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Distilled Spirits Council
2014 Industry ReviewNew York City
February 3, 2015
@DistilledSpirit#USspirits
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• Volume growth: up 2.2%
• Revenue growth: up 4.0%
• Market share up 0.5 points
– Total market share gain up 6.4 points since 2000
– Total supplier revenue increased from $11.7 billion in 2000 to $23.1 billion in 2014
– Market share gains tied to product innovation & improved access
2
2014 Economic Overview:
Diversity, Innovation, Quality Drive U.S. Market Results
Distilled Spirits: Steady U.S. Growth in 2014
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Spirits Market Share – RevenueUp 6.4 Points Since 2000, Worth $4.2 Billion
3
26%
27%
28%
29%
30%
31%
32%
33%
34%
35%
36%
Sp
irit
s M
ark
et
Sh
are
32.1%
33.0%33.1%
28.7%
33.1% 32.9%33.3%
34.1%
Source: Beverage Information Group Handbooks, Company Financial
Reports, DISCUS Estimates
34.3%34.7%
35.2%
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Fifth Straight Year of Record Exports
4
• Total exports surpassed $1.56 billion; up 3.7%
• Bourbon/Tennessee Whiskey exports topped $1.02 billion
• Growth substantial in spite of stronger dollar
0
200
400
600
800
1000
1200
1400
1600
1800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014(P)
Mil
lio
ns
$1.56 Billion
+3.7%
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Critical Progress Continues on Social Responsibility
2014 Federal Data:
• Underage drinking continued decline to record low
• Binge drinking by teens continued long-term decline to record low
• Alcohol-impaired driving fatalities decreased 2.5 percent from 2012- 2013
• Public-private partnerships contribute to the progress
5
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• A continued fascination with American Whiskeys in U.S. & abroad
• Innovation in flavors – especially flavored whiskeys
• Premiumization continues to interest consumers
• Improved regulatory and tax environment
– State legislatures continued to show hospitality tax restraint
– U.S. market modernization trend expands access and convenience
• Small distiller growth expands grassroots & category consumer interest
– From 92 in 2010 to over 700 in 2014
– 109 leading small distillers in 31 states have joined DISCUS as affiliate
members
Steady Growth and Record Exports
6
2014 Contributing Factors:
Virginia distilleries ask Gov. Terry McAuliffe to pull back
on plan to raise liquor prices
Prohibition of Sunday liquor sales is antiquated
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7
Seeds for Growth:
2014 U.S. Market Access Improvements
• Last Election Day alcohol sales ban repealed in South Carolina
• Spirits tastings expansions in: CA, ID, ME, MS, OH
– Tastings laws key to premiumization
– 46 states now allow some form of spirits tastings
• Local alcohol elections continue trend of modernization across nation– TX: 64 out of 81 wet-dry alcohol elections passed in 2014 (79%)
– 602 out of 754 alcohol elections have passed in TX since 2004 (80%)
• Local option on- and off-premise Sunday sales trend spreads– GA: 6 more off-premise Sunday sales elections passed in 2014
– Sunday brunch crowd – more localities vote “wet” Sundays for restaurants
– Since 2002, 16 states and DC have passed Sunday sales for total of 39 states
East Texans Approve Alcohol Sales on Election Night
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2014 U.S. State Hospitality Tax Scorecard
• Major tax threats defeated in 11 out of 11 states
– AL, HI, MA, MS, NM, NC, NY, OH, PA, VA, WV
– 2014 very low tax threat year
– Election year concerns may have affected legislators
• “Hospitality Tax” message continues to resonate with policymakers
• Defeated 348 out of 377 major tax threats since 2001 (92%)
• Municipal tax threats continue to challenge industry
– Montgomery (AL), Cuyahoga County (OH), NYC, Boston, New Mexico localities
Booze price hike irks Va. consumers,
restaurants
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• States and localities increasingly seek to modernize outdated alcohol laws
– Control states generally seeking to increase outlets
– Growth factors: convenience/hospitality job growth/tax revenue
• Increasing grocery interest in spirits sales
– DISCUS opposes wine-only in grocery store
– Presently 27 states permit grocery sales of spirits
• Privatization debate continues in several Control states
– DISCUS neutral on privatization but will engage any serious effort
– Outgrowth of modernization trend
2014/2015 Trends & Developments
9
Editorial: Liquor privatization will return, and cost-conscious drinkers should be glad
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• Tech advances drive sales through improved consumer convenience/experience
– Advances provide sharp contrast to Prohibition-era laws
– Apps such as Drizly/Minibar highlight consumer demand for convenience
– Cocktail apps and social media engagement
• Innovation, premiumization and local distillation continue
10
2014/2015 Trends & Developments
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David Ozgo
SVP, Economic & Strategic Analysis
Industry Economic Review – 2014
11
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• Industry growth
• Market share
• Growth by price segment
• Flavored whiskey impact on the market
• Small distiller growth
• 21 – 34 year olds and economic growth: an opportunity
• Category performance
Economic Review - 2014
12
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U.S. Spirits Supplier Revenues Up 4.0% to $23.1B
$900 Million Gain
13
0
2
4
6
8
10
12
14
16
18
20
22
24
Su
pp
lier
Gro
ss R
ev (
Bil
.)
$22.2
Source: DISCUS MSDB
$16.0$17.2
$18.2
$11.7
$18.7 $18.7 $19.2$20.4
$21.3
$23.1
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U.S. Volume Up 2.2% in 2014 Up 4.4 Million to 210 Million Cases
14
100
120
140
160
180
200
220
9-L
iter
Case S
hip
men
ts (
Mil
.)
Source: DISCUS MSDB
2.7%4.1%
2.2% 1.7%1.4%
3.0%
2.0%2.9%
3.0% 1.9%2.2%
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Spirits Market Share – RevenueUp 6.4 Points Since 2000, Worth $4.2 Billion
15
26%
27%
28%
29%
30%
31%
32%
33%
34%
35%
36%
Sp
irit
s M
ark
et
Sh
are
32.1%
33.0%33.1%
28.7%
33.1% 32.9%33.3%
34.1%
Source: Beverage Information Group Handbooks, Company Financial
Reports, DISCUS Estimates
34.3%34.7%
35.2%
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Spirits Market Share – VolumeUp 5.5 Points Since 2000, Worth 35 Million Cases
16
20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
30%
31%
32%
33%
34%
Sp
irit
s M
ark
et
Sh
are
29.0% 29.3% 29.5%
27.4%
29.7%30.2%
30.9%31.7% 31.9%
32.5%
Source: Beverage Information Group Handbooks, DISCUS Estimates
32.9%
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• Products are segmented on supplier prices
• Range varies by product category
• Use market leaders to define segments
• Average supplier gross revenue per case:
Case Revenue Retail Bottle Price
– Value $50 <$12/bottle at retail
– Premium $100 $12 - $18/bottle at retail
– High End $165 $18 - $30/bottle at retail
– Super Premium $250 $30+/bottle at retail
Price Segments - 2014
17
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Volume Share by Price Category - 2014
Share of U.S. Spirits Volume
Value Premium High End Super Premium
35.7%
75.0M
8.4%
17.8M
19.6%
41.1M
36.3%
76.3M
18
Source: DISCUS MSDB
% - Industry volume in
price category
M – millions of 9-Liter
cases in price category
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Revenue by Price Category - 2014
U.S. Supplier Gross Revenues
Value Premium High End Super Premium
$4.0B
17.4%
$4.6B
19.7%
$7.0B
30.1%$7.6B
32.8%
19
Source: DISCUS MSDB
% - Industry revenue in
price category
B – Gross revenue in
price category, billions
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Volume Growth by Price Segment - 2014
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
20
-1.3%
Super
PremiumHigh EndPremiumValue
Source: DISCUS MSDB
3.1%
5.8%5.1%
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-1000
-500
0
500
1000
1500
2000
2500
Inc
rem
en
tal
Su
pp
lier
Sh
ipm
en
ts
(000,
9-L
iter
Cases)
Volume Growth by Price Segment4.4 Million New Cases in 2014
2,259
858
2,268
(952)
Source: DISCUS MSDB21
Value Premium High End Super
Premium
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-$50
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
Value Premium High End SuperPremium
Incre
men
tal
Su
pp
lie
r R
even
ues
(mil
lio
ns
)
$351
Revenue Growth by Price Segment$900 Million in New Supplier Revenue - 2014
$433
$145
($31)
Source: DISCUS MSDB22
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84
86
88
90
92
94
96
98
100
102
2007 2008 2009 2010 2011 2012 2013 2014
2007=100
21-34 Year Olds 35+
21 – 34 Y/Os and Weekly Earnings
23
Source: Derived from Bureau of Labor Statistics
Current Population Survey
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$1,000
$1,050
$1,100
$1,150
$1,200
$1,250
$1,300
$1,350
2007 2008 2009 2010 2011 2012 2013 2014
An
nu
al
Earn
ing
s (
Billi
on
s)
Estimated Earnings 21-34 Y/Os
Earnings at 2007 Level Actual
$155 B
Significant Growth Opportunity
24
Source: Derived from Bureau of Labor Statistics
Current Population Survey
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Flavored Market Total – 24.6 MTotal Spirits Market 210.2M
Vodka Rum Whiskey
Flavored Spirits Market – 20149-Liter Cases
25
13.0 M
5.0 M
6.6 M
Source: DISCUS MSDB
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(1,000)
(500)
-
500
1,000
1,500
2,000
2,500
3,000
9-L
iter
Cases
Growth in Flavored Segments - 2014
26
Vodka/Rum Whiskey All Flavors
(900K)
2.8 M
1.9M
Source: DISCUS MSDB
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• Consumer interest in spirits continues to create
opportunities for small distillers
– Many entering whiskey category
• 712 distillers < 50k cases, (avg. of 3k)
• 17 distillers > 50k < 100k cases (avg. 80k)
• Total volume +/- 3.5 million cases
– Up from 700k in 2010
• 1.7% share of spirits market by volume
– Products tend to be at higher price points, so higher
share by revenue likely higher
• Est. supplier revenues of $400-$450 million
Small Distillers
27
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0
10
20
30
40
50
60
2000 2005 2010 2011 2012 2013 2014
9-L
iter
Cases (
milli
on
s)
Whiskey: A Strong Sales DriverAll Whiskeys
28
CAGR 0.2%CAGR 1.1% 1.7% 3.8%
Source: Beverage Information Group
Handbooks, DISCUS MSDB
6.2%7.3%
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• Volume up 7.4% to 19.4M Cases (+1.3M cases)
• Revenues up 9.6% to $2.7 B (+$230M)
• Strength across all price categories
– Value vol. up 4.7% (3.1M), rev. up 5.5% to $181M
– Premium vol. up 8.8% (5.5M), rev. up 10.1% to $566
– High End vol. up 5.7% (9.2M), rev. up 8.1% to $1.6B
– Super vol. up 19.2% (1.5M), rev. up 19.2% to $325
• Growth in both flavored and traditional products
– Traditional products grew 1.2M
– Flavored products grew 140K
Bourbon/Tennessee Whiskey
29
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• Another strong year for Irish Whiskey
– Volume up 9.1% to 2.8M cases
– Revenue up 10.7% to $550M
– Concentrated in High End and Super Premium
• Single Malt Scotch aficionados keep category growing –
volumes up 6.4% to 1.9M cases
– Revenues up 9.2% to $645M
• Blended Whiskey up 42% to 8.7M cases
– Growth driven by flavored products
Irish, Single Malt Scotch & Blended
30
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• Tequila volumes up 5.0%, revenue up 4.0%
– Growth concentrated in Super Premium
• Cognac volumes11.7%, revenues up 15.4%
– Fast Super Premium growth
• Vodka volumes up 1.6% (66.9M), revenues up 3.3%
– Growth primarily in High End & Super Premium
– Flavor down, but traditional up 3.7% (53.9M cases)
Other Category Highlights
31
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Summary
• Volume/revenue
– Supplier revenue up 4.0% to $23.1B
– Supplier volume up 2.2% to 210M 9-liter cases
• Bourbon/Tennessee significant growth driver along with
Flavored Whiskey, Irish, Tequila and Cognac
• Continued to increase market share gains
– 34.7% revenue market share, 32.5% volume market share
32
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Christine LoCascio
SVP, International Issues & Trade
International Trade Update
33
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$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2009 2010 2011 2012 2013 2014 (P)
Spirits
Wine
Beer
U.S. Beverage Alcohol Exports 2009-2014(in millions of U.S. dollars)
34
+3.7%
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0
200
400
600
800
1000
1200
1400
1600
1800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014(P)
Mil
lio
ns
All U.S. Spirits
Bourbon andTennessee Whiskey
OTHER whiskeys
U.S. Whiskeys Continue to Drive Record Spirits Exports
Source: U.S. Department of Commerce, Compiled by U.S. International Trade Commission (FAS value – Free Alongside Ship is the value of exports at the U.S. port, based on transaction price including inland freight, insurance and other charges.)
$1.56 Billion
35
$1.02 Billion
Whiskeys Account for 70% of Total U.S. Exports
+3.7%
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Top Ten U.S. Spirits Export Markets
Country 2004 Value (millions of USD)
2014 Projected Value
(millions of USD)
% growth since 2004
Canada 100.6 212.6 +111%
UK 120.7 177.6 +47%
Germany 81.7 136.7 +67%
Australia 77.7 131.2 +69%
France 27.6 111.6 +304%
Japan 59 99 +68%
Spain 34.5 82.3 +139%
Netherlands 24.5 61.2 +162%
Mexico 16.8 45.4 +170%
Singapore 4.9 31.6 +545%
Source: U.S. Department of Commerce, Compiled by U.S. International Trade Commission (FAS Value) (FAS value – Free Alongside Ship is the value of exports at the U.S. port, based on transaction price including inland freight, insurance and other charges.)
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2014 Top Six Projected Export Growth MarketsBy Dollar Value Growth (millions) 2014 Projected Total Value
(millions)
United Kingdom +$16.7 $177.6
Spain +$14.1 $82.3
Singapore +$8.6 $31.6
Brazil +$6.4 $9.5
Poland +$6.1 $22.0
Chile +$5.0 $17.1
By Percentage * Percentage Growth 2014 Projected Total Value (millions)
Brazil +208.1% $9.5
Dominican Republic +75.8% $10.8
Bahamas +49.7% $9.0
Israel +43% $6.3
United Arab Emirates
+41.6% $16.1
Panama +40.2% $15.6
*Among countries whose U.S. imports exceed $5 million.
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$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2000
2014 (P)
1170%
1336%
314%
4900%
374%
1167%
5400%
310%
340%
1121%
800%
875%
*DISCUS-conducted U.S. spirits promotionsSource: U.S. Department of Commerce Compiled by U.S. International Trade Commission (FAS Value)
Emerging Export Markets
Experience Substantial Growth2000-2014 (Projected)
332%
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DISCUS/USDA Partnership Promotes
American Spirits Export Growth
• Promotions in 16 markets since 2005: China, Russia, Brazil, India, Hong Kong, Korea, Thailand, Vietnam, Singapore, Chile, Bulgaria, Romania, Czech Republic, Germany, Austria & Colombia
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Trade Negotiations Provide
Significant Opportunities to Expand U.S. Exports
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• Trans-Pacific Partnership ‒ U.S. trade agreement with Australia, Brunei Darussalam,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand,
Peru, Singapore, and Vietnam
‒ May conclude negotiations in early 2015
• Trans-Atlantic Trade and Investment Partnership– U.S.-EU trade agreement
– Opportunity to address non-trade barriers
• Trade Promotion Authority Legislation– Provides President authority to submit agreements to
Congress for up or down vote (no amendments)
• Eliminate and prevent barriers to trade– Labeling, standards, import policies, discriminatory taxes
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