Melissa Ong Joe Seavey HAAS SCHOOL OF BUSINESS

1. Considering an Organic Bourbon Melissa OngJoe SeaveyHAAS SCHOOL OF BUSINESS Rob FrederickAna KornegayAndy BattjesBROWN FORMAN Please Note:This material herein is considered incomplete without the accompanying commentary described in the “Notes” of the slides. April/May 2007 DRAFT

2. Table of Contents • Team • Scope and Methodology • Background/Context • Key Consumer Insights • Recommendations DRAFT

3. The Team Joe Seavey • First-year MBA • Expertise in consumer insights Melissa Ong • First-year MBA • Market analysis expertise The team was formed by way of a mutual matching process between Brown-Forman and the Center for Responsible Business at the Haas (Berkeley) School. DRAFT

4. Scope and Methodology DRAFT

5. We were asked by Brown-Forman to help answer the following questions Understand who are the potential primary and secondary consumers for a premium, organic spirit 1 2 Evaluate the market potential for an organic bourbon. Recommendations for how to best enter the market and how to communicate benefits to the consumer. 3 DRAFT

6. To answer these questions, our team examined the following sources of data: • Focus Group w/ Whiskey/Bourbon drinking MBAs Primary • In-Depth Interviews w/Bartenders • In-depth interviews with industry contacts, B-F internal team • Aggregate Perspective (SPINS) • MINTEL • NMI’s 2006 LOHAS Survey • General research on CSR, bourbon industry topics (Internet: sources cited) Secondary DRAFT

7. Background/Context: Opportunities in Organic! DRAFT

8. The world is changing… “A fine scotch is vulgar. A 'fair trade' scotch is righteous” Joseph Rago on conspicuous consumption in The Wall Street Journal (3/23/07). DRAFT

9. The “green” movement has become increasingly mainstream DRAFT

10. Huge Growth in Organic Food & BeverageAveraging 18% Growth per year Source: Nutrition Business Journal estimates based on OTA’s 2006 Manufacturer Survey, annual Nutrition Business Journal surveys of manufacturers, SPINS, and other sources. DRAFT

11. Among spirits, there have been numerous organic Vodkas …is an organic bourbon next? DRAFT

12. Key Consumer Insights • Who are Lohas? • Organics and Beverages • Bourbon challenges DRAFT

13. Research Methodology: • Consumer research from the Natural Marketing Institute’s (NMI) 2006 LOHAS Consumer Trends Database, an annual survey of 2061 adults in the US. • Graph shows % of general population in NMI defined consumer segments; Descriptions from NMI • Active stewards of the environment • Dedicated to personal and planetary health • Lifestyle-oriented • Heaviest purchasers of green/socially responsible products • Unconcerned about the environment and society • Practical • Interested in LOHAS behavior when they can make a difference • “Municipal” behavior • Secondary target for many mainstream LOHAS products • Personal health is their primary motivation • More likely to use LOHAS-related consumables (compared to durables) • Good intentions, little action • Trendy • Price sensitive Source: The 2006 LOHAS Consumer Trends Database, The Natural Marketing Institute (NMI) DRAFT

14. LOHAS states strong preference for sustainably manufactured products… (Q.7 - % consumers when thinking about how products are made and sold, who indicate they agree completely/somewhat with the following statements) Source: The 2006 LOHAS Consumer Trends Database, The Natural Marketing Institute (NMI) DRAFT

15. …and says they are willing to pay premium (Q.7 - % consumers when thinking about how products are made and sold, who indicate they agree completely/somewhat with the following statements) Source: The 2006 LOHAS Consumer Trends Database, The Natural Marketing Institute (NMI) DRAFT

16. Yet all segments relatively less concerned about environmental impact of beverages #1 priority overall, including durables, incidentally is cars… (Q.19 - % consumer segment stating the environmental impact of the following products and services matters “a lot” to their purchase decision; ranked numbers in parentheses indicate a tie) Source: The 2006 LOHAS Consumer Trends Database, The Natural Marketing Institute (NMI) DRAFT

17. B B Gap with Bourbon Drinkers… D L N Gender Male Female D L N Age 21 60+ L D Marriage Single Married D N L Causes vs. Purchase Decisions Aware, but Cost Driven Aware, Cause Driven D N L Employment Mid to Early Career Retired DRAFT

18. Little Connection to Key Organic Association: Health Reviewing Top Reasons for Buying Organic Products But there’s a disconnect between Health and bourbon… “I don’t think about being healthy when I drink bourbon!” Wine on the other hand, is able to make that connection, due to its heart/cancer benefits. Source: ACNielsen Global Study, December 2005. DRAFT

19. Difficult for consumers to care about content, when raw materials/ process a mystery ≠ This presents a stark contrast to wine…where Bonterra is able to create a strong connection to the grapes due to prior awareness. Consumers lack awareness about production ??? Consumers discuss the aging and the barrels, but the actual content is a mystery. DRAFT

20. Challenges for Bourbon Concluding:LOHAS attractive, but not aligned with bourbonBeverages less priority for Organic Environmental impact not primary…health is. DRAFT

21. Recommendation:Niche market exists and is growingClear advantage in being proactiveNeed for education on bourbon + organicOrganic can support quality and other benefitsIt fits B-F’s Brand-centric CSR strategy DRAFT

22. Be Proactive: O-wine was once a tough case... Organic wine sales grew 26% to $80 million in 2005. Source: Ann Thrupp, Fetzer DRAFT

23. Adding Credibility to Narrative Organic can support: • Quality: Use of high quality raw materials and a unique, pristine natural source  even potential for perceived taste benefit • Tradition: Promoting idea that the bourbon’s production process follows traditions from hundreds of years ago, before mass-marketed agriculture existed. • Environmental sustainability (if education) “Organic” Label does not create instantly compelling product. DRAFT

24. Opportunities in Educating on“Organic” No brands really educate on what is in bourbon…B-F can use to highlight benefits “Corn can be genetically modified (36.5M acres in US in 2003), is a huge monocrop, and uses many pesticides, so let's make corn-based spirits, such as vodka and bourbon, number one on the organic drunk's new shopping list.” – Umbra Frisk in Grist Magazine, May 19, 2007 DRAFT

25. Effective CSR Reporting = Effective CSR Marketing = Consistency • Does it fit with overall brand/ marketing strategy? • Does it fit with overall communications/ PR strategy? • Is it unique to company (competitive advantage)? • Are the themes, tones reflected in other company materials? B-F’s strategy is to communicate CSR through Brands  O-Bourbon bolsters! Source: Adapted from Kellie MeElhaney’s Frameworks. DRAFT

26. Next Steps: Other category opportunities: • Vodka & wine = better demographics Consumers: • Apply insights to marketing mix across brand portfolio Production/Logistics • Understand costs of organic bourbon in more detail. DRAFT

27. Brown-Forman Value DRAFT

28. Haas Team Value DRAFT