realized)

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Demeter Group Recent Transactions (December 2010 2012)

Acquired by

Acquired by

Acquired by

Acquired by

Acquired by

Acquired by

Acquired by

Acquired by

Has Acquired

Acquired by

Joint Venture With

Acquired by

Acquired by

Private Placement

Transactions Marketed

to Fewer Than 5

Potential Buyers

$850 million

Completed Transaction Value

15

Completed

Transactions

71% 36%

Transactions

Marketed to

1 Buyer

67%

Completed Transactions

in Beverage Alcohol

Acquired by

14

Demeter Group Recent Beverage Alcohol Transactions

July 2012

Acquired By:

Constellation Brands

May 2011

Acquired By:

Crimson Wine Group

March 2011

Acquired By:

Beam Global Spirits & Wine

December 2010

Acquired By:

Fiji Water

September 2012

Acquired By:

E. & J. Gallo Winery

August 2012

Acquired By:


June 2012

Acquired By:

Accolade Wines

June 2012

Acquired By:


May 2012

Acquired By:

Precept Wines

August 2011

Acquired By:

Fiji Water

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Jeff Menashe

Chief Executive Officer

[email protected]

220 Halleck Street, Suite 110

San Francisco, CA 94129

(415) 632-4400

www.demetergroup.net

State of the Spirits Industry 2013

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