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TITLE IN ALL CAPS DOUBLE LINED  Place content here TITLE  Say whatever you would like to say  Place content here TITLE  Say whatever you would like to say COMMERCIAL AND INDUSTRY TRENDS – STRATEGIES TO GET AHEAD  Some fun shapes to use By Harry Kohlmann, Ph.D. American Beverage Licensees – Annual Convention June 2014 Park Street Companies | 1000 Brickell Avenue, Suite 915 | Miami FL, 33131 +1 305 967 7440 | info@parkstreet.com | www.parkstreet.com No part of the document may be circulated, quoted, or reproduced for distribution without prior written approval from Park Street. This material was used by Park Street during an oral presentation; it is not a complete record of the discussion.

SOME CURRENTLY HOT INDUSTRY TOPICS – MANY CHOICES TO SPEAK ABOUT “ Mil illenials lenials, , fema emale and le and multi multi- cultural consumers” “Legalization of Marijuana” “Craft brewers and craft distillers” “Flavors, flavors, flavors” “The Bou ourbo rbon n Renaissance and the Cider Boom” “Storytelling to sell brands” “Recession is is over er, , tr trad ading ing-up up is is back” “Distribution bottlenecks” “Chains winning using mega brands as loss leaders” “Blurring ca cate tego gory y lines” “Brands growing and maturing faster” “Keg wines” “Direct -to to- consumer shipping” “Technology disruption” “More convenience and customization” “Supplier and distributor consolidation” “Innovation boom by alcoholic beverage entrepreneurs” “Widening of wealth/income gap” “More targeted brand propositions” 2

SOME BACKGROUND FOR TODAY’S DISCUSSION Today’s discussion does does not ot Today’s discussion does does  Provide a full tutorial on all issues  Offer a view on a few important for independent on- commercial and industry trends and off-premise outlets  Provide some insights into the  Cover all nuances of each market forces influencing the category: beer vs. wine vs. spirits route to market environment with a focus on the wine and spirits categories  Cover all nuances of each state  Offer some insights to assist the  Provide a one size fits all strategy strategy development for on- and off-premise licensees  Offer advice on regulatory issues 3

LICENSEES ARE IMPACTED BY SEVERAL MAJOR CHANGES IN TITLE IN ALL CAPS CONSUMER, SUPPLIER AND WHOLESALER TIERS DOUBLE LINED Supplier topics Route to Market for Alcoholic Beverages • Consolidation • Brand extension over brand creation • Innovation wave by craft producers & entrepreneurs Brand owner/producer Distributor topics Distributor/control • Consolidation state board • Influence of large suppliers • Increasing distribution challenges for emerging brands Brand • New channels for new brands owner/ producer On- and off-premise retailers Consumer topics • Growth segments ─ Millennial Consumers ─ Female ─ Multi-cultural • Shortening brand life cycles • Disruptors using new technology 4

ALCOHOLIC BEVERAGE MARKET HAS BEEN GROWING Con Consu sump mption tion in in th the U U.S. .S. betw tween 2002 and 2012 In millions of 9-L cases 10-Year CAGR Total 0.6% 3,500 Spirits 3.0% 3,000 Wine 2.7% 2,500 2,000 Beer 0.2% 1,500 1,000 500 0 2002 2004 2006 2008 2010 2012 5 Sources: Beer Institute, Liquor Handbook, Wine Handbook

MARKET TRENDS: WHAT CONSUMER GROUPS ARE DRIVING GROWTH? What consumer groups are driving growth right now? It is different for each licensee, but it is likely coming from one or more of the following three groups: Millenials 1 Women 2 Multi-cultural 3 6

THE EMERGENCE OF MILLENIALS Overview of American generations over the ages 1909-1932 1933-1945 1946-1964 1965-1983 1984-2004 68 Million 34 Million 76 Million 62 Million 85 Million 4,000 Births ( 000 ) 3,000 3,000 2,000 2,000 1,000 1,000 Bopper Baby Boom Gen X WWII Millenials 7 Source: US Census Bureau, Wikipedia, Park Street research, estimates as definitions vary

THE EMERGENCE OF MILLENIALS - OVERVIEW  How big is the Millennial Generation? They number in total about 85 million of which about 60 million are now 21+ of age. They are split 52% male / 48% female  How influential are Millenials? They are the largest generation of customers yet. According to BCG, they represent $1.3 trillion in consumer spending  What are their characteristics? It is said that no one truly understands Millennials — not even Millennials themselves. However, here are some general observations: Need for instant gratification, all the time – They have short attention spans (How many music – videos are watched until the end?) Not yet grown up (Many lack “real” jobs or live with – their parents) Two personas: one online (think Instagram and – Facebook) and one in real life Almost everything is documented (think SMS, Facebook, – Twitter, etc.) Expert multi-taskers (A Millennial can send a text – message, order a Starbucks coffee, and pay a bill with a smartphone app all at the same time!) 8 Source: US Census Bureau, web research, Moose agency, Park Street research

THE EMERGENCE OF MILLENIALS – GENERATION IS CLEARLY DIFFERENT THAN PREVIOUS ONES Boomers Highlighted statements Millennial Gen X Older Like to explore new and different products 54% 49% 37% 21% Strongly prefer sweeter wines 64% 54% 44% 36% Like to try new (Spirit) flavors 60% 50% 36% 18% Drink different products depending upon occasion 52% 46% 40% 29% Prefer to mix/create drinks myself 51% 46% 36% 31% Enjoy introducing others to my favorite brand/drinks 54% 44% 33% 21% Willing to pay more for products/services committed to 57% 40% 33% 31% positive social and environmental impact 9 Source: Nielsen Bev Al Generations Study 2013, Wine and Spirits Daily Summit 2014

THE EMERGENCE OF MILLENIALS – INFORMATION SUPPORT IN DECISION MAKING Types pes of of inf infor orma mation tion a M a Millennial illennial is is lik likel ely to look to look for or or or tak take into cons e into consider ideration tion when hen making making a pur a purchas hase BEER BEER AND AND WINE WINE SPIRI SP IRITS TS In-Person Word of Mouth Facebook Ads 33% 36% Facebook Ads 29% Paid Endorsements 32% Twitter Ads 29% Non Non-tr trad aditiona itional l for orms ms of of See and Touch 28% Blogs 26% co commun mmunica ication tion req equir uired ed to to i influen nfluence ce Video How-to Guides 26% Brand Emails 24% pu purcha hase se de decisio cision n of of Mil Millen lenials ials In-Person Word of Mouth 26% News Articles 24% Paid Video Advertising 23% See and Touch 24% YouTube Ads 22% Written Reviews 23% Video Reviews 22% YouTube Ads 23% News Articles Video Reviews 22% 23% 10 Source: Moose Digital Ad Agency

THE IMPORTANCE OF TECHNOLOGY AND THE SMART PHONE IN PARTICULAR Impor mportance of tance of tec technolog hnology and s and smar mart t phones phones  Millennials are digital natives – the first generation to grow up with technologies such as the Internet, social media and mobile phones  More than 50 percent of younger millennials say mobile devices are the primary access point to the Internet  Millennials are so tethered to mobile phones that the majority would give up their car before their devices 11 Source: Forbes, Zipcar, Park Street research

THE EMANCIPATION OF THE FEMALE CONSUMER - HIGHLIGHTS Wha hat t res esear earch s h say ays a about f bout female emale cons consumer umers from om an alcoholic an alcoholic bever erage per ge perspectiv pective: e:  The majority of women either make or share the purchase responsibility for alcoholic beverages in a household  Women’s education and income levels continue to rise, driving increased independence (traditionally they followed the men’s lead) and increasing frequency and consumption  Tend to prefer sweeter drinks than men across all alcoholic beverage categories  Women who are regular consumers of alcohol are also the most likely ones to amplify a brand’s message through word of mouth 12 Source: Park Street research

THE EMANCIPATION OF THE FEMALE CONSUMER – DRINK OCCASIONS Off-pr premis emise e examples xamples: On On-pr prem emise ise exam xample ples: s:  Just Hanging Out  Girls Night Out  A Get Together / Party  Bachelorette Party  Just Because  Happy Hour 13 Source: Park Street research

THE EMANCIPATION OF THE FEMALE CONSUMER – BEVERAGE PREFERENCES Be Bever erage pr ge pref efer erences ences of of female emale cons onsumer umers Consumption over the last 3 Months Wine 72% Light Beer 47% Full Calorie Beer 44%  Wine has always been by far the most popular alcoholic beverage Unflavored Vodka 44% Rum  The beverage category that saw its 42% popularity rise the most is vodka. In Pre-Mixed, RTD Cocktails 39% 1998, one fifth of female drinkers Tequila 38% consumed the product; today it is Sparkling Wine/Champage 38% one third Flavored Vodka 37%  Women consume an average of 5.7 Cordials/Liqueurs/Schnapps different categories of alcoholic 30% beverages per year. The youngest Coffee/Cream Liquers 30% age bracket (22 to 29) is the most Bourbon 21% experimental, consuming an average of 6.3 different categories Gin 16% per year Scotch 14% Irish Whiskey 14% Cognac/Brandy 13% Canadian Whiskey 12% 14 Source: Beam, Park Street research

GROCERY STORES INNOVATING WAYS TO INCREASE APPEAL TO FEMALE WINE BUYERS 15