2Deutsch Spirits Stephen Lewin That was cold water and for an incredible cause – A Special Olympics fundraiser in New EnglandLets be clear about Deutsch Spirits - We are not dipping our toe in the water…We are diving in head first…Spirits is a New frontier at WJD – and it all makes sense and the Timing is RightDiversify Deutsch – add to our current wine business.Distribution network is strong – it’s a naturalRevenue potential is huge – Spirits can be very profitabPeter and Tom asked me to lead the Spirits team in late FebruaryJumped at the opportunity – Similar to VCPSize, # of people and Distributor leverageOpportunity to build the network and cultureBuild Brands for the long termIf starting a spirits company today is not evidence of OFA, I don’t know what is?
3Top Priority Growth Initiatives to Reach $650 Million by FY15 1. Focus on Highest Priority Brands (Biggest Bets) with increased A&P investment against those brands2. Optimize Route to Market (Distributor Agreements & Investment)3. Wine Innovation: New Brands and Alternative Packaging for Existing Brands4. Secure Spirits brands, likely via Agency Agreements5. Wine Acquisitions (brands or companies, JVs or alone)Lets Get StartedReview the company’s Growth InitiativesSpirits Plays a major Role - # 4 on the hit parade# 1 &2 also very relevant to Spirits
4Spirits - 5 Year Goals By 2015: Triple our volume Double our suppliers Est. Case Vol.220K300K400K450K600KEst # Suppliers3456We are on the moveREAD BULLETSWater seems pretty cold at the momentWe finished FY ’10 with 2 brands 30K cases
5Spirits Strategy Objective: Scale: Sources: Segments: Resources: Maximize profitability, $40 million in new revenue by FY15Get to break-even by FY12Scale:Add a few big cornerstone brands across key categoriesMax 1 “New To World” brand per year.6 months between existing new additionsSources:1) Primarily existing Agency 2) JV 3) Acquisition 4) InnovationSegments:Premium segment is our focusOpen to consider Super PremiumUnlikely we will add Value BrandsResources:Add resources commensurate with DBC growth, competitive reinvestmentLets look at our Strategy - Talk about a BHAGRead BulletsNTW – bottle oneCompetitive re-investment rates are high for Spirits – as a % of revenue. Just need to get profitable first
6FY’11 Spirits P & L Snapshot RevenueDepletionsGross ProfitLuksusowa$15.2M183K$3.4MLandy3.2M20K900KVilla Massa1.4M17K360KNTW (July)1.0M4K300TOTAL$20.8M224K$5.0MLet’s Look at FY’11 numbersLukso first cornerstone brand (read across)– gave us critical mass to operate as a separate divisionLandy - 20k cases from 8k LYVM – 17k from 12 kNew To World in July – Cant tell you what it is yet. Really exciting – Will create a new category of Spirits. On premise focused to start and reason for small numbers5M to run entire business (all in)Goal to be profitable in first year – covers all staff, brand spending and division overheads
7The WJD Spirits Team Sheku Alieu Jean-Francois Bonneté Pablo Pelaez Mid-AtlanticMark LowenMidwestJean-Francois BonnetéVP Southern RegionPablo PelaezBrittany Sales Co.With that I would like to Intro players – Please intro yourselves this week.READ NAMES and REGIONThis mission for team is BASIC BLOCKING AND TACKLINGDistribution, Distribution, DistributionWorking the streetsManaging Wholesalers and holding them accountableIntroduce yourselves to them this week and work side by side together in the marketsMichael KeltschWestEric MaldonadoDirector, Spirits MarketingHeather SturmSouthern CAEmpire Position OpenBroker network in selected markets across the U.S.
8Shared WJD Resources Finance Public Relations Supply Chain Innovation Marketing ServicesNational AcctsFinanceSupply ChainLegalComplianceITAnalyticsFortunate to have access to these resources.Spirits group can Act like a big companyResources Provide leverage given our current start up sizeUtilize resources commensurate with our size – as we grow, we will have greater access to these functions
10Total Spirits Category Size Total Case Vol. Sales -185.5 Million 9-Liter casesAs compared to Wine - 271MM casesTotal $ Retail Sales$63 BillionTotal Spirits is $63BB in retail sales in US - the total amount consumers paid for spirits at retail in 2008On-Premise revenue and profits far surpass off premise in the spirits category even though 4 out of every 5 bottles are running through the storesOff Volume = 78%Source: MintelThe Beverage Information Group 2009
11Spirits average annual case volume growth 2.6% over past 10 years 1901801701601501401301201101001.4%1.7%2.4%4.1%2.7%4.1%3.8%3.0%1.0%2.0%Lets look at Volume growth10 straight years of case volume growthArrow pointing in the right directionFurther evidence of why we are getting into the spirits categorySource: DISCUS MSDB
12Spirits average annual revenue growth of 5.2% over past 10 years 66% revenue growth over past decade$18.7$18.7$18.2$17.2$16.0$15.1$13.9$13.2$12.2$11.7Supplier Gross Revenue (Bil.)Revenue Growth tells an interesting storyRevenue is growing DOUBLE the rate of volume (5.2% vs 2.6); Due to the trade-up phenomenon over the past 10 years which came to a temporary halt in 2009.Look at ’08 vs 09 – no growthLike any investment you look at long term trend. This tells a good story.Source: DISCUS MSDB
13Volume Growth by Price Segment Value segment leading the growth, followed by PremiumMost segments expected to improve as economy recovers - with Premium expected to lead the growthVolume in ’08 vs. ’09 – sign of the timesRead Bullets on ScreenHigh end and super premium segments – brands such as Absolut and Grey Goose - suffered in ‘09Value segment - with brands like Popov - leading the growth, followed by Premium-SvedkaSource: DISCUS MSDB; Mintel 2009
14Volume & Revenue Share by Price Category - 2009 Value segment leads share of spirits volumePremium segment leads revenueRead Title and Bullets and then points belowPremium will continue to grow as consumers reward themselves. The companies that invest in marketing and innovation during tough times will lead the growthThe Deutsch Spirits brands live primarily within the Premium categoryWe mentioned early on that our strategy was premium, here’s why - premium delivers financiallySource: DISCUS MSDB
15Off-Premise Driving Growth Increase of at-home consumptionConsumersMaking cocktails at homeRe-evaluating spendingTighter budgets and sticking to themThe new normalShifting trends towards off premiseREAD BULLETSWJD focus for FY’11 is primarily in the off-premise segmentGO TO TAKE AWAY’SSource: DISCUS MSDB
16Spirits Category Takeaways Spirits category continues to growRevenues have historically grown faster than case volumePremium segment is largest revenue segment and growingOff-Premise is driving majority of growthWJD is positioned for success in the Spirits categoryAll Points to Opportunity
17Introducing the Deutsch Spirits Portfolio Now I’d like to introduce you to the Deutsch Spirits PortfolioBlocking and tackling – distribution, price integrity, displayBuild Brands for the long term – and create valueCommunicate and become relevant to the consumer
18Landy Award-winning cognacs Competitively positioned Cognac/Brandy represents 6% of total spirits category with new players coming in all the timeF11 Goal: 20,000 cases8000 cases LYLandy – This is where it all started for Deutsch Spirits -Equity Supplier with exciting newsCover bullets on screenRelationship and story with Ferrand and AlexandreSource: MintelThe Beverage Information Group 2009
19Landy Brand Positioning Landy is authentically smooth and priced right to be the confident cognac choice of those who want to enjoy the good times everyday.Read Brand Positioning and Landy & SnoopSnoop - just signed this week - Who better to be the face of the brand than Snoop Doggsuccessful business person who has done reality TV, voice-over on navigation systems, and can have a strong positive effect when he gets behind a brand. Very Visible – appeared on many talk shows recentlySNOOP Activities in addition to his concertsAfter Parties hosted by LandySocial Media and On Line OpportunitesSnoop trade appearances, Landy mentions in songs and other cool benefits.
20The Opportunity in Cognac Despite a challenging 2009, the cognac category has shown growth in 2010 Q1 (+16.2).The VS and VSOP segments are leading the growth, both up 12.4% and 13.2%, respectively.Segment% Chg vs. YAGTTL Cognac+16.2%VS+12.4%VSOP+13.2%XO-9.1%Playing in the right segment of the cognac categorySource: Nielsen 13wk FDL to
21Proper Price Positioning FY11 PlanQuality DistributionPublic RelationsProper Price PositioningRetail MerchandisingSnoop Dogg TourSmoothConfidentPedigreeDichotomyGood TimesDogLandy & SnoopOur mission is to merge the most compelling Landy attributes with those of brand Snoop. From this intersection comes the brand opportunity.
22Villa Massa Brand Positioning For sophisticated, goodtime seekers who love interesting food & drink Villa Massa is the authentic & premium limoncello that brightens any meal with the sunny & refreshing flavors of the Amalfi CoastIt’s made only from Oval lemons from Sorrento and has been enjoyed by Italians for centuries ... the culture that has perfected the art of blending passion, romance & eating.Brand positioning (will not read) – Key Words and what VM is about.AuthenticPremiumAmalfi CoastOval Lemons from SorrentoPassion, Romance and great food
23The Opportunity in Limoncellos Quality. Villa Massa is made with 100% natural ingredients and 100% PGI Sorrento Oval lemons. This is an appealing message to consumer.Versatility. Villa Massa mixes well to make fantastic cocktails such as The Villa Mossa (sparkling wine with Villa Massa) or The Surriento (tonic).On-premise accounts. Accounts are open to adding the best Limoncello to their portfolio to be included in their after dinner lists and in interesting cocktails.The “Brunch” occasion. Summer programs in place
24FY11 Plan FY11 MARKETING PLAN Objectives Grow the brand to 17,000 casesGrow distribution on and off-premise (combined) to 4,200 accounts (+30%)StrategiesDrive distributionIncrease brand velocityBuild brand awarenessPromote the brand outside the after-dinner occasion by communicatingits versatility.Expand distribution outside core markets of CA and PATarget non-Italian on-premise accountsTacticsSampling ProgramMerchandisingHoliday VAPs (750ml and 375ml)Gain menu listings at on-premise accountsPromote The Villa Mossa and The SurrientoSummer Brunch ProgramEngage the media and garner national editorial coverageEnter brand in major spirit competitionsStefano Massa Tour
25LuksusowaCornerstone Brand – 180K cases in limited markets (50% in top 5 markets)Pernod Ricard – Agency Relationship (recent acquisition)Nearly 1 out of every 3 drinks is a vodka drinkOff-premise focus - 70% 1.75L (Display Activity)Brand has a real following however a limited knowledge of the consumer baseCover BulletsSource: MintelThe Beverage Information Group 2009
26Luksusowa Brand Positioning 94 Points BTI Mixologists Favorite For vodka drinkers who are seeking quality and value, Luksusowa is the premium imported vodka that offers ultra premium rich taste at a reasonable priceAuthentic potato Vodka from Poland and uniquely triple distilled for purity94 Points BTIMixologists FavoriteResearch – Potato, Luxury, Authenticity, Poland, Tag LineInnovation – Label DesignCover Positioning and BulletsPositioning is a work in progressWJD Brand Positioning and Tag Line – WJD WorkPriced just above Svedka and below Skyy
27The Opportunity in Vodka Segment% Chg vs. YAGTTL Vodka+4.8%Value+2.1%Premium+8.9%High-end+5.5%Super-Premium+4.9%Premium Segment is leading the growth at double the rate of the category-13 week.At 29% of volume at retail, the premium segment is leading in growth at almost double the category.Source: Nielsen 13wk FDL to
28Luksusowa is: The #1 Potato vodka in the US and the World. Priced right in the fastest growing vodka segment.Poised to benefit from national distribution.Great quality and has won many recent awards and accolades!The Luksusowa Martini – Finalist at the 2010 Ultimate Cocktail ChallengeThe Luksusowa Cosmopolitan- Finalist at the 2010 Ultimate Cocktail ChallengeThe Luksusowa Bloody Mary- Finalist at the 2010 Ultimate Cocktail Challenge94 points 2009 Beverage Tasting Institute94 Points and Gold Medal and 2009 International Review of SpiritsCover Bullets
29FY11 Plan FY11 MARKETING PLAN Objectives Grow the brand to 183,000 cases in depletionsIncrease brand awarenessStrategiesIncrease velocity at retail in top marketsExpand distribution outside historical key markets (PA, NY, FL, NC, VA)Engage in basic Public Relations communicating brad quality vs. affordability message and recent accoladesTacticsSampling ProgramMerchandisingCouponsNeckersPress luncheons and relations750 ml Holiday VAP
30And coming soon… What happens when you combine… It’s time to shine… A world-renowned chefThe power of the media and entertainment industriesA new spirits category grounded in the soul of AmericaThe power and people of WJDIt’s time to shine…This new brand will blow you away.Cover bullets… you’ll be hearing more about it in the coming monthsWe will roll out in limited markets in August and nationally in 18 moths
31Spirits Summary Year 1 – A Year of Building Contributor towards long term vitality and health of WJDProfit-FocusedBrand Development and Value CreationPortfolio ExpansionEstablishing Deutsch Spirits in the MarketplaceCover Bullets
32Open for Anything… WJD is now officially in the spirits business… Further proof that we’re open for anything!Leave you with another Snoop hit…