The economic downturn looks like it could possibly prompt a wave of consolidation in the US soft andalcoholic drink industries. In the soft drink sector the downturn has prompted PepsiCo to launch a bid forits bottlers in an effort to revitalise sales. Meanwhile, in the alcoholic drinks sector the sprits producerBrown-Foreman is rumoured to be considering a tie up with Bermuda-based Bacardi ' a move whichwould create a firm with scale to take on global market leaders, Diageo and Pernod Ricard.In April 2009, soft drinks giant PepsiCo launched a takeover bid for its two largest independent bottlers,Pepsi Bottling Group (PBG) and PepsiAmericas. The cash and share offer represented a premium ofaround 17% on both companies' closing price on April 17 and would mean PepsiCo controls around 80%of its North American distribution. The move is a sharp shift in strategy ' investor pressure actually led toPepsiCo spinning off PBG in 1999 ' but has been deemed necessary to respond to the economicdownturn and changing consumer tastes, which have had a substantial impact on PepsiCo's NorthAmerican sales.So far the two bottlers have been reluctant to accept the terms of the deal. PBG has said the bid issubstantially below PBG's intrinsic value as well as the value implied by similar transactions. PBG alsosuggests that PepsiCo's estimate for synergies ' of around US$200mn ' is inaccurate and that the actualcost savings are likely to be 'multiples' of this figure. To defend its position and prevent PepsiCoappealing directly to shareholders instead of negotiating with the PBG board, the company has installed a'poison pill' defence that gives existing investors the right to buy shares at a 50% discount if PepsiCoacquires more than 50% of the company. PepsiAmericas has taken a similar tough stance. However, withboth firms seeing their sales and profits hit hard by the economic downturn, BMI does believe that bothare likely to be stronger as part of a larger group and that the deal is eventually likely to go ahead.Meanwhile, in the alcoholic drinks sector reports have emerged that Bermuda-based drinks group Bacardiand US-based Brown-Forman, the maker of Jack Daniels and Southern Comfort, may be mulling over amerger. The reports emerged shortly before Brown-Forman announced it would be cutting around 6% ofits workforce and embarking on a cost-cutting programme in response to the economic downturn. Amerger between Bacardi and Brown-Foreman certainly has strategic merit. Both are medium-sized familybusinesses that would benefit from the increased distribution and marketing muscle that being part of alarger group would facilitate.Over the last 20 years the spirits industry has been consolidating around a handful of firms. However,UK-based Diageo and France-based Pernod Ricard have now secured the top two positions and appear tobe gradually moving away from the chasing pack. This unparalleled scale gives them a distinct advantagewhen negotiating supply contracts and results in economies of scale that could gradually mean themargins of smaller producers are eroded. The larger firms are also in a stronger position to invest inemerging markets, from where the majority of future sales growth is expected to stem.A merger would create an entity with revenues of US$9bn, which would see the new group slot neatlyinto third spot, with revenues only slightly below current number two Pernod Ricard, making it trulycapable of challenging on a global scale. The lack of overlap in the two groups portfolios ' with Bacardifocused on rum, and Brown-Forman deriving the majority of its revenues from bourbon ' would alsosuggest a merger would be mutually beneficial. Neither would it result in the need to prioritise one firm'sset of brands at the expense of the other.Despite the merits, any merger deal could be scuppered by unwillingness of the founding families to cedecontrol. However, even if the current rumours turn out to be mere speculation, it is easy to see that themove

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United States Food and Drink Report Q3 2009
Published on August 2009
Report Summary
The economic downturn looks like it could possibly prompt a wave of consolidation in the US soft and
alcoholic drink industries. In the soft drink sector the downturn has prompted PepsiCo to launch a bid for
its bottlers in an effort to revitalise sales. Meanwhile, in the alcoholic drinks sector the sprits producer
Brown-Foreman is rumoured to be considering a tie up with Bermuda-based Bacardi ' a move which
would create a firm with scale to take on global market leaders, Diageo and Pernod Ricard.
In April 2009, soft drinks giant PepsiCo launched a takeover bid for its two largest independent bottlers,
Pepsi Bottling Group (PBG) and PepsiAmericas. The cash and share offer represented a premium of
around 17% on both companies' closing price on April 17 and would mean PepsiCo controls around 80%
of its North American distribution. The move is a sharp shift in strategy ' investor pressure actually led to
PepsiCo spinning off PBG in 1999 ' but has been deemed necessary to respond to the economic
downturn and changing consumer tastes, which have had a substantial impact on PepsiCo's North
American sales.
So far the two bottlers have been reluctant to accept the terms of the deal. PBG has said the bid is
substantially below PBG's intrinsic value as well as the value implied by similar transactions. PBG also
suggests that PepsiCo's estimate for synergies ' of around US$200mn ' is inaccurate and that the actual
cost savings are likely to be 'multiples' of this figure. To defend its position and prevent PepsiCo
appealing directly to shareholders instead of negotiating with the PBG board, the company has installed a
'poison pill' defence that gives existing investors the right to buy shares at a 50% discount if PepsiCo
acquires more than 50% of the company. PepsiAmericas has taken a similar tough stance. However, with
both firms seeing their sales and profits hit hard by the economic downturn, BMI does believe that both
are likely to be stronger as part of a larger group and that the deal is eventually likely to go ahead.
Meanwhile, in the alcoholic drinks sector reports have emerged that Bermuda-based drinks group Bacardi
and US-based Brown-Forman, the maker of Jack Daniels and Southern Comfort, may be mulling over a
merger. The reports emerged shortly before Brown-Forman announced it would be cutting around 6% of
its workforce and embarking on a cost-cutting programme in response to the economic downturn. A
merger between Bacardi and Brown-Foreman certainly has strategic merit. Both are medium-sized family
businesses that would benefit from the increased distribution and marketing muscle that being part of a
larger group would facilitate.
Over the last 20 years the spirits industry has been consolidating around a handful of firms. However,
UK-based Diageo and France-based Pernod Ricard have now secured the top two positions and appear to
be gradually moving away from the chasing pack. This unparalleled scale gives them a distinct advantage
when negotiating supply contracts and results in economies of scale that could gradually mean the
margins of smaller producers are eroded. The larger firms are also in a stronger position to invest in
emerging markets, from where the majority of future sales growth is expected to stem.
A merger would create an entity with revenues of US$9bn, which would see the new group slot neatly
into third spot, with revenues only slightly below current number two Pernod Ricard, making it truly
capable of challenging on a global scale. The lack of overlap in the two groups portfolios ' with Bacardi
focused on rum, and Brown-Forman deriving the majority of its revenues from bourbon ' would also
suggest a merger would be mutually beneficial. Neither would it result in the need to prioritise one firm's
set of brands at the expense of the other.
United States Food and Drink Report Q3 2009 Page 1/6

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Despite the merits, any merger deal could be scuppered by unwillingness of the founding families to cede
control. However, even if the current rumours turn out to be mere speculation, it is easy to see that the
move makes long-term strategic sense and the factors forcing the companies together are only likely to
increase as time passes.
Table of Content
Executive Summary 7
Industry SWOT Analysis.9
United States Food Industry SWOT...... 9
United States Drink Industry SWOT .. 10
United States Mass Grocery Retail Industry SWOT ... 11
Business Environment .12
Business Environment Ratings 12
Global Food & Drink Business Environment Ratings Q3 2009... 13
Macroeconomic Outlook.. 14
Table: United States ' Economic Activity, 2005-2013 ....... 17
Food18
Industry Forecast Scenario....... 18
Food Consumption...... 18
United States Food Consumption Indicators ' Historical Data & Forecasts, 2004-2013 ..... 19
Confectionery ..... 19
Confectionery Value/Volume Sales ' Historical Data & Forecasts, 2004-2013 .. 19
Canned Food....... 20
Canned Food Value/Volume Sales ' Historical Data & Forecasts, 2004-2013.... 20
Trade... 21
Table: Food & Drink Trade Indicators (US$mn) ' Historical Data & Forecasts, 2004-2013....... 21
Industry Developments .... 22
Market Overview..... 27
Food Consumption...... 27
Confectionery ..... 28
Canned Food....... 28
Trade... 29
Table: Top Food Products Exported From China To The US ' 2007 .. 30
Trade Agreements....... 30
Agriculture.. 31
Organic Farming. 32
Drink .......33
Industry Forecast Scenario....... 33
Alcoholic Drinks. 33
Alcoholic Drink Value/Volume Sales ' Historical Data & Forecasts, 2004-2013 ....... 35
Hot Drinks .. 35
Hot Drink Value Sales ' Historical Data & Forecasts. 36
Soft Drinks.. 36
Soft Drink Value Sales ' Historical Data & Forecasts, 2004-2013...... 38
Industry Developments .... 39
Market Overview..... 43
Alcoholic Drinks. 43
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Hot Drinks .. 44
Soft Drinks.. 45
Retail.......46
Industry Forecast Scenario....... 46
United States MGR Sector ' Sales Value by Format ' Historical Data & Forecasts ... 47
Table: Sales Breakdown by Retail Format Type (%) .. 47
Industry Developments .... 48
Market Overview..... 51
Main Players ....... 51
Table: Structure of the Mass Grocery Retail Market by Number of Outlets ('000s), 2002-2008.. 53
Table: Structure of the Mass Grocery Retail Market ' Sales by Format (US$bn), 2002-2008..... 53
Average Annual Sales Value by Format ' 2008 (US$mn).. 53
Competitive Landscape54
Key Players...... 54
Food.... 54
Table: Key Players ' Food Sector....... 54
Drink... 55
Table: Key Players ' Drink Sector...... 55
Mass Grocery Retail ... 56
Table ' Key Players: US Mass Grocery Retail Sector 56
Company Analysis... 57
Food.... 57
Kellogg Company....... 57
General Mills Inc. ....... 58
Tyson Foods ....... 59
Drink... 60
Pepsi Bottling Group .. 60
Anheuser-Busch InBev (ABI)..... 61
MillerCoors. 62
Mass Grocery Retail ... 63
Wal-Mart Stores.. 63
Appendix: .......64
Commodity Price Forecasts.64
Corn. 64
Table: Corn, 2005-2010...... 64
Soybean ... 64
Table: Soybean, 2005-2010 65
Rice.. 65
Table: Rice, 2005-2010....... 65
Wheat....... 65
Table: Wheat, 2005-2010.... 66
Cocoa....... 66
Table: Cocoa, 2005-2010.... 67
Coffee ...... 67
Table: Coffee, 2005-2010 ... 67
Milk . 67
Table: Milk, 2005-2010 ...... 68
Sugar 68
Table: Sugar, 2005-2010..... 68
Country Snapshot: US Demographic Data..69
United States Food and Drink Report Q3 2009 Page 3/6

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Section 1: Population.. 69
Table: Demographic Indicators, 2005-2030 69
Table: Rural/Urban Breakdown, 2005-2030 ....... 70
Section 2: Education and Healthcare .. 70
Table: Education, 2002-2005...... 70
Table: Vital Statistics, 2005-2030....... 70
Section 3: Labour Market and Spending Power.. 71
Table: Employment Indicators, 2001-2006. 71
Table: Consumer Expenditure, 2000-2012 (US$)....... 71
Table: Average Annual Wages, 2000-2012 (US$)...... 72
Food & Drink Business Environment Ratings ....73
Ratings Methodology....... 73
Ratings Overview .... 73
Ratings System... 73
Indicators .... 73
Limits of Potential Returns . 73
Risks To Realisation Of Potential Returns.. 74
Weighting ... 76
Weighting ... 76
BMI Food & Drink Industry Glossary ...77
Food & Drink... 77
Mass Grocery Retail 77
BMI Food & Drink Forecasting & Sourcing .79
How We Generate Our Industry Forecasts....... 79
Sourcing... 80
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