Alcoholic Drinks Global Industry Overview

ALCOHOLIC DRINKS GLOBAL INDUSTRY OVERVIEW July 2018

INTRODUCTION GLOBAL OUTLOOK

LEADING COMPANIES AND BRANDS TOP FIVE TRENDS SHAPING THE INDUSTRY MARKET SNAPSHOTS APPENDIX

INTRODUCTION

Scope  This report analyses the Alcoholic Drinks industry, which includes the following categories.

Beer - 196 billion litres

Spirits - 22 billion litres

Alcoholic Drinks - 259 billion litres

Wine - 29 billion litres

Cider - 2 billion litres

RTDs - 4 billion litres

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ALCOHOLIC DRINKS: GLOBAL INDUSTRY OVERVIEW

Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies’ opinions, reader discretion is advised.

2017 is emerging as a vintage year. It is a broad-based and potent cocktail of renewed buoyancy. Yet downside risks remain as new and disruptive trends surface across all key segments. Which are the categories fueling growth and where is momentum peaking? How are key regions faring and where are macroeconomic and legislative hangovers taking a toll?

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INTRODUCTION

Examining five trends shaping Alcoholic Drinks Trend

Healthy living as drinking turns mindful Connected consumers: A technological cocktail of disruption

Expected long-term implications

Historic significance/ Forecast significance

Moderation will only gain further traction as low- and nonalcoholic products gain momentum across all categories.

While historically legislative barriers and complacency have limited the relevance of technology to the industry, apps, the internet of things, AR and VR, among others, will all gain traction in the medium to long term. The rigid categorisations of the past will increasingly lose Cross-pollination, relevance as the millennial demographic drinks around hybrids and blurring occasions rather than deciding on the back of traditionalist category lines labels and definitions. Marketing evolves, corporate responsibility takes centre stage

Machismo-infused advertising and conspicuous consumption narratives will increasingly give way to gender-neutral targeting and sustainability cues - millennials and Generation Z drinkers will demand so.

Is the grass greener? Cannabis and the substitution conundrum

While the rise of cannabis is currently primarily relevant to North America, its potential for disrupting the alcohol industry both as an antagonistic substitute or even as a symbiotic alternative to established brands, cannot be discounted.

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INTRODUCTION

Areas of opportunity

Low-/Non-Alcoholic Adult Beverages - Global

Cannabis Infusions - North America

Relevant across categories, demographics and regions, low- and non-alcoholic adult beverages will reach escape velocity on the back of consumer demand, evolving public discourse and leaps forward in terms of technical innovation. Embracing positive branding narratives rather than subtractive stereotypes, the segment will have a profound effect for the entire industry.

While de facto more relevant to North America, which is currently pioneering legalisation initiatives, cannabis will inevitably enter the lexicon and occasions while appropriating the alcohol industry’s language and semiotics. With key players such as Constellation and Heineken already active in the segment, the “Green Rush” can prove to be both a huge disruptor as well as a great opportunity.

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ALCOHOLIC DRINKS: GLOBAL INDUSTRY OVERVIEW

Cross-Pollination Initiatives

Thinking outside the proverbial bottle will be key for future innovation cycles. Collaborations and radical experimentation with hybrid products straddling category lines will be key for retaining relevance for the millennial and Generation Z demographics.

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INTRODUCTION GLOBAL OUTLOOK

LEADING COMPANIES AND BRANDS TOP FIVE TRENDS SHAPING THE INDUSTRY MARKET SNAPSHOTS APPENDIX

GLOBAL OUTLOOK

A vintage year?  As Euromonitor’s latest annual research is finalised, 2017 is emerging as a vintage year. The industry’s global volume growth might not appear dynamic at first glance, but at 1%, it is actually its strongest performance in half a decade.  It is a broad-based and potent cocktail of renewed buoyancy. From lager entering positive territory for the first time since 2013 on the back of the seemingly infinite premiumisation narrative to expanding non-alcoholic portfolios pushing the often-maligned segment into the limelight, beer appears frothy rather than flat.  Wine and spirits also did well, while the relative improvement was witnessed across the on- and offtrade with both hovering around 1% growth for the year.

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ALCOHOLIC DRINKS: GLOBAL INDUSTRY OVERVIEW

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GLOBAL OUTLOOK

Alcoholic drinks: drinks all around?

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ALCOHOLIC DRINKS: GLOBAL INDUSTRY OVERVIEW

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GLOBAL OUTLOOK

Beer versus spirits: a tale of two worlds

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GLOBAL OUTLOOK

Under Asia’s shadow  While recovery and optimism were visible across the board, there is little doubt that the gravitational pull of the Asian market cannot be understated.  With the notable exception of Japan, which was largely flat and still improved compared to the previous year, all other major markets were in positive territory and/or accelerating.  The big story here is of course China, which, following the centrally planned crackdown on conspicuous consumption that added significant headwinds to the industry’s once enviable trajectory, shifted back into positive territory after three years of painful decline.  Beyond China’s reinvigoration, key markets from Vietnam to the Philippines are retaining their high single-digit or even double-digit growth rates - a development underscoring the sustainable and still booming potential held by the region.

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GLOBAL OUTLOOK

European doldrums and North American saturation  Western Europe, on the other hand, maintained its uninspiring trajectory. Barely entering positive territory, and with the notable exceptions of Spain and Portugal that are still largely in bounce-back mode following the lean post-crisis years that hit them both hard, Western Europe does not provide much reason to raise a glass. From Germany to Sweden to the UK, lingering maturity, demographic headwinds and entrenched macro weakness have taken a toll for another year as volume growth deteriorated even further.  Much like Western Europe, North America also remained largely mired in stagnation - an unsurprising performance that underscores the importance of the premiumisation mantra since value growth opportunities increasingly appear as the most straightforward way to fight the uphill battle against saturation.  There was also not much cheer to be had in Eastern Europe. The key Russian market remained in negative territory for the 10th year running, while the beleaguered country does not appear to provide much hope of a robust turnaround any time soon. While smaller regional markets such as Hungary, Romania and Latvia witnessed healthy total volume growth for the year, the direction of travel remained overwhelmingly negative, with Lithuania and Latvia leading the race to the bottom with double-digit declines.  However, it was not all gloomy or sobering. Latin America witnessed significant improvements as the key Brazilian market edged closer to positive territory following a couple of years of political and macroeconomic headwinds hitting sales hard - a reminder of the volatility that has historically been a cyclical occurrence in emerging markets. With Chile and Argentina back in roaring growth and witnessing high single-digit volume spikes, the region appears to be turning a corner .

 Australasia and the Middle East and Africa largely retained their positive trajectories - unsurprisingly stronger for the latter rather the former - and while the two regions could not possibly be more different, a move towards higher-end products in both underscores the global relevance of premiumisation.

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GLOBAL OUTLOOK

Lager not going flat anymore and gin lane turns into avenue…  Lager managed to enter positive territory for the first time since 2013.

 Shots of optimism were also prevalent in spirits where volume performance - at a perhaps uninspiring yet solid 1.5% - is also the strongest since 2012, driven as much by blended Scotch’s belated return to its historic trajectory as it was by the much-vaunted “ginaissance” that is currently in full swing.  Registering a consistently accelerating 5% volume growth for the year, 2017 was English gin’s most stellar performance since at least the early 2000s.  Nevertheless, it was - yet again brown spirits and their over-proof allure as the wider category’s de facto drivers that remained the protagonists.

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GLOBAL OUTLOOK

…as brown spirits march on and vodka remains on the defensive  Beyond the Scottish usual suspects, it was whiskies across the board as well as cognac that continued capitalising on artisanal credentials, authentic and resonant stories and mixology entering the mainstream. Tequila also largely retained 2016’s decade-high spike as the transition from shots to sipping and aspirational consumption takes the edge out of what was once a stiff drink.  Wine also appeared to have robust legs too with still light grape varietals gaining momentum on the back of millennial-pink iterations reaching escape velocity. Red and white variants also fared relatively well but it was the rising rosé tide that provided a refreshing crisp finish to the wider wine segment.  Other sparkling wine’s widely covered boom was likewise related to its casual and unpretentious positioning, while vermouth’s mixability credentials catapulted it into positive territory for the first time in years, with the category ultimately registering its strongest performance in almost a decade.  Is it time for celebratory toasts then? Not quite. Ale’s gradual deceleration highlights the craft segment’s underlying saturation issues ultimately bubbling to the surface.  Flavoured lager languishing into negative territory for the first time ever is another cautionary tale on the faddish limitations of flavour sophistication initiatives. And vodka, still seemingly trapped in a downward spiral, remains a prescient reminder of both the danger of complacency and the unrelenting nature of cyclical generational consumer movements.

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GLOBAL OUTLOOK

Beyond the usual suspects  While countries such as China and the US tend to monopolise headlines and the industry’s priorities and focus, it is markets such as Vietnam, Mexico and India that offer much untapped potential beyond the usual suspects.  Positive demographic forces, rising middle classes and the still embryonic stages of premiumisation will increasingly shift the focus towards them.  However, and while future volume growth projections do look intoxicatingly buoyant, considerable risks remain.  As was painfully proven in the cases of markets once hailed as growth engines, such as Russia and Nigeria, macroeconomic shocks, political instability and aggressive legislative policies can, at least temporarily, derail the process. Volatility will be part of the mix.

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GLOBAL OUTLOOK

Non-store: still just a shot but rapidly changing the retailing cocktail  The transition away from storebased retailing models has been widely covered across fmcg industries, and alcoholic drinks is no exception.  There are, however, significant differences. The far more strict operating environment, legislative barriers in key markets, such as the 3-tier distribution networks in the US - and the industry’s historic focus on the on-trade side of the consumption occasion has led to still comparatively minimal nonstore sales.  The ubiquitous and ever-widening penetration rates of special apps, the clout of major third party online retailers and most recent initiatives from key alcohol giants will provide huge momentum for the segment going forward.

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GLOBAL OUTLOOK

Forecast model scenarios: Brexit – the darkest hour?  Macroeconomic and legislative developments, political volatility and black swan events can radically alter the alcoholic drinks landscape, and Brexit is a case in point - both for the key UK market as well as for Europe and beyond.  While the UK economy is proving more resilient than dire initial forecasts suggested, signs of a slowdown have started to become apparent, even though the inflationary pressures arising from the severe depreciation of the pound in the aftermath of the referendum have subsided.  As brinkmanship and hard-line views appear to currently dominate the conversation within the ruling Conservative government, a de facto hard Brexit scenario, or a complete breakdown of negotiations, cannot yet be discounted.  From the logistical nightmare of cross-border sales and traffic through Northern Ireland, to the potential need for renegotiating hundreds of agreements unilaterally, much is at stake while key business contingency plans will be put in motion as soon as the conversation is shifting towards stockpiling and disruption.  The silver lining can be provided by the recent spike in exports of Scotch on the back of that same depreciation, as well as an opportunity for the resurgent domestic microbrewing, microdistilling and wine industries.

Note: From Alcoholic Drinks Forecast Model, No-Deal Brexit scenario beginning Q2 2019.

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INTRODUCTION GLOBAL OUTLOOK

LEADING COMPANIES AND BRANDS TOP FIVE TRENDS SHAPING THE INDUSTRY MARKET SNAPSHOTS APPENDIX

LEADING COMPANIES AND BRANDS

Big is not always best  While consolidation is a historic development that still retains a degree of relevance in emerging markets crossing the threshold to maturity, it is no longer such a straightforward affair.  The share of the top five ranked companies has largely remained static or even faced straightforward decline in key regions such as North America and Australasia, as a plethora of new smaller players witnessed a spike in their penetration rates on the back of the ongoing craft revolution.  On the other hand, private label remains a niche as the variety of products available, lifestyle cues associated with alcoholic drinks and heavy discounting tactics implemented by key players do not allow room for the segment to evolve.

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LEADING COMPANIES AND BRANDS

Big beer facing an uphill battle  While the core Western markets can indeed prove challenging for key mass beer brands, geographic diversification can provide an escape route for the building pressure - as proven by AB InBev successfully pushing Budweiser beyond the US or Heineken capitalising on its momentum in Southeast Asia and its Brazilian acquisition of Kirin.  Carlsberg, on the other hand, is still to overcome its muchvaunted Russian hangover, while major Chinese brewers are struggling to adapt to the transition towards a lower volume/higher value equilibrium that will inform the next wave of category expansion in the country.

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LEADING COMPANIES AND BRANDS

The craft sector is a core focus for acquisitions…

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AB InBev, Heineken and Carlsberg: Beer Volumes by Category Share 2017 100%

75%

% volume share

 The significance of the premiumisation trend globally means leading brewers are all working to enhance the higher brackets of their portfolios - whether through premium mainstream lager, or more niche offerings.  One key aspect of this is the craft sector, with acquisitions playing an important role. These takeovers continue to prove controversial, although the practical significance of this controversy is debatable.  Some form of divergence appears to be forming in the craft sector between small-scale brewers which promote their independence and those with a greater reach, often achieved through partnership with, or ownership by, mainstream companies.  AB InBev has been perhaps the most prolific in pursuing acquisitions in this area over the last few years - or at least the most high profile.  However, in order to address potential competition issues following the 2016 SABMiller purchase, any future US acquisitions will need to be reviewed by the US Department of Justice. AB InBev has already been looking outside the US for acquisition opportunities.  In 2017, Heineken boosted its craft-style portfolio by taking 100% ownership of the US-based Lagunitas Company, building on the 50% stake it gained in 2015. Carlsberg also raised its profile in this sector in 2017 with the acquisition of UK-based London Fields Brewery. The business will operate within the joint venture between Carlsberg and Brooklyn Brewery.

50%

25%

0% AB InBev

Stout Economy Lager Premium Lager Dark Beer

ALCOHOLIC DRINKS: GLOBAL INDUSTRY OVERVIEW

Heineken

Carlsberg

Non/Low Alcohol Beer Mid-Priced Lager Flavoured/Mixed Lager

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LEADING COMPANIES AND BRANDS

…but who has been buying what?  Top three international brewers: Major microbrewer purchases (partial stake or full acquisition) 2011-2017 AB InBev

Heineken

US

Mexico

 Goose Island Beer Co (2011)

 Cerveceria Tijuana (2016)

 Blue Point Brewing Co (2014)

 Cerveceria Mexicali (2016)

 10 Barrel Brewing Co (2014)

 Bocanegra (2016)

 Elysian Brewing (2015)

 Cucapá (2016)

 Golden Road Brewing (2015)

Brazil

 Breckenridge Brewing (2015)

 Cervejaria Colorado (2015)

 Four Peaks Brewing Co (2015)

 Cervejaria Wals (2015)

China

 Boxing Cat Brewery (2017)

 Bogatá Beer Co (2015)

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 Lagunitas Brewing Co (100%: 2017) South Africa

 Stellenbrau Brewery (2017)  Soweto Brewing Co (2017) Italy

 Devils Backbone Brewing Co (2015) Australia  Pirate Life Brewing (2017)  Karbach Brewing Co (2016)  4 Pines Brewing Co (2017)  Wicked Weed Brewing (2017) Colombia

US

Spain

 Cervezas La Vírgen (2017)

 Hibu Società Agricola Srl. (2017) UK

 Brixton Brewery (2017) Carlsberg UK

 London Fields Brewery (2017) Note: This list should not be considered exhaustive. It also excludes acquisitions by subsidiary companies, non-ownership partnerships, and distribution agreements.

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LEADING COMPANIES AND BRANDS

Diversification and emerging markets fuel volume growth  Having a closer look at organic growth excluding acquisitions, diversification initiatives, an international presence and activity within segments that are on solid growth trajectories are keys to identifying the winners.  Viña Concha y Toro and Brown-Forman are both enjoying strong performances due to their geographically expansionary strategies and relative buoyancy within the wine and bourbon categories, respectively.  Boston Beer, on the other hand, proves that there is still momentum in craft - even if not necessarily through core beer ranges.  Constellation Brands is a star performer on the back of the momentum of its Mexican imports, although anecdotal information for 2017 suggests that the tide might be turning on that front too.  In the meantime, smaller emerging market-focused companies capitalise on favourable demographics and rapidly evolving sophistication.

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INTRODUCTION GLOBAL OUTLOOK

LEADING COMPANIES AND BRANDS TOP FIVE TRENDS SHAPING THE INDUSTRY MARKET SNAPSHOTS APPENDIX

TOP FIVE TRENDS SHAPING THE INDUSTRY

Megatrends through the alcoholic drinks looking glass Experience More Healthy Living

Experiential campaigns have been consistently gaining traction but brands as a central hub of content creation will further underscore the relevance of the trend From teetotalism to moderation and from low calorie products to natural wines, healthy living is becoming more intricately associated with alcoholic drinks across the board. Shifting Market While emerging markets and rising middle classes have historically been an engine for Frontiers volume growth, the trend retains its relevance - with an important caveat; growth trajectories will continue being inherently volatile and macroeconomic and political headwinds should be considered an inescapable part of strategic planning. Shopping The rise of brewpubs, online sales and specialist apps - even if the latter are still held back Reinvented due to legislative barriers and tiered distribution models - underscores the relevance of alternative shopping models, a development that will only accelerate further moving forward. Ethical Living The micro-revolution has radically impacted beer and is making its mark in spirits, but it is related to wider trends than more sophisticated flavour profiles. Sustainability credentials, corporate responsibility and hyperlocal offerings are all tapping into ethical concerns. Middle Class Stagnating discretionary incomes, lingering private debt and employment insecurity have Retreat hit middle-class consumers in Western markets hard and continue presenting significant headwinds. Drinking less but better has been the answer presenting value growth opportunities even within an otherwise stagnating volume environment. Premiumisatio A driver across the industry for decades, premiumisation will remain relevant while n continuing to evolve while shifting closer to artisanal, heritage and craftsmanship cues. Connected From the rise of the internet of things to voice-activated devices providing cocktail Consumers recommendations, connected consumers are reshaping positioning, campaigns and occasions © Euromonitor International

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TOP FIVE TRENDS SHAPING THE INDUSTRY

Healthy living as drinking turns mindful  From moderation initiatives to breaking the taboo of teetotalism, the trend will enter the realms of a paradigm shift.  It will be secular rather than cyclical: lower-alcohol and adult soft drinks will find relevance in equal nonintoxicating measures in mature markets from South Korean spirits to Western European beer and beyond.  Smaller pack sizes and serving options, production advances allowing for more sophisticated and balanced products than first generation dealcoholised offerings and synthetic prototypes focusing on compounds minimising alcohol toxicity, while claiming functional benefits will be key.  The rise of cannabis as a healthier substitution alternative will only accelerate the shift.

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Key Point: While the trend for moderation has already gained traction within the beer segment, it will be spirits and wine that will spearhead innovation in both lower- and non-alcohol alternatives in the short to medium term.

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TOP FIVE TRENDS SHAPING THE INDUSTRY

Connected consumers: a technological cocktail of disruption  From integrated voice-enabled devices allowing for seamless recommendations, shopping and educational initiatives to augmented reality labels and Near Field Communication (NFC) technology transforming products into content hubs and digital touchpoints, the dawn of a brave new world is upon us.

 As the historic obsession with nostalgiatinged offerings reaches saturation territory, alcoholic drinks will go back to the future.  While the relevance of tried and tested offerings and signature brands and serves will largely be retained, technology has the potential to provide the creative twist that will see them evolve with the times.  Spectrometry sensors, voice-activated decanters, smart bottles and the rise of the internet of drinks will lead to further exploration of multisensory experiences, customisation functionality and new occasions.

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Key Point: While there is already a plethora of gadgets and experimental technology tested within the industry, apps for reviewing and ordering, VR and AR activations for educating and promoting and voice- enabled devices with an established base will spearhead developments in the segment.

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TOP FIVE TRENDS SHAPING THE INDUSTRY

Cross-pollination, hybrids and blurring category lines  From combining lager and ale yeast strains to radical barrel ageing amalgamations and from cascade hops in gin to fusion whiskies incorporating Indian, Scotch and international blends, innovation will mirror the promiscuous nature of that all-elusive millennial demographic.  The seemingly insatiable demand to find the next niche flavour, serving, mixology offering or Instagrammable concoction will provide the fuel for much more radical experimentation than has happened in the past - definitional taboos will be increasingly tested.

 Both cross-category and intra-category hybrids will gain further traction providing a halo effect and maintaining consumer engagement.  Some of the most intoxicating opportunities may well lie in between categories instead of inside them.

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Key Point: Collaborations and building bridges across different categories and brands will provide a much-needed halo effect for all involved while allowing for the expansion of penetration rates beyond core category demographics.

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TOP FIVE TRENDS SHAPING THE INDUSTRY

Marketing evolves, corporate responsibility takes centre stage  It is last orders for shots of monolithic aspirational materialism, as consumers turn to sipping and savouring brands’ ethical credentials.

 It is also likely the end of gender-based marketing and the beginning of a transition towards nonbinary and gender-neutral positioning - a far cry from the machismo-driven campaigns of the past.  Reaching out to politically-engaged core audiences that make belief-driven decisions on issues ranging from LGBT rights to the environment, hyper-local advertising campaigns tailored to specific neighbourhoods and demographics and supporting local communities will all drastically disrupt established positioning and promotional rules.  Aspirational consumption narratives will also evolve even if they largely retain their underlying relevance; bling and conspicuous consumption will continue being replaced by stories of authenticity and craftsmanship especially as emerging markets are getting increasingly more sophisticated - and fast.

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Key Point: Superficiality, materialism, machismo and crash consumerist cues will fade as sustainability, ethical consumption and genuine craftsmanship replace them as the narrative tipples of choice for younger demographics.

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TOP FIVE TRENDS SHAPING THE INDUSTRY

Is the grass greener? Cannabis and the substitution conundrum  As legalisation initiatives gather further traction and alcohol manufacturers hesitantly embrace the rising green tide through ambitious R&D and still embryonic M&A activity, cannabis will increasingly monopolise the spotlight.  From pot to plate events to cannabis infusions and from weed pairing wine clubs to Budtenders, buzzy strains, appellations and artisanal offerings entering the industry’s lexicon, cannabis will enter the mainstream in alcohol’s semantic mantle.  Female, higher-income and Hispanic consumers in the pioneering US market already appear to showcase lower rates of cannabis incidence and will be the alcohol industry’s chosen focus and de facto last line of defence, but in the medium to long term symbiotic offerings will be the only viable solution.  Alcohol-free products, drawing parallels to terpenes and non-psychoactive cannabis flavour sophistication will spearhead innovation on that front, led by enthusiastic micro producers willing to take the inevitable risks and pave the way for bolder hybrid products.

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Key Point: Cannabis has the potential to be become a far greater disruptor than the craft segment ever was and adopting a symbiotic rather than an antagonistic stance towards its offerings will be an existential issue for an alcohol industry already on the defensive.

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INTRODUCTION GLOBAL OUTLOOK

LEADING COMPANIES AND BRANDS TOP FIVE TRENDS SHAPING THE INDUSTRY MARKET SNAPSHOTS APPENDIX

MARKET SNAPSHOTS

Global snapshot of beer

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MARKET SNAPSHOTS

Global snapshot of spirits

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MARKET SNAPSHOTS

Global snapshot of wine

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MARKET SNAPSHOTS

Global snapshot of cider

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MARKET SNAPSHOTS

Global snapshot of RTDs/high-strength premixes

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MARKET SNAPSHOTS

Regional snapshot: Asia Pacific

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MARKET SNAPSHOTS

Regional snapshot: North America

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MARKET SNAPSHOTS

Regional snapshot: Latin America

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MARKET SNAPSHOTS

Regional snapshot: Western Europe

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MARKET SNAPSHOTS

Regional snapshot: Middle East and Africa

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MARKET SNAPSHOTS

Regional snapshot: Eastern Europe

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MARKET SNAPSHOTS

Regional snapshot: Australasia

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INTRODUCTION GLOBAL OUTLOOK

LEADING COMPANIES AND BRANDS TOP FIVE TRENDS SHAPING THE INDUSTRY MARKET SNAPSHOTS APPENDIX

APPENDIX: COMPETITOR ANALYTICS

Competitor Analytics tool  Competitor Analytics is a new tool from Euromonitor International that focuses on fmcg companies and competitors. It visualises the retail sales footprint and performance of more than 25,000 companies by geography and product category.  Competitor Analytics also maps the competitive landscape for each of these companies, allowing users to see with whom each company competes and in which specific markets. To do this, the tool calculates a numeric “distance” between competitors, allowing the user to track how the competitive landscape is evolving and which companies are becoming strategically more or less similar.

 For a detailed explanation of the graphics in each of Competitor Analytics’ four tabs – Overview, Competitors, Treemap and Overlap Matrices – please refer to the following slides.

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APPENDIX: COMPETITOR ANALYTICS

Overview  The Overview tab (shown in the graphic below) provides a global snapshot of a company’s sales footprint and performance, highlighting where it is winning and losing by country and product category.  It shows company (GBO) retail value sales and absolute growth by countries and categories in current terms and US dollars at a fixed exchange rate for the years spanning 2008 to 2014.  The grey bars represent value sales in the selected “Start Year”, while the green bars show the subsequent absolute value sales increase between the user-selected start year and 2014. Red bars denote a retail value decline over the same time period.

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APPENDIX: COMPETITOR ANALYTICS

Competitors  The Competitors tab (see graphic to the right) plots the “competitive distance” between the selected “focal” company (in this case Unilever) and its competitors.  The vertical axis measures the size of “market overlap” between two companies, and is the metric for quantitatively measuring competitive distance. The higher a company is on the vertical axis, the bigger a competitor it is for the focal company.  Meanwhile, the horizontal axis captures each company’s total retail value sales over the selected time period, irrespective of market overlap.  Flat lines (eg Nestlé in the chart to the right) indicate that a competitor’s total sales are growing, but mainly in markets where the focal company is not present.  Lines moving steeply upwards (eg Procter & Gamble) show that competitive similarity is increasing strongly over time relative to overall retail sales growth.

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APPENDIX: COMPETITOR ANALYTICS

Market Overlap  Market Overlap is a measure of competitive distance between two companies in retail value terms.  It is calculated as the sum of the smaller of the two company’s retail value sales in each of their common country/category (aka market) combinations. The sum of these observations indicates a total Market Overlap.  In 2014, Procter & Gamble and Unilever were present in 711 common markets (see right) across the global fmcg universe.  In US deodorants, Procter & Gamble was the smaller of the two, and thus defined the Overlap.  In US hair care, Unilever was smaller and thus defined Overlap.  Replicating this exercise across all 711 markets in which both companies were present yields a total 2014 Overlap of US$23,420. © Euromonitor International

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Treemap  Treemap (as shown in the graphics below ) shows either overlap with a competitor (the left graphic) or individual company sales (the graphic on the right) by product category and/or country.  The size of each box indicates the proportional size in US dollars of a country, category or market relative to the total overlap or sales for the geographies and industries selected.  The colour gradient reflects sales or overlap growth/decline over the selected time period. The darker the green, the higher the growth, and the darker the shade of pink/red, the stronger the rate of decline.

© Euromonitor International

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Overlap Matrices  Overlap Matrices (as shown in the graphic below) compare two selected competitors (Unilever Group vs Procter & Gamble Co) in terms of their respective presence across countries and product categories.  The darker the colour shading, the higher the company’s retail value share in that market. The graphic below shows that Procter & Gamble has a strong share in hair care in China, whereas Unilever is weaker.  Overlap Matrices also highlight respective market gaps and potential white space opportunities. Dark grey boxes indicate that one of the two companies shown is present in that market, but the other company is not. A light grey box means that neither of the two selected companies is present.

© Euromonitor International

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APPENDIX: INDUSTRY FORECAST MODEL

About Euromonitor International’s Industry Forecast Model  The Industry Forecast Model is a new tool from Euromonitor International that integrates intuitive, judgment-based forecasting with the quantitative techniques of an econometric Industry Demand Model.  The Industry Demand Model assesses the relationship between several historic quantifiable independent variables (demand drivers) and historic retail volume sales for different markets that Euromonitor tracks.  In identifying these relationships, the model estimates elasticities for each statistically significant demand driver, including income growth, changing retail prices, demographic trends and retail channel trends.  Multiplying these elasticities by corresponding year-on-year growth forecasts for each demand driver allows the Forecast Model to build annualised retail volume and value forecasts for a market in a given year.  While estimated demand driver elasticities are constant, forecast demand driver growth can change over time. For example, forecast GDP growth for a given year is regularly upgraded or downgraded in Euromonitor International’s Macro Model to reflect changing economic and sociopolitical conditions.  In turn, changing only forecast growth for GDP in this example allows the Packaged Food Forecast Model to create multiple retail forecasts that capture the impact of these changing macroeconomic conditions. Impact of Russia GDP Shock on Chocolate Confectionery Retail Volume Forecast in Russia 2015 real GDP % growth forecast

Chocolate income elasticity

Income effect on chocolate growth

2015 chocolate % volume growth

Baseline Forecast (June 2014)

+1.43

0.37

+0.53pp

+1.41

Updated Forecast (December 2014)

-3.82

0.37

-1.41pp

-0.55

© Euromonitor International

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APPENDIX: INDUSTRY FORECAST MODEL

Soft drivers and the Industry Forecast Model  The power of Euromonitor International’s forecasting methodology is that it blends statistical modelling with local market observations reflecting local industry consensus. As such, retail market forecasts also rely on the insights and expertise of Euromonitor’s global analyst network. Euromonitor analysts work closely with the Industry Demand Model to ensure that it remains consistent with their empirical observations, guaranteeing that quantitative and intuitive expectations fully complement each other.  Euromonitor analysts also capture all the demand drivers beyond the scope of the Industry Demand Model. These “soft drivers” remain critical to future retail sales, but are either fundamentally unquantifiable or have no globally comparable data with which to measure them.  Soft drivers are captured and measured exclusively by empirical research from Euromonitor analysts, and their overall positive or negative impact is estimated on top of the results of the Industry Demand Model.

Demand Driver Elasticities: From Industry Demand Model

Forecast Demand Driver Growth: From Passport

Soft Demand Drivers: From Country and Industry Research

Industry Forecast Model © Euromonitor International

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Growth decomposition explained  To help understand and illustrate the impact of each demand driver to a market’s retail growth performance and prospects, Euromonitor International employs a graphical tool called “growth decomposition”.  The fundamental idea behind growth decomposition is that a product category’s retail sales performance and future prospects can be explained through changes in underlying demand factors.  As explained above, the impact of demand driver change to retail market sales can be calculated by multiplying a demand driver’s observed elasticity by that demand driver rate of change over a period of time. Multiplying demand driver elasticity by forecast demand driver growth yields the percentage points of overall retail growth that that specific demand driver is contributing to the market forecast under review.  In addition, Euromonitor analysts estimate the impact of “soft drivers” to overall retail growth via their empirical research. The relative impact and importance of “soft drivers” can be shown alongside that of the measurable demand drivers identified by the Industry Demand Model.  In the growth decomposition visual below, the percentage points of growth that each demand driver is contributing to overall market growth are illustrated in the coloured segments of the stacked bar charts.

© Euromonitor International

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Significance and applications for growth decomposition  By attributing a fraction of overall retail growth to each contributing demand driver, overall category growth can be “decomposed”. In doing so, an extensive picture of underlying market fundamentals and processes on a category-by-category and country-by-country basis can be provided.  Ultimately, growth decomposition allows Industry Forecast Model users to:  Identify different demand drivers that affect historic sales, and will likely impact future market prospects;  Evaluate the relative importance of different demand factors over time and then identify which factors generate the highest deviations in historic - and ultimately future - consumption;

 Illuminate the underlying market dynamics for each product category;  Measure and predict the effects of demand driver shocks, either expected or hypothetical;  Facilitate scenario analysis by generating understanding of which demand factors can be influenced by a manufacturer or retailer and which are beyond their control.

© Euromonitor International

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APPENDIX: INDUSTRY FORECAST MODEL

Key applications for Industry Forecast Models

1

2

3

4

• Quarterly Forecast Restatements • Regularly updated retail market forecasts to reflect latest macro expectations (ie, quarter-on-quarter real GDP growth revisions) for all markets.

• “What If?” Scenario Analysis • See and compare how a hypothetical event (ie Eurozone recession, China Hard Landing, Grexit) stands to impact different market forecasts.

• Growth Decomposition and Demand Driver Elasticities • Understand, compare and respond to the forces driving expected market growth across different product categories and countries.

• Assess Market Potential • See the ceiling on retail volume or value sales and growth, regardless of a specific forecast scenario. How much more can that market really grow?

© Euromonitor International

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FOR FURTHER INSIGHT PLEASE CONTACT Spiros Malandrakis Industry Manager - Alcoholic Drinks

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