Routes To The U.S. Beverage Alcohol Market For Entrepreneurial - PowerPoint PPT Presentation

+1 (305) 967-7440 info@parkstreet.com Parkstreet.com Routes To The U.S. Beverage Alcohol Market For Entrepreneurial Brands Sarah Nagel Sisisky Park Street Companies San Antonio Cocktail Conference January 17, 2019 No part of the document may be circulated ed, , quoted ed, , or reproduc uced d for distribut ution without ut prior written en approval from Park Street. . This material was used by Park Street et during an oral presentation; ; it is not a complet ete e record d of the discussion.

Some Background for Today’s Discussion Today’s discussion DOES Today’s discussion DOES NOT  Provide a full tutorial on all route-to-market  Offer a view on commercial and industry trends opportunities for entrepreneurial spirits players  Focus on the U.S. distilled spirits market  Cover all nuances of each category: brown and  Offer a tutorial on select key concepts that white spirits support strategy development and execution  Cover nuances of all types of states and accounts  Provide insights into the market forces (control chain versus independent and on- influencing strategy development versus off-premise)  Focus on entrepreneurial brands with national  Provide a one-size-fits-all strategy growth ambitions  Address global markets  Offer advice on regulatory issues including e-commerce 2

Discussion Topics  “The route -to-market in a highly regulated red tape Macro- De Dema mand environment that demands three tiers” economics mics  “Vulnerable first tier Goliaths with David winning, not Suppli Sup liers necessarily alone, but as a group”  “The second tier on a fast track to a duopoly with some New Spirit Spir its s Subst Sub sti- 1st st alternative options for starters” Ent Entrants Co Comp mpetit itors tutes Ti Tier  “The higher the relevant differentiation and badge value for the brand, the easier the route to market battle” 2nd 2nd Dist Distribu ibutors s / / Tier Ti AB ABC C Bo Boards  “The start close to home and a focus on a success blueprint that can be replicated in other markets” 3rd Retail ilers Ti Tier  “The concept of fair share of attention or there is no silver bullet for distribution” Co Consume sumers  “Combining an above fair share of attention and economies Regula lation ion Technolog logy of scale for an efficient and effective route to market” 3

Route to Market: Definition and Requirements for an Effective Platform  Route to market platform needs to be designed from the market General Market-driven back instead of inside-out and must effectively address customer Definition: and consumer needs “It is a 'path' or Coherent 'pipeline' through  Route to market platform needs to be aligned and integrated with Coherent which goods flow the company’s overall customer service framework including order processing, fulfillment, logistics, billing etc. in one direction (from supplier to  Route to market platform must enable identification and balancing Balanced the consumer), of three competing priorities: and the payments  Customer needs and preferences (i.e., “what they want”) generated by  Revenue growth (i.e., “what you want”) them flow in the Cost-to- serve (i.e., “what you want to keep low”)  opposite direction (from consumer  Route to market platform must include a certain degree of Flexible flexibility as the original model may require modification based to the supplier).” on data captured via a short feedback loop; improvements and adjustments must be made to address any change in market conditions Sources: Wikipedia, Park Street Analyses 4

An Industry That Required Two Constitutional Amendments 100% = $18.57 Trillion 100% % = 3 Ame mendme ments ts 33.3% Only industry in the U.S. that required two constitutional amendments to regulate it All Othe ther Categ tegori ries 98.8% 66.6% Alcoholic Beve verag rages 1.2% Total tal GDP Total tal Numb mber r of f rati ratifi fied consti stituti tutional ame mendme ments ts dealing wi with th Ind Industri stries* s* 27 amendments in total. 24 amendments dealing with the role, rights and the functioning of government and the democratic process. 5 Only other industry affecting amendment is the right to keep and bear arms. Sources: U.S. Constitution, data.gov, Park Street Analyses

Historical Background of Prohibition: A Movement and Two Constitutional Amendments  Formed by women in 1893 Anti-Saloon League  Powerful political force of the temperance movement focusing on passing a national ban on alcoholic beverages.  Believe that alcohol contributed to social problems related to abuse, prostitution, and criminal activity.  "The 18th Amendment to the U.S. Constitution prohibited the 18 th Amendment manufacture, sale, transport, import, or export of alcoholic beverages.  National Prohibition Act became affective 1920  Ended Prohibition in 1933 by repealing the 18th Amendment 21 st Amendment  Some states, however, continued prohibition within their jurisdictions. Almost two-thirds of all states adopted some form of local option which enabled residents in political subdivisions to vote for or against local Prohibition.  For a time, 38% of Americans lived in areas with Prohibition. Source: Archives.gov 6

The Legal Ramifications Today Alcohol is still regulated by a complex and decentralized legal  framework  Results of the 21st Amendment & the FAA Act of 1935:  Adoption of today’s three tier system  Strong regulation through  Elimination of “tied house” practices combination of federal and  Introduction of FET’s state authorities  Federal government granted authority to license importers, manufacturers, wholesalers, and warehouses (not retailers).  Three tier system & tied house Consumer deception laws and standards/ requirements for labels  rules and formula approval  Federal regulations are administered by four main bodies:  Objective of tax collection and  Alcohol and Tobacco Tax and Trade Bureau (TTB) consumer protection  Food and Drug Administration (FDA) (temperance)  Federal Trade Commission (FTC)  Bureau of Alcohol Tobacco and Firearms (ATF). States given power to regulate sale & distribution of alcohol within their  state.  Liquor control boards  Some states push regulatory authority to the county level (e.g., Montgomery County) Source: Archives.gov 7

Discussion Topics  “The route -to-market in a highly regulated red tape Macro- De Dema mand environment that demands three tiers” economics mics  “Vulnerable first tier Goliaths with David winning, not Suppli Sup liers necessarily alone, but as a group”  “The second tier on a fast track to a duopoly with some New Spirit Spir its s Subst Sub sti- 1st st alternative options for starters” Ent Entrants Co Comp mpetit itors tutes Ti Tier  “The higher the relevant differentiation and badge value for the brand, the easier the route to market battle” 2nd 2nd Dist Distribu ibutors s / / Tier Ti AB ABC C Bo Boards  “The start close to home and a focus on a success blueprint that can be replicated in other markets” 3rd Retail ilers Ti Tier  “The concept of fair share of attention or there is no silver bullet for distribution” Co Consume sumers  “Combining an above fair share of attention and economies Regula lation ion Technolog logy of scale for an efficient and effective route to market” 8

The Spirits Market Has Been Growing Steadily U.S .S. . Be Bever erage ge 2017 2017 Indus ndustr try U.S .S. . Dis Distilled tilled Spirits Co pirits Cons nsumption, umption, 1997 1997 – 2022 2022 Siz ize e by by Ca Cate tegor gory Mil illi lions s of 9 9-L Case Cases s 300 100% = 202 Billion Liters 3 Billion 9-L Cases Juices & Distilled Powdered 4.8% 250.5 7.0% Drinks 250 Spirits Tea 5.2% 228 10.0% Wine Wine 12.9% Milk 200 +22.0M cases +89.2M cases 16.5% +1.9% +2.4% CAGR Alcohol* CAGR 138.8 150 18.9% Coffee  Over er the he last ast 20 20 yea ears, s, co consumpt nsumption on ha has s grown on average by by 2.4% .4% per y year, , reaching ing 100 83.0% Malts 228 228 mil milli lion cases ses in in 2017 2017 19.7% Malts Bottled Water  Assu Assuming ming a be belo low t the lon long t term m CA CAGR R 50 growth rate of 1.9%, .9%, t the ma market would ad ld add 22m+ m+ cases ses over t the next fi five years s 22.0% Soft 0 drinks 1997 2002 2007 2012 2017 2022 Source rces: s: Beer Handbook, k, Liquor r Handbook, , IWSR, SR, Park rk Street t Analyse ses 9 * Incl cludes s Malts, s, Spirits, ts, Wine, and Cider