Wine and Spirits Convergence

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1 Wine and Spirits Convergence Robert Trone Co-Owner Total Wine 1 AMERICA S WINE SUPERSTORE

2 TOTAL WINE AND MORE 171 stores, 20 states, $2.7 billion, in sales: 47% wine $1.3 billion 32% spirits $860 million Typical store 7,000 wine items & 3,000 spirit items 2 AMERICA S WINE SUPERSTORE

3 SPIRITS VS. WINE U.S. Sales, Off Premise Retail Wine - $27-30 billion Spirits - $41 billion 3 AMERICA S WINE SUPERSTORE

4 INDUSTRY GROWTH OFF PREMISE TRENDS? Wine 2015 $ - 5.8%, Volume 2.2% 2016 $ - 4.3%, Volume 1.7% 2017 July YTD$ - 2.3%, Volume.4% Spirits 2015 $ - 5.7%, Volume 2.6% 2016 $ - 4.3%, Volume 2.2% 2017 July YTD$ - 3.2%, Volume 2.0% 4 AMERICA S WINE SUPERSTORE

5 SUPPLIER WINE & SPIRIT SYNERGIES AT RETAIL Same wholesaler, but in different division Different retail buyer for wine and spirits Limited suppliers have successfully sold wine and spirits Gallo Yes, Constellation? Diageo, Brown Forman, Pernod Ricard? Consumer purchase decision process Some final customer overlap but high volume wine consumers do not purchase spirits to a large degree 5 AMERICA S WINE SUPERSTORE

6 WINES & SPIRITS Do they converge or are they oil and water?

7 ANCIENT HISTORY (ABOUT 40 OR 50 YEARS AGO) SPIRIT COMPANIES BOUGHT WINERIES IT WAS A TRAIN WRECK Diageo acquired Beaulieu Vineyards & Sterling Brown-Forman acquired Fetzer & Sonoma Cutrer

8 CURRENT HISTORY (ABOUT 2 TO 4 YEARS AGO) WINE COMPANIES BUY SPIRIT BRANDS VERDICT? TOO SOON TO TELL Constellation buys High West $160 MILLION 70,000 CASES LVMH buys Woodenville $70 MILLION* 20,000 CASES Remy buys Westland $40 MILLION* 6,000 CASES Gallo buys Germain-Robin UNDISCLOSED PRICE <5,000 CASES *Estimated

9 WHAT S DIFFERENT TODAY? HIGH FREQUENCY WINE CONSUMERS ALSO DRINK BEER AND SPIRITS 71% ALSO DRINK BEER 58% ALSO DRINK SPIRITS *Source Wine Market Council

10 WHAT S DIFFERENT TODAY? Brandy next? Tequila and gin coming up 30 YEARS AGO YEARS AGO PAST 10 YEARS Principally led by whiskey WINE led craft/artisanal innovation & creativity BEER followed with craft regional breweries SPIRITS coming on strong with regional distilleries [whiskey, gin, brandy]

11 WHAT S DIFFERENT TODAY? OIL AND WATER? OR HEAVENLY STRATEGY?

12 IF YOU ARE BIG LEVERAGE BALANCE SHEET LEVERAGE DISTRIBUTION STRENGTH VERY FOCUSED CHANNEL DISTRIBUTION STRATEGY ROBUST SOCIAL MEDIA/TRADE MARKETING

13 IF YOU ARE SMALL TAKE ADVANTAGE OF REGIONALITY LESS THAN 45,000 CASES LONG-TERM RELATIONSHIPS DIRECT-TO-CONSUMER SEPARATE & DISTINCT BRANDING MUST BE AT UBER-LUXURY PRICE POINT (ABOVE $40)

14 RISKS REWARDS UNKNOWN MARKET BIG MULTIPLES PAID ON REVENUE (but only if inventories support 4-5 years of double digit growth ) HIGH ENTRY COST (Especially aged brown inventory) DISTRACTION FROM CORE BRAND

15 THANK YOU JEFF O NEILL joneill@oneillwine.com

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18 Vintage Wine Estates New Spirits Division The Splinter Group Splinter originally formed in 2013 by the Wilkinson Family and Dave Phinney, founder of Orin Swift Cellars. The highly allocated whiskies are finished in French oak wine barrels previously used for aging wines and have garnered a cult following. Dave Phinney sold his interest in Splinter Group in The partnership is now the original Wilkinson Family, with Vintage Wine Estates and consulting winemakers/spirits blend masters Steve Matthiasson and Bob Cabral.

19 IT S ABOUT THE BARRELS Our whiskeys are aged in the spice cabinet of French oak barrels that add complexity and nuance. Our secondary aging process uses wine barrels that previously held Steve Matthiasson s and Bob Cabral s amazing wines.

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23 PARTNER Sweet Vermouth The Wine Partner Vermouth hearkens to an earlier America when alcohol and medicine were one and the same. Whiskey and vermouth cured all. Vermouth is wine infused with botanicals. This marriage of flavors dates back to the origins of wine itself. The Caesars and Pharaohs of the ancient world had their own royal recipes, as well as the common folks on their farms families throughout history added herbs and spices to their local wine, both for flavor and for health. Vermouth has always been considered medicinal as well as delicious, and we are continuing the tradition. For Partner Vermouth we started with a blend of Merlot and Petite Sirah, heightened it with fresh cherries from Lodi California, and then layered in exotic spices from around the world. We made grape spirit infusions of spices like Smoked Black Cardamom, Star Anise, Indian Coriander, Chinchona bark, and Wormwood. The Profile Smokey and exotic on the nose, fruity on the palate, with a long finish that cleans up with the bitter herbs, Partner Vermouth works in a cocktail, on ice, or simply neat. Cocktail s Essential Partner

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25 ACCOLADES Gold Medal Best in Class Being recognized as a winner is an extremely prestigious accolade and one that many in the industry strives to obtain. Douglas Smith, Whiskies of the World Louisville Bourbon Buzz Tonight s buzz: Slaughter House American Whiskey The profile is very intense in flavor. Immediately I pick up caramel, dry wine, butterscotch, honey and vanilla. The finish is smooth and heavy with caramel notes. I picked this up for $ I may just have to go pick up another because this is a very good American Whiskey! If you are in the mood to try an excellent whiskey, hunt this one down! 91 pts HIGHLY RECOMMENDED The soft, roasty notes of the grain are very nicely complimented by bright fruit and sweet oak to create a highly enjoyable sipping whiskey. Jacob Grier The Booze Guru ~ your libation specialist I could ramble on and on about how awesome this whiskey is. Hey, and it s not even Bourbon. But I m going to refrain from all that and just say: Slaughter House is fantastic.

26 bourbonblog.com The enthusiasts resource for all things spirited At BourbonBlog.com we ve reviewed and tasted a number of whiskeys and Bourbons finish used wine barrels; Straight Edge delivers one of the most complex to ever pass our palates. ACCOLADES 92 pts "Despite the barber's razor on the label, there are no sharp edges on this bourbon. With oak and vanilla on the nose, it's remarkably soft on the palate; moderately sweet, but backed by enough proof to provide a long, honeyed finish. Straight Edge is a delicious bourbon, on the softer side and without excessive oak, and highly enjoyable sipped neat. REVIEWED BY JACOB GRIER AMERICA S TOP 10 AMERICAN WHISKEYS Aroma: Inviting nose of smoky wood and citrus fruits with a touch of caramelized sugar Taste: A balanced silky mouthful of smoke and dried fruits with a slight hint of smooth, rich honey Finish: A spicy extended finish.

27 The Future