Distilled Spirits CouncilDistilled Spirits CouncilDistilled Spirits Council2011 Industry ReviewDistilled Spirits Council2011 Industry Reviewyy

New York CityNew York CityNew York CityJanuary 30, 2012

New York CityJanuary 30, 2012

Top Line Economic Snapshot2010 t 20112010 to 2011

• Volume growth: up 2 7% to 195 8M 9-liter casesVolume growth: up 2.7% to 195.8M 9 liter cases

• Revenue growth: up 4.0% to $19.9B

• Revenue market share grows to 33.6%

• Export growth: up 16.5% to $1.34B

2

Spirits revenues up 4.0% to $19.9B2000 2007 average growth 6 5%2000 – 2007 average growth 6.5%

20 $18 2$18 7 $18 7$19.1 $19.9

14161820

ev (B

il.)

$13.2$13.9$15.1 $16.0$17.2 $18.2$18.7 $18.7

8101214

Gro

ss R

e $12.2 $13.2$11.7

2468

pplie

r G

02

Sup

3Source: DISCUS MSDB

2011: Industry Growth Returns

• Growth leads to more market share gains

N l 5 i t i 2000– Nearly 5 points since 2000

• Industry drives growth through innovation

• Economic improvement fosters return to premiumization

– Decade of industry emphasis on high end bears fruit– Decade of industry emphasis on high end bears fruit

• Modernization helps to level the playing field

• Strong case against higher hospitality taxes largely successful

– Mitigates economic harm to the hospitality industryg p y y

• Record exports boost U.S. economy4

2011: Industry Growth Returns

• Responsible marketing initiatives contribute to market share gain

• Extraordinary fascination with spirits continues

– Innovation built on heritage key to fostering growth

• Social responsibility gains accompany commercial gains

• Government emphasis on moderate drinking contributes to social responsibilityp g p y

• 2012: Challenges for maintaining growth Korea:

5

Factors Driving Market Share Growth:I d t C ti it

• Innovation

Industry CreativityInnovation– Bold modification of iconic brands– New products; flavor trends spread to different categories

St b d h it id f d ti f i ti– Strong brand heritage provides foundation for innovation

• Premiumization– On-premise strength builds off-premise growth– Affordable luxuries even during tough economic times– New categories of consumers embrace high-end spiritsNew categories of consumers embrace high end spirits– Consumers are returning to premium products

• Craft distilling large and small adds to consumer interest• Craft distilling, large and small, adds to consumer interest

6

Factors Driving Market Share Growth:Market Modernization Momentum ExpandsMarket Modernization Momentum Expands

• “Deep South” Georgia passes Sunday Salesp g p y– Becomes 37th state; 15 new states have passed Sunday Sales since 2002

– Over 100 local Georgia communities raced to pass; Atlanta votes 82-18% yes

– What does this bode for Dallas, Hartford, Indianapolis & Minneapolis?

• Wet/Dry votes proliferate; opens many new marketsTX 2011 35 f l l ti– TX 2011: 35 more successful elections

– 315,000 new adult consumers

• Many liberalized trade practices also contribute to growthMany liberalized trade practices also contribute to growth– 43 states allow some form of spirits tastings

– Helps drive premiumization trend

• Washington State privatization encourages control states to modernize

7

Factors Driving Market Share Growth:Strong Case Against Higher Taxes Resonates With Most Policy Makers

• 2011 budget gaps applied serious tax pressure in states

Strong Case Against Higher Taxes Resonates With Most Policy Makers

• Despite tough economy, industry successfully fought back majority of threats

• Spirits taxes repealed in Massachusetts and Michigan

• Spirits tax threats materialized in 20 states

• Threats defeated in 18 states; avoids harm to the hospitality industry

• Municipal taxes a growing concern:

– Tax increases in D.C. and Chicago-area are harmfulTax increases in D.C. and Chicago area are harmful

8

Factors Driving Market Share Growth:Responsible and Innovative Marketing

• Creative marketing campaigns support new product growth

Responsible and Innovative Marketing

• Spirits advertising achieves widespread equal treatment• Sports sponsorships are now commonplace

I d k i C d 1 6% d l d hi• Industry marketing Code: 71.6% new adult demographic– Demographic standard raised immediately to track latest Census data

• New industry social media guidelines added to Code• New industry social media guidelines added to Code– Provides framework for new marketing approaches

9

Factors Driving Market Share Growth:Extraordinary Fascination With Spirits Continuesy p

10

Social Responsibility Gains Accompany Commercial GainsImportant 2011 Developments:

p y p y

• Record lows in major U.S. Government annual studies: – Underage drinking rates and drunk-driving fatalities at lowest levels since surveys began

• Industry commitment to social responsibility efforts key to progress

• Proves again that population-based controls are not effective or warranted 11

Government Emphasis on Moderate Drinking Contributes to Social Responsibility

Important 2011 Developments:

• New Federal Dietary Guidelines d d fi iti f t d d d i k

Government Emphasis on Moderate Drinking Contributes to Social Responsibility

underscore definition of standard drink- Emphasize standard drink of beer, wine and

spirits contain same amount of alcoholFirst time: 6 oz measure included- First time: .6 oz measure included

- Science contributes to equal treatment

CDC St d• CDC Study: - Moderate alcohol consumption is 1 of 4

key healthy lifestyle behaviors

• National Institute of Health Study:- Moderate alcohol consumption is 1 of 5

lifestyle factors that “when considered inlifestyle factors that “when considered in combination are associated with a substantial reduction in risk for diabetes.”

12

Record Exports Boost U.S. Economy

Christine LoCascioSenior Vice President, International Trade

13

U.S. Spirits Exports Hit New Record(through Nov. 2011)

$1,400

$1,600

(through Nov. 2011)

$1.34 billion

$1 22 billion

$1 000

$1,200

$1.14 billion

$1.22 billion

$800

$1,000

Mill

ions

Beer

Wine

Distilled Spirits

$400

$600

$334 million

$

$200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011P2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011P

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. Figures for 2011 are year-to-date Jan-Nov.)

U.S. Spirits Exports Skyrocket 16.5%American whiskeys: 69% of totalAmerican whiskeys: 69% of total

(2000-2011YTD*)$1,400

+16.5%

$1,000

$1,200

+13.6%

$600

$800

Mill

ions

$200

$400

$-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010

YTD*2011 YTD*

Total U S Spirits Exports All Whiskeys including Bourbon and Tennessee Whiskey

Source: U.S. Department of Commerce, Compiled by U.S. International Trade Commission*Year-to-date: January - November

Total U.S. Spirits Exports All Whiskeys, including Bourbon and Tennessee Whiskey

A Decade of Growth: Top 10 U.S. Spirits Export MarketsTop 10 U.S. Spirits Export Markets

Country2001 Value

(Jan-Nov) (millions of USD)

2011 Value(Jan-Nov)

(millions of USD)% growth

Canada 61.9 165.8 +168%

UK 68.2 138.2 +103%

Germany 58 8 104 7 +78%Germany 58.8 104.7 +78%

Australia 50.3 111.7 +122%

France 22.8 113.0 +396%

Japan 67.0 81.6 +22%

Netherlands 11.3 51.2 +353%

Spain 20.9 50.4 +141%

Italy 18.6 30.0 +61%

Mexico 18 1 43 0 +138%Mexico 18.1 43.0 +138%

Source: U.S. Department of Commerce, Compiled by U.S. International Trade Commission (FAS Value)

Emerging Export MarketsExperience Phenomenal Growth

$18

Experience Phenomenal Growth(2000-2011YTD*)

$14

$16

$18

485%

388%

1408%

$8

$10

$12

Mill

ions

2000495%

388%

156%

1108%

1862%

207%

1282%

432%472%

$2

$4

$6

M 2000

2011

68%

495% 472%

509%

$0

$2

*DISCUS conducted U.S. Spirits PromotionsSource: US Department of Commerce Compiled by U.S. International Trade Commission (FAS Value)

European Union:Accounts for 47% of U S Spirits ExportsAccounts for 47% of U.S. Spirits Exports

$700

U.S. Spirits Exports to the EU-27 Share of U.S. Spirits Exports2011 YTD

$500

$600

4%2% 2%

1%2%

1% 0%

+13.4%

$400

$500

Mill

ions

Whiskeys

Rum and Tafia

Liqueurs and Cordials

Grape Brandies

$200

$300M

88%

Other Spirits

Ethyl Alcohol

Vodka

Gin and Geneva

$0

$100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 YTD

2011 YTD

Source: U.S. Department of Commerce, Compiled by U.S. International Trade Commission (FAS Value). YTD figures are for Jan-Nov.

Russia – A Booming Market for U.S. Spirits

$70

U.S. Spirits Imports into Russia Share of U.S. Spirits Imports

2011 YTD

$50

$60

1% 0%

0%

0%

2011 YTD

Whiskies

Liqueurs And

$30

$40

Mill

ions

42%

Liqueurs And CordialsRum And Tafia

Other spirits

Grape Brandy

$20

$3053% Vodka

$0

$10

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 YTD

2011 YTD

4%

Source: Global Trade Atlas, based on Russian Customs import figures. YTD figures are for Jan-Oct.

YTD YTD

USDA MAP Partnership Promotes American Spirits Growth in Emerging MarketsAmerican Spirits Growth in Emerging Markets

201/30/2012

Recent Trade Developments PresentNew Opportunities to Expand ExportsNew Opportunities to Expand Exports

• U.S. Prevails in Philippines WTO Case– Discriminatory excise taxes must be replaced

• Korea Free Trade Agreement (FTA)– Will eliminate 20% tariff on Bourbon/Tennessee Whiskey– World’s 10th largest spirits market

• FTAs with Colombia and Panama– Will eliminate tariffs on U.S. spirits/address other barriers

• Trans-Pacific Partnership Negotiations– Will open up key emerging markets (e.g. Vietnam)

2011 Economic Overview

David OzgogSenior Vice President, Economic and Strategic

Analysis y

22

Economic Overview

• Total industry growth

• Market share

• Growth by price segment

• Drivers

C t hi hli ht• Category highlights

23

Volume up 2.7% in 2011Consistent with 2000 – 2007 average growth 2 9%Consistent with 2000 – 2007 average growth 2.9%

2 7%

180

200

ts (M

il.)

4 1%2.7%4.1% 2.2% 1.7% 1.4%2.0% 2.7%

160

Ship

men

t

1.0% 2.0%3.8%4.1%

3.0%

120

140

iter

Cas

e

1009-L

i

24Source: DISCUS MSDB

Spirits revenues up 4.0% to $19.9B2000 2007 average growth 6 5%2000 – 2007 average growth 6.5%

20 $18 2$18 7 $18 7$19.1 $19.9

14161820

ev (B

il.)

$13.2$13.9$15.1 $16.0$17.2 $18.2$18.7 $18.7

8101214

Gro

ss R

e $12.2 $13.2$11.7

2468

pplie

r G

02

Sup

25Source: DISCUS MSDB

Spirits Market Share – VolumeVolume share up 4 2 points since 2000Volume share up 4.2 points since 2000

31 6%

30%

31%

32%

hare

29 5%29.7%

30.2%30.9%

31.6%

28%

29%

30%

Mar

ket S

h

27.6%27.9%

28.5%29.0%29.3%

29.5%9 7%

26%

27%

28%

Spir

its M

27.6%27.3%27.4%

25%

26%

26

Source: DISCUS MSDB, BIG Handbooks, Company Reports

Spirits Market Share – RevenueSpirits up 4 9 points since 2000 - $2 9B revenueSpirits up 4.9 points since 2000 $2.9B revenue

34%33 0% 33 1%33 1%

33.3%33.6%

32%

33%

are

31 1%

32.1%

33.0% 33.1%33.1%32.9%

30%

31%

Mar

ket S

ha

29.7%30.0%

31.1%

28%

29%

Spir

its M 28.7%28.7%

26%

27%

S

27

%

Source: DISCUS MSDB, BIG Handbooks, Company Reports

Revenue market share by beverageRevenue market share by beverage

2010 2011

33.3%

49.8%SpiritsWine

33.6%

49 3%

SpiritsWine

16.9% Beer 17.1%49.3%

Beer

Sources: 10k Reports, DISCUS Estimates & Adams Wine Handbook, Distilled Spirits Council, Economic & Strategic Analysis Dept.

Revenue market share by beverageRevenue market share by beverage

2000 2011

28.7%SpiritsWine

33.6%

49 3%

SpiritsWine

15.7%55.5% Beer 17.1%49.3%

Beer

Sources: 10k Reports, DISCUS Estimates & Adams Wine Handbook, Distilled Spirits Council, Economic & Strategic Analysis Dept.

Volume Share by Price Category - 2011Share of U.S. Spirits Volume

7.4%14.5M

17 2%39.3%76.9 M

17.2%33.6M

36.1%70 8 M

Value Premium High End Super Premium

70.8 M

g p

30

Source: DISCUS MSDB

Revenue by Price Category - 2011U.S. Supplier Gross Revenues

$4.1 B20 5%

$3.5 B17.4%

20.5%

$5.2 B26.4%

$7.1 B35.7 %

Value Premium High End Super Premiumg p

31

Source: DISCUS MSDB

Volume Growth by Price Segment - 2011

9.0%

7.0%

8.0%8.9%

4 0%

5.0%

6.0%

5.3%

2.0%

3.0%

4.0%

2.4%

0.0%

1.0%

2.0%

0.9%2.4%

32

Super Premium

High EndPremiumValueSource: DISCUS MSDB

New Revenue by Price Category – 2010 vs. 2011

$550

$350$400$450$500

$303$377

s (M

il)

$200$250$300$350

$142

$303

$183$151r

Rev

enue

s

20102011

$50$100$150$200

$55

$142

$47

$151

w S

uppl

ier

$100-$50

$0$50

-$76

New

-$100 -$76

33

Value Premium High EndSource: DISCUS MSDB

Super Premium

Drivers• Consumer confidence: unemployment still high, but job

growth increasing willingness to spendgrowth increasing willingness to spend

• Price indices report – up +/- 1.0%

• Full-service restaurants and drinking places – revenue back to pre-recession

– 25-30% of volume, overweight toward high end

• Product innovation

34

Full Service and Drinking Place Revenues(12 Month Rolling Totals)(12 Month Rolling Totals)

$240

$250

$220

$230

$

011

$s)

$200

$210

$220

Bill

ions

(20

$190

$200B

$180

Jan-

00Ju

n-00

Nov

-00

Apr

-01

Sep-

01Fe

b-02

Jul-0

2D

ec-0

2M

ay-0

3O

ct-0

3M

ar-0

4A

ug-0

4Ja

n-05

Jun-

05N

ov-0

5A

pr-0

6Se

p-06

Feb-

07Ju

l-07

Dec

-07

May

-08

Oct

-08

Mar

-09

Aug

-09

Jan-

10Ju

n-10

Nov

-10

Apr

-11

Sep-

11

N M A N M A N

35

Source: U.S. Census Bureau/National Restaurant Assn.

Product Innovation Key to Growth1800+ products introduced since 20091800+ products introduced since 2009

12

14

16

ns)

8

10

12

ses (

Mill

io 14.3 M

11.5 M

4

6

9-L

iter

Cas

0

2

Products Introduced 2009-2011 (2011 Vol me)

Industry Volume Growth 2009-2011

9

(2011 Volume)

36

Source: DISCUS Brand Data, NABCA

Category Performance• Vodka

• Bourbon & Tennessee Whiskey

• RumRum

• Tequila

• Cocktails

• ScotchScotch

• Irish Whiskey

37

Vodka & Rum• Vodka accounts for 32% of all volume, 25% revenue

– Volume up 5.9% to 63M, revenue up 5.8% to $5.1Bp % , p % $

– Premium vol. up 11.3%, Super Premium up 12.7%

• Rum volumes down 0 7% to 24 7M cases revenues• Rum volumes down 0.7% to 24.7M cases, revenues up1.7% to $2.2B

G th d i b Hi h E d d S P i– Growth driven by High End and Super Premium, up 14.9% to 2.7M cases

– High End growth consistent with fast Bourbon growth?

38

Bourbon & Tennessee Whiskey• Bourbon & Tennessee strong interest in new and existing products

• Volume up 3.9% (16M) cases – largest Whiskey category

• Revenue up 3.9% to $2.0B

• Performance by price segment:

– Value, volume down 0.7%, revenue down (-$1M) , , ( $ )

– Premium, volume up 2.4%, revenue up (+$17M)

– High End volume up 5 6% revenue up (+$40M)– High End, volume up 5.6%, revenue up (+$40M)

– Super Premium, volume up 15.4%, revenue (+$18M)

R 50%• Rye up 50%+

39

Tequila & Pre-mixed Cocktails• Tequila volume grew 3.2% to 11.9M cases

• Tequila revenue also up 4.7% to $1.8B

• Performance by price segments

– Value, volume up 7.0%, revenue up (+$13.7M)

– Premium, volume -2.7%, revenue down (-$11.4M), , ( $ )

– High End, volume up 9.0%, revenue up (+$17M)

Super Premium volume up 11 3% revenue up (+$61M)– Super Premium, volume up 11.3%, revenue up (+$61M)

• Pre-mixed cocktails grew by 12.2% - 20% growth in premium

40

Scotch & Irish Whiskey• Single Malt Scotch continues rapid growth

– Concentrated in High End and Super PremiumConcentrated in High End and Super Premium– Volume up 9.5% to 1.4M cases– Revenue up (+$29M)Revenue up ( $29M)

• Irish Whiskey fastest-growing category– Volume up 24% to 1.7M cases p– Now larger than Single Malt by volume– Revenue up (+$70M)p ( )

41

Summary• Volume/revenue growth at pre-recession levels

– Revenue up 4.0% to $19.9BRevenue up 4.0% to $19.9B

– Volume up 2.7% to 195.8M 9-liter cases

• Growth driven by improving economy consumer confidence• Growth driven by improving economy, consumer confidence, increase in restaurant sales and product innovation

• Improved economy = return of premiumizationImproved economy return of premiumization

• Sales growth has pushed market share to 33.6% of revenue, 31 6% of volume31.6% of volume

• Future growth dependent upon state of economy

42

2012: Challenges for Maintaining Growth Momentum

• National economic recovery remains soft – Employment at full service restaurants not back to pre-recession strength

– Hospitality industry key to national recovery

– Number two employer nationwide; important for entry-level jobs

• Tax environment– State and local budgets are stressed

• Modernization momentum grows– Governor supports Connecticut Sunday Salespp y

• Election year tax raisers vs. tax cutters

• Continued innovation in brands and marketingContinued innovation in brands and marketing

• Continue to open overseas markets43