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Distilled Spirits Council 2014 Industry Review New York City February 3, 2015 @DistilledSpirit #USspirits

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Published by , 2016-03-09 01:15:02

Distilled Spirits Council 2014 Industry Review - DISCUS

Distilled Spirits Council 2014 Industry Review New York City February 3, 2015 @DistilledSpirit #USspirits

Distilled Spirits Council
2014 Industry Review

New York City
February 3, 2015

@DistilledSpirit
#USspirits


Distilled Spirits: Steady U.S. Growth in 2014

Diversity, Innovation, Quality Drive U.S. Market Results

2014 Economic Overview:

• 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


Spirits Market Share – Revenue

Up 6.4 Points Since 2000, Worth $4.2 Billion

36% 35.2%
35% 34.1% 34.3% 34.7%
34%
Spirits Market Share 33% 33.1% 33.0% 33.1% 33.3%
32% 32.9%
31%
30% 32.1%
29%
28% 28.7%
27%
26%

Source: Beverage Information Group Handbooks, Company Financial 3
Reports, DISCUS Estimates


Fifth Straight Year of Record Exports

• Total exports surpassed $1.56 billion; up 3.8%
• Bourbon/Tennessee Whiskey exports topped $1.02 billion
• Growth substantial in spite of stronger dollar

Millions 1800 $1.56 Billion
1600
1400 +3.8%
1200
1000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
800
600

400
200

0

4


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


Steady Growth and Record Exports

2014 Contributing Factors:

• A continued fascination with American Whiskeys in U.S. & abroad

• Innovation in flavors – especially flavored whiskeys

• Premiumization continues to interest consumers Prohibition of Sunday
• Improved regulatory and tax environment liquor sales is antiquated

– 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 Virginia distilleries ask Gov. Terry McAuliffe to pull back
on plan to raise liquor prices
6


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 7
Sales on Election Night


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


2014/2015 Trends & Developments

• 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

Editorial: Liquor privatization will return, and 9
cost-conscious drinkers should be glad


2014/2015 Trends & Developments

• 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


Industry Economic Review – 2014

David Ozgo
SVP, Economic & Strategic Analysis

11


Economic Review - 2014

• 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

12


U.S. Spirits Supplier Revenues Up 4.0% to $23.1B
$900 Million Gain

24 $22.2 $23.1
22
20 $20.4 $21.3
18
Supplier Gross Rev (Bil.) $18.2 $18.7 $18.7 $19.2
$17.2
$16.0

16

14 $11.7
12

10

8

6

4

2

0

Source: DISCUS MSDB

13


U.S. Volume Up 2.2% in 2014

Up 4.4 Million to 210 Million Cases

9-Liter Case Shipments (Mil.) 220 3.0% 1.9% 2.2%
200 2.0% 2.9%
180 2.2% 1.7% 1.4%
160 4.1%
140 2.7%
120
100 3.0%

Source: DISCUS MSDB

14


Spirits Market Share – Revenue

Up 6.4 Points Since 2000, Worth $4.2 Billion

36% 35.2%
35% 34.1% 34.3% 34.7%
34%
Spirits Market Share 33% 33.1% 33.0% 33.1% 33.3%
32% 32.9%
31%
30% 32.1%
29%
28% 28.7%
27%
26%

Source: Beverage Information Group Handbooks, Company Financial 15
Reports, DISCUS Estimates


Spirits Market Share – Volume

Up 5.5 Points Since 2000, Worth 35 Million Cases

34% 30.9% 31.7% 31.9% 32.5% 32.9%
33% 30.2%
Spirits Market Share 32% 29.0% 29.3% 29.5% 29.7%
31%
30% 27.4%
29%
28%
27%
26%
25%
24%
23%
22%
21%
20%

Source: Beverage Information Group Handbooks, DISCUS Estimates

16


Price Segments - 2014

• 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

17


Volume Share by Price Category - 2014

Share of U.S. Spirits Volume

8.4% 35.7%
17.8M 75.0M

19.6%
41.1M

% - Industry volume in 36.3%
76.3M
price category
M – millions of 9-Liter

cases in price category

Value Premium High End Super Premium

Source: DISCUS MSDB

18


Revenue by Price Category - 2014

U.S. Supplier Gross Revenues

$4.6B
19.7% $4.0B

17.4%

$7.0B $7.6B
30.1% 32.8%

% - Industry revenue in Premium High End Super Premium
price category
B – Gross revenue in
price category, billions

Value

Source: DISCUS MSDB

19


Volume Growth by Price Segment - 2014

6.0%

5.0% 5.8%

4.0% 5.1%

3.0%

2.0% 3.1%

1.0%

0.0% -1.3%
-1.0%

-2.0%

Value Premium High End Super
Premium
Source: DISCUS MSDB

20


Volume Growth by Price Segment

4.4 Million New Cases in 2014

Incremental Supplier Shipments 2,268 2,259
(000, 9-Liter Cases)
2500

2000

1500

1000 858

500 (952) Super
Premium
0

-500

-1000 Premium High End

Value

Source: DISCUS MSDB

21


Revenue Growth by Price Segment

$900 Million in New Supplier Revenue - 2014

Incremental Supplier Revenues $450 $145 $433 $351
(millions) $400
$350 ($31) High End Super
$300 Premium
$250 Value Premium
$200
$150
$100

$50
$0

-$50

Source: DISCUS MSDB

22


21 – 34 Y/Os and Weekly Earnings

2007=100

102 2008 2009 2010 2011 2012 2013 2014
100 21-34 Year Olds 35+

98
96
94
92
90
88
86
84

2007

Source: Derived from Bureau of Labor Statistics
Current Population Survey

23


Significant Growth Opportunity

Estimated Earnings 21-34 Y/Os

$1,350

Annual Earnings (Billions) $1,300

$1,250 $155 B
$1,200

$1,150

$1,100

$1,050

$1,000 2008 2009 2010 2011 2012 2013 2014

2007 Earnings at 2007 Level Actual 24

Source: Derived from Bureau of Labor Statistics
Current Population Survey


Flavored Spirits Market – 2014

9-Liter Cases

Flavored Market Total – 24.6 M
Total Spirits Market 210.2M

6.6 M 13.0 M
5.0 M

Vodka Rum Whiskey

Source: DISCUS MSDB

25


Growth in Flavored Segments - 2014

2.8 M

3,000

2,500 1.9M

2,000

9-Liter Cases 1,500

1,000 (900K)
500

-

(500)

(1,000)

Vodka/Rum Whiskey All Flavors

Source: DISCUS MSDB

26


Small Distillers

• 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

27


Whiskey: A Strong Sales Driver

All Whiskeys

60 7.3%
6.2%
CAGR 1.1% 1.7% 3.8%
50 CAGR 0.2%
9-Liter Cases (millions)
40

30

20

10

0 2011 2012 2013 2014
2000 2005 2010
28
Source: Beverage Information Group
Handbooks, DISCUS MSDB


Bourbon/Tennessee Whiskey

• 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

29


Irish, Single Malt Scotch & Blended

• 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

30


Other Category Highlights

• 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)

31


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


International Trade Update

Christine LoCascio
SVP, International Issues & Trade

33


U.S. Beverage Alcohol Exports 2009-2014

(in millions of U.S. dollars)

$1,800 +3.8%
$1,600
$1,400 Spirits
$1,200 -6.2%
$1,000
Wine
$800
$600 Beer
+4.0%

$400

$200

$0
2009 2010 2011 2012 2013 2014

34


$1,800 U.S. Distilled Spirits Exports 2009-2014
$1,600
$1,400 (in millions of U.S. dollars)
$1,200
$1,000 +3.8%

$800 2009 2010 2011 2012 2013 2014
$600
$400
$200

$0

35


U.S. Whiskeys Drive Record Spirits Exports

Whiskeys Account for 70% of Total U.S. Exports

1,800

1,600 $1.56 Billion

1,400

Millions 1,200 $1.02 Billion
1,000
All U.S. Spirits
800
600 Bourbon and
400 Tennessee Whiskey
OTHER whiskeys

200

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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.)

36


Top Ten U.S. Spirits Export Markets

Country 2004 Value 2014 Value % growth

Canada (millions of USD) (millions of USD) +114%
UK +48%
Germany 100.6 214.8 +64%
Australia 120.7 178.4 +69%
France 81.7 134 +298%
Japan 77.7 131 +69%
Spain 27.6 109.8 +140%
Netherlands 58.9 +149%
Mexico 34.5 99.6 +168%
Singapore 24.5 82.9 +543%
16.8 61
4.9 45.1
31.5

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.)

37


2014 Top Six Export Growth Markets

By Dollar Value Growth (millions) 2014 Total Value (millions)

United Kingdom +$17.5 $178.4
Spain +$14.7 $82.9
Singapore +$8.5 $31.5
Poland +$6.7 $22.5
Brazil +$6.0 $9.0
Chile +$5.7 $17.8
By Percentage * Percentage Growth 2014 Total Value (millions)
Brazil +192.8% $9.0
Dominican Republic +74.4% $10.8

Israel +51.6% $6.6
$9.1
Bahamas +50.6% $16.5
$15.5
Panama +47.8%

United Arab +37.3%
Emirates

*Among countries whose U.S. imports exceed $5 million.

38


Emerging Export Markets

$35.0 1332% Experience Substantial Growth

2000-2014

$30.0 3457% 2000 2014
$25.0 5525%

$20.0 1171%

$15.0 368% 1330%

800% 309 319%

$10.0 295 1167%
% 4900
%

$5.0 % 900%

$0.0

*DISCUS has conducted U.S. spirits promotions in all of the above except Latvia, Poland and Dominican Republic
Source: U.S. Department of Commerce Compiled by U.S. International Trade Commission (FAS Value)

39


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

40


Trade Negotiations Provide
Significant Opportunities to Expand U.S. Exports

• 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

41


42


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