Thirst for growth - EY

1 Thirst for growth Helping companies to compete in the rapidly changing beverage sector Thirst for growth In the current uncertain economic As consumers and retailers demand ever- environment, beverage businesses greater value, volumes and pricing are need to stay sharp if they are to under severe pressure in mature markets, generate the growth and profitability while emerging markets appear to offer growth opportunities. Consolidation will on which their future depends. continue as companies seek to gain scale, reduce cost and drive efficiency in line with rising stakeholder expectations.. Howard Martin Co-Global Beverage Leader, consumer Products Ernst & Young LLP. Stagnant developed markets, volatile commodity prices, value-seeking consumers, Whether your interests are domestic, regional or global, we have on-the-ground tightened regulations and increasingly powerful retailers are just some of the professionals in developed and rapid- growth ' emerging markets and can bring challenges facing beverage companies in today's complex global marketplace.

2 The resources of a global team, coordinated through a single point of contact. Our strong commitment to the sector means we can offer in-depth knowledge, Businesses are coming under the spotlight from analysts, investors, regulators practical experience, strong industry relationships and genuine global reach to and environmental organizations like never before. The pressure to conceive, help you fulfill your objectives. Please get in touch with us if you want to find articulate and execute a distinctive, market-winning strategy is the strongest it's out more. been. However, demand uncertainty and volatility is making strategic investment and operational decision-making increasingly complex. We very much look forward to having the opportunity to work with you. We believe that to stay ahead, successful companies will need to: Find new routes to growth prioritizing the right markets, reshaping the portfolio to target growth segments, leveraging consumer insights and creating new usage occasions.

3 Increase adaptability and responsiveness optimizing business structures to boost competitiveness, enhancing the supply chain, centralizing procurement, matching innovation to the pace of demand and inventing new products and price points. Deliver margin improvement improving performance across business functions, managing costs sustainably, driving working capital improvement, understanding cost to serve and managing pricing effectively. Sharpen execution improving consumer insight, brand and marketing effectiveness, rebalancing the relationship with retailers, transforming the finance function and revitalizing risk control and compliance. Howard Martin Steve Wills Enhance corporate reputation embracing sustainability, both in Co-Global Beverage Leader Co-Global Beverage Leader the individual enterprise and the wider environment and shaping consumer Products consumer Products smart regulation. Ernst & Young LLP Ernst & Young LLP. Thirst for growth Helping companies to compete in the rapidly changing beverage sector 02 Maximizing growth opportunities Contents 08 Increasing adaptability and responsiveness 14 Delivering margin improvement 20 Sharpening execution 24 Enhancing corporate reputation 30 Teaming together 32 Sharing insights 34 Meet our people Did you know?

4 Ernst & Young works with the world's leading beverage companies: We work with 19 of the 21 beverage companies in the S&P Global 1200. We work with 20 of the 26 beverage companies in the Forbes 2000. Our beverage team is part of our worldwide consumer Products network, which numbers approximately 10,000 professionals. Thirst for growth Helping companies to compete in the rapidly changing beverage sector 01. Maximizing growth In developed markets, where the age profile is rising and population levels are in decline, global beverage companies have been looking to increase scale, opportunities leverage purchasing and operational synergies, fill portfolio or market gaps and generate efficiencies. In emerging markets, the search for growth Beverage companies are looking at a number of areas in order is accelerating, driven in part by the booming population and the rapidly expanding middle class. to maximize growth : leveraging consumer insights, focusing The increasing prominence of digital media is a on rapidly expanding emerging markets and looking for factor everywhere.

5 Acquisition opportunities. Leveraging consumer insights to reignite growth To grow, companies need to understand the changes in the consumer landscape and bring greater focus to their marketing efforts. Beverage leaders are talking about regulatory and environmental New demographic groups are being identified concerns. But their biggest issue is demand and the impact that's having as companies try to capture changing consumer on volume growth . That's why so many companies are focusing on two behavior. In the developed world, companies are areas innovation and emerging markets to plug the gap. targeting the bifurcated consumer ' split between cash-poor value-seekers and richer purchasers Steve Wills interested in innovative premium products. But age Co-Global Beverage Leader, consumer Products is also becoming a more significant factor. While consumer Products, Ernst & Young LLP. young, fast-adopter consumers who live online gravitate toward products that reflect their values, 02.

6 The more numerous older and richer demographic Focusing on rapidly-growing is demanding quality, but in smaller quantities, at Key takeaways different times and from different outlets. emerging markets Emerging markets are seen as holding the key to consumer shopping habits are changing. The challenge for beverage companies is to leverage future growth for beverage companies: of the one Beverage companies need to capture those these insights to identify the core brands which billion people projected to enter the middle class insights to maximize growth opportunities have the greatest relevance and maximize growth by 20202, two-thirds will come from emerging across all market segments. opportunities at every level across economy, mass economies such as the BRIC grouping (Brazil, Russia, and premium markets. While some companies are Emerging markets present significant India, China) and other fast-expanding territories reworking the same core product across different opportunities and complexities.

7 Including Bangladesh, Indonesia, Mexico, Pakistan, market segments, others are focusing on emerging Companies need to adapt products to suit Turkey, Vietnam and Africa. entry-level products to draw in new consumers, local tastes, wallets and buying preferences. or adapting existing brands into new geographic Acquisitions or joint ventures allow territories. This includes widening product appeal India, which has seen a rapid proliferation of city companies to enter or strengthen their by identifying new drinking occasions or tailoring bars and nightclubs in recent years, is fast shedding position in emerging markets. At the same products to the needs of specific consumer segments. its inhibitions about alcohol. This has caught the time, emerging market companies are attention of the global players with multinational establishing themselves as global players alcohol beverage companies, redeploying from consumer insights that are relevant in one in their own right, looking for opportunities shrinking markets in the developed world, having category are also relevant in the other.

8 To acquire local competitors and developed identified India as one of the most attractive Understanding how consumers make their world businesses. markets for investment.. beverage alcohol choices across both categories Ashish Nanda broadens our perspective and makes us more Supply Chain, consumer Products Ernst & Young India effective in our consumer and customer marketing. Nick Blazquez, President, Diageo Africa 1. 1 Diageo: Africa Webcast 14 April 2011 via 2 Indonesian Middle Class Recycle Wealth Back into Domestic Economy, NowPublic, 1 April 2010 via , accessed 8 August 2011. Thirst for growth Helping companies to compete in the rapidly changing beverage sector 03. What attracts beverage companies to Targeting growth through acquisition emerging markets? Developed world companies are looking to enter 82% of the world's population live there or strengthen their position in emerging markets with acquisitions and joint ventures. At the same 92% of the world's births occur there time, emerging market companies are establishing GDP growth is 4% 5% higher than themselves as global players in their own right, developed markets looking for opportunities to acquire local competitors, One billion people will enter the middle and developed world businesses.

9 Class by 2020: two-thirds will come from In spirits, there is significant scope for further emerging markets consolidation. The new trend is a major focus on 70% of global GDP will come from emerging brand. Companies are less likely to go shopping to markets in the next 10 years fill a gap in their portfolios such as buying a gin or a bourbon. Instead, they are targeting valuable or iconic national and global brands. In contrast, the wine subsector offers less scope for consolidation and The rising affluence and high levels of aspiration many beer companies are looking at divestments to amongst Asian consumers is expected to continue help reduce debt. In non-alcoholic beverages there is to drive the growth of the international spirits increasing bottler consolidation and global soft drinks segment in the region.. companies have been making acquisitions to extend Gilbert Ghostine President of Asia Pacific their portfolios into perceived healthy' segments Diageo3 which offer value added growth opportunities.

10 3 Diageo brings world's best bartenders to India for its World Class final as Asia luxury booms, Diageo, July 2011, , accessed 8 August 2011. 04. Thirst for growth Helping companies to compete in the rapidly changing beverage sector 05. How Ernst & Young can help Ernst & Young's strong industry knowledge positions us well to help clients execute Our investment in the beverage sector underlines our position as a Big Four on their growth strategies. We have a proven record of helping businesses all over organization with great subject-matter insight in this area and enables access the world to create opportunities for growth and knowledgeable local teams to to a market-leading global network of sector professionals. This investment support strategic moves in all key markets. We can advise on: has been key in enabling us to win engagements and to deliver market-leading Market prioritization and market segmentation services and insights.. Simon Gillings growth opportunities in emerging markets Beverage Sector Specialist, Transactions and Due Diligence Transaction due diligence Ernst & Young LLP.