1. How structurally attractive is the whisky industry for producers?

To evaluate the attractiveness of the whiskey industry we consider useful to apply the
Porter’s 5 forces analysis. Find below the main considerations with (-) in case of
unattractive aspects, (+) for the positive ones:
Industry Rivalry & Market trends
- The whiskey market is crowded with high fragmentation between producers (Top3
players reaching 12% of the whole Market Share). The number of producers is
growing faster than the sales increase (Exhibit2: respectively 32% 7-year CAGR vs.
29%) (-)
- Overall Positive GM (~30% on average) with significant incidence of Marketing,
Selling and G&A costs (EBIT Margin at single digit or negative) (-)
- Good Market growth of 25% 7 years CAGR (+)
- On average, large producers are growing faster than medium ones (Exhibit2) (-)
- “Premiumization” for millennials à preference for high-end product (Exhibit3 –
premium products growing more than market AVG, in value and quantity) and
with unique flavor and authentic back story (-)
Entry Barriers
- The creation of new products seems to be extremely difficult, especially during
market’s trends changes (-)
- The economic model is unattractive, due to several financial challenges:
o Large upfront investment required with high costs and distant revenues
(>100M to enter the market: 40M Marketing, 40M Selling, 15M R&D, 20M
G&A; 60%-80% GM, negative EBIT for 5-7 years). It means that for a new
player, the Cash Flow of the first years will be negative (-)
o Loss of the product over the years (Angel’s share) (-)
- Environmental challenges (-)

Buyer power
- Distribution is highly concentrated (top 2 distributors control >50% of the market
and top 10 nearly to 75%) with high fragmentation in Retailers (50% on-premise,
50% off-premise) (-)
Substitute product
- High switching costs for old fashion drinkers (brand loyalty) (-)
- Shift of customer behavior (millennials/boomers “cocktails culture”) (+)
- “Willingness to experiment” for younger clients (compared to millennials and
boomers):
o more open to try new products (-)
o more likely to equate price with quality (+)
Supplier Power
- No special raw materials included in the transformation process, so no sourcing
issues. Price variations based on commodities market price trends (+)

Considering all the points above, in our opinion the industry is not an attractive “where to
play” field.
2. What are the main drivers of Bespoken Spirits’ competitive advantage? Is
this type of competitive advantage sustainable?

The main drivers of the competitive advantage are the following:

- Disruptive and innovative Technology (protected by patents on equipment and
processes) allowing:
o Reduction of learning cycle for new products development;
o Removal of most of the financial entry barriers;
o Reduction of environmental impacts;
o Capture customers’ demand changes (millennials)
- Possibility to choose the competitive pool where to play (B2C-B2B). In case of CaaS
and MaaS services, the ACTivation Technology could allow Bespoken to entry a
“Blue Ocean”;
- Faster learning curve, helping to build up a deep knowledge on recipes;
- Possibility to expand in substitute products or exploring new niches (Vodka,
Gin, ...).

To highlight the distinctive attributes of Bespoken’ value proposition, both for B2C and
B2B customers, find below the “4 actions framework”:
- Raised
o Product-offer (wider product selection), in order to catch market’s trend
changes (enlarge/redesign market boundaries)
- Created
o High level of customization/tailor made products;
o Disruptive Technology also as a service for B2B (CaaS/MaaS)
- Reduced
o Time to Market;
o Financial challenges typical of whiskey distilleries;
o Environmental impact related to used barrels and to excess of unsold beer
(that could be used as a mash within production process).
- Eliminated
o Traditional Whiskey back story.
We believe that the advantage can be considered not sustainable in the long run, because is
strongly linked to technological innovation, potentially replicable by other competitors in
the medium term.
3. Which one of their “three business models” seems to be the best bet for
Bespoken Spirits? Going forward, would you advise them to become a
product or a technology company? Why?

In the short term, considering the investments required to build up a B2C business and the
5-7 years with negative CFs and Operating Incomes, we believe that the maximization of
the profits could be achieved with the Technology-based approach (rather than a Product-
based one).
To support our argument, we developed a 10-years projection of the Product based model,
representing the road to become a 100M valuation company (with 35-40M Sales), main
target aimed by Bespoken.

The information on which the projection has been built are the following:

Data
- Reaching 40M top line in 10 years;
- AVG Price per bottle: 33 USD for Retailers (Final price around 60USD per bottle);

Assumptions
- Gross Margin: 70% flat;
- Stronger growth in the first 3 years, due to the disruptive technological innovation
(100% CAGR comparing to 25% of whiskey market);
- More than 100 M in OPEX in 10 years.
Given the assumptions above, the EBIT breakeven-point would be in Y6 for the Product-
base model.

Comparing the Product based solution with the two Technology based alternatives
(MaaS/CaaS), we highlighted the following differential aspects:
- Service alternatives (MaaS/CaaS) seem to be similar on the financial perspective,
showing an EBIT breakeven-point in half of the time needed by the “Product-based
model” (~2 years), considering the same sales projection in value;
- In terms of production capacity required at year-2, we compared the following
results (presuming the same sales value at 1,6M USD):
o Product based: 49k bottles with 34USD AVG price --> #1 activator
installed
o CaaS: 58k (equivalent) bottles with 27,5USD AVG price --> #1 activator
installed
o MaaS: 578 (equivalent) bottles with 2,77USD AVG price --> #6 activators
installed
In terms of installed capacity, CaaS and Product base model need the same initial
investment, while the MaaS model requires 6 activators.
Yet, MaaS is the choice that requires the lowest initial investment and, at the same time,
presents the lowest risk profile.

On the other hand, we consider the competitive advantage not sustainable in the long run
since connected to a technological advantage and because breweries, distilleries and
rectifiers represent a fleeting market. Given that, to achieve the target of 100M value
company, we believe CaaS would be the most attractive solution, considering the following
advantages that this model could imply:
- Strong reduction of the sales-cycle;
- Low operating-risk profile (comparable with MaaS);
- Positioning of Bespoken as a premium brand trough new distribution channel (such
as: bars, night clubs, luxury hotels, ...) with dedicated products, leveraging on the
“cocktail’s culture”;
- Co-branding with HoReCa products labels (e.g., “powered by Bespoken”);
- Opportunity for Bespoken to cover a “wide” services business, not just related to
technology process, but strongly connected to other “value chain aspects”, allowing
 to create a network of customers and business-opportunity that can be customized,
also at the light level, if required (e.g., bottles customization as gifts for employees,
customers or conference attendees);
- Progressively getting closer to the “final costumer”, defining different product
attributes (labelling, bottle design, ...);
- Easier to evolve towards a successful property label in the medium term, that could
represent a more sustainable advantage.