State of the Craft Beer Industry
2013
Beer 49% Spirits 34% Wine 17% Beer 55% Spirits 29% Wine 16%
Beer Continues to Lose Market Share to Wine and Spirits
Supplier $ Share (Billions)
Beverage Alcohol Market Share
Servings (Billions)
(1)Growth in Servings
$25.6 $26.3 $27.5 $28.5 $28.8 $28.6 $29.2 $16.0 $17.2 $18.2 $18.7 $18.7 $19.2 $19.9 $8.3 $8.6 $9.2 $9.4 $9.5 $9.8 $10.2 $49.9 $52.2 $54.9 $56.6 $57.0 $57.6 $59.2 2005 2006 2007 2008 2009 2010 2011
Beer Spirits Wine
66.2 66.9 67.8 68.2 66.9 65.7 65.1 63.1 34.9 36.2 37.5 38.0 38.5 39.1 40.2 42.6 17.0 17.6 18.3 18.4 18.5 18.7 19.2 20.3
118.2 120.8 123.7 124.5 123.9 123.6 124.6 126.0
2005 2006 2007 2008 2009 2010 2011 2015P
Beer Spirits Wine
2011 – 2015P CAGR: 0.3%
Source: Beer Marketer’s Insights, DISCUS, IMPACT Spirits Databank. (1) Serving size: Beer – 12 oz; Spirits – 1.5 oz; Wine – 5 oz.
2000
2011
1.0% 1.3% 0.5% (1.8%) (1.8%) (0.9%) (3.1%) 3.6% 3.6% 1.1% 1.4% 1.7% 2.7% 6.1% 4.0% 3.8% 0.4% 0.7% 1.3% 2.5% 5.7% 2006 2007 2008 2009 2010 2011 2015PBeer Spirits Wine
2005 – 2011 Absolute Growth: Beer:
Spirits: Wine: (1.7%) 15.0% 13.1% Beer: Spirits: Wine: 2.2% 3.7% 3.4% 2005 – 2011 CAGRs
(0.9%) (2.4%) 4.6% (1.6%) 9.6% (3.9%) (2.3%) (1.0%) 2.8% 13.9%
Sub Premium Premium Super Premium Imports Craft
Despite U.S. Beer Industry Declines, Premium Beer Continues Strong Growth
109 108 104 101 99 46 47 48 46 44 29 28 26 27 27 9 9 9 11 12 9 12 11 11 11 12 12 12 13 12 214 214 210 209 206 2007 2008 2009 2010 2011
Premium Sub Premium Imports Craft Super Premium Other
Source: Beer Marketer’s Insights, Brewers Association, Nielsen Company, and Demeter Group estimates.
2007 – 2011 CAGR 2009 – 2011 CAGR
Decreases in Premium and Sub Premium brands, typically
produced by large multi-national brewers, are driving the
downward trend in the overall Beer Industry
Mirroring consumer changes across the entire Beverage
Alcohol landscape, Premium / Luxury priced Beer is regaining
favor with the consumer
–
Craft / Import / Super Premium Beer is an affordable
luxury
(Barrels in millions)
Premium Sub Premium Imports Craft Super Premium
Craft is Premium Beer’s Fastest Growing Segment
Source: Beer Marketer’s Insights, Brewers Association, Nielsen Company, and Demeter Group estimates.
17% 14% 6% 5% 3% 30% 8% 6% 11% Import Beer Prem. Beer Super Prem. Beer Below Prem. Beer FMB's Current Drinkers Drinking More Wine Spirits New Craft Drinkers 214 214 210 209 206 210 8.5 8.9 9.5 10.7 12.3 13.7 2007 2008 2009 2010 2011 2012P
U.S. Beer Industry U.S. Craft Beer Industry
Whereas Beer as an industry has decreased at a CAGR of (0.3%)
from 2007 to 2012P, Craft has grown at 10% annually
–
13% Craft growth from 2010 to 2011 and 12% growth
projected from 2011 to 2012P
–
After 3 years of industry decline, the overall Beer Industry
is expected to increase in 2012P
–
AB InBev (47%) and MillerCoors (28%) together represent
75% of the U.S. Beer Industry
Craft Beer is projected to represent nearly 15% of the Beer
Industry by 2020 at current growth rates
–
Craft’s growth is driven by current beer drinkers drinking
more Craft as well as consumers of other beverage alcohol
trading into Craft
(Barrels in millions)
5 of 10 Fastest Growing Brands are Craft
(1) Thousands of 2.25 gallon cases. Source: Beer Marketer’s Insights, Brewers Association, Nielsen Company, Technomic, and Demeter Group estimates.
Commentary
Craft Beer, despite thinly resourced
marketing and sales departments relative to
larger brewers, holds 5 brands in Beer’s top
10 fastest growing brands
–
Aggressively hopped Craft Beer (Dale’s,
Lagunitas IPA, New Belgium Ranger IPA,
Sierra Nevada Torpedo Extra IPA, etc.)
in high demand
–
Fast growing brewers are investing in
expanding their production footprint as
well as additional capacity in core
market
“Exaggerated”
Traditional mild pale / American lagers at Premium – Sub Premium price points
Marquee beer giants’ legacy brands and traditional sub-brands (Bud Light, Miller Light, Coors Light)Craft Answers Consumer Demand for Extreme Flavor & High-Alcohol Content
“Originals”
“Revisionists”
“Extremists”
Premium – Super Premium line extensions leveraging legacy brand name while varying type, flavoring, and calorie count
Super Premium independent Craft brands / incognito Craft brands (Blue Moon, Shock Top, Leinenkugel) identifying strongly with a sense of place, personality, or specific product
Unique, hoppy, seasonal, flavored
IPAs, porter, stout, pilsner, black & tan, rye, wheat beer, etc.
Super Premium independent Craft brands producing extreme / adventurous / intense Craft Beer
Innovative brewing, double portions of hops, barrel fermenting / aging, bottle fermenting, fruit infusing, large format bottles
Additional Beer types: imperial stout, double IPA, sour ale, smoked porter etc.By Definition, Craft Drinkers are Explorers with Non-Linear Taste Preferences
Increasing Flavor / Intensity
Growth in Number of Craft Breweries Driven by “Extremists”
Overview
New Craft Breweries are
experimenting with
uncommon ingredients and
techniques, driving industry
innovation
Craft breweries have
increased 12% in 2011 with
strong growth coming from
states east of the Mississippi
–
Over 30% of 2011
growth is from 5 states,
4 of which are east of
the Mississippi
20 +5 8 (1)
136 +13 124 +3 18 (1) 34 +4 25 +4 23 +4 32 +5 12 +0 130 +12 34 +4 59 +11 9 +0 18 +3 16 +1 5 +1 2 +1 8 +0 6 +2 44 +4 24 +2 36 +8 75 +3 54 +5 2 +0 6 +2 22 +1 44 +5 16 +1 47 +11 24 +1 10 +2 47 +0 43 +8 102 +17 42 +5 5 (1) 93 +16 72 +13 33 +2 20 +1 9 (2) 24 +3 17 +1 42 +0 6 +2 15 +1 26 +6 D.C. 5 +1 268 +23
(1) High growth states show an increase of over 10 breweries and a percentage increase over 20%. Source: Brewers Association.
High Growth States
State Increase in Breweries % Increase Michigan 17 20% Pennsylvania 16 21% New York 13 22% North Carolina 11 23% Texas 11 23%
>100
50 - 100
25-49
10 - 24
<10
Large Craft Brewers Expanding Geographic Footprints
New Belgium – Building new 150,000 sq. ft. brewery on 17.5 acres in
Ashville, North Carolina. Initial capacity of 400,000 barrels and space for additional growth. Expected completion in Q1 2015. Estimated cost: $100 -$175 million.
Currently available in 28 states. Expanding distribution to include Alaska and Louisiana in Q2 2013. Sierra Nevada – Building new
brewery in Mills River, North Carolina (12 miles south of Asheville)
with initial capacity of 300,000 barrels and space for additional growth. 184 acre land parcel will
include production facility, restaurant, gift shop, and riverfront
/ mountain recreation areas. Expected completion in 2014. Currently available in all 50 states.
Lagunitas – Converting a 300,000 sq. ft. steel fabrication plant in Chicago, Illinois into a second brewery with capacity of 600,000 barrels and to be built as “exact copy” of Petaluma facility. A taproom is also
planned for the site. Expected completion in
mid-2013. Estimated cost: $15 – $25 million. Currently available in 35 states.
Goose Island (AB InBev) - Outsourcing a portion of its brewing
operations to an AB plant in Baldwinsville, New York and New Hampshire’s Redhook Ale Brewery (part of Craft Brew Alliance, in which AB holds a stake) to achieve
national distribution by Q1 2013.
D.G. Yuengling & Son – Expansion of production facility purchased in 1999 by approximately 40%; further expansion of existing facilities in Pennsylvania. Estimated Capital Expenditure in next 24 months: $100 million. Currently available in 15 states.
Big Beer is Brewing Craft-Like Brands Utilizing “Back of House” Assets / Resources
Parent
Company
Craft Beer
Incubator
Select
Brands
Formed in 2008 with the merger of leading Pacific Northwest craft brewers Widmer Brothers Brewing and Redhook Ale Brewery–
Merged with Kona Brewing Company in 2011–
Sold majority stake in Fulton Street Brewery (Goose Island) to AB-InBev in 2011
AB-InBev owns 32% of company and acts as nationwide distributor
>700,000 barrels sold in 2012P
Craft and import division of MillerCoors developed in August 2010–
Yearly double digit growth since formation
Acquired minority interest in Terrapin Beer Company in October 2011
Acquired Crispin Cider Company in February 2012
Acquired Franciscan Well Brewery in January 2013(AB Craft-Like Brand)
Craft is Reshaping the Way Beer is Marketed from “Brand” to “Style” like Wine
Commentary
New Merchandising of Beer by Style
Style (instead of brand) is becoming the more
important aspect of consumer choice,
especially among Millennials
–
The consumer chooses style first (Pale,
Ale, IPA, Wheat, etc.) and then chooses
brand within style (Sierra Nevada,
Lagunitas, Blue Moon, etc.)
Craft is enabling producers to dialogue with
retailers about maintaining and expanding
shelf space to prevent further erosion from
Wine and Spirits
Retailers are beginning to merchandise beer
by style, just as they merchandise wine by
varietal
Cider and Flavored Malt Beverages (FMBs) are
further expanding Beer’s retailer shelf space
Pale
Ale
IPA
Wheat
Beer
Optimism for Reaching Craft Drinkers from Multiple Angles Explains M&A in Cider
Overview
Top Players
Cider Market Growth
Cider M&A
Depletions (Million Cases)
Rank Brand Company 2010 2011 % Growth
1 C&C Group(1) 1.5 2.0 32%
2 Heineken 0.7 0.8 17%
3 C&C Group(2) 0.7 0.7 (5%)
4 C&C Group 0.5 0.6 23%
5 MillerCoors 0.1 0.3 160%
Date Target Buyer Enterprise Value ($ mm)
10/23/2012 Vermont Hard Cider Company C&C Group $305
6/21/2012 Redwood Cellars DB Breweries —
6/8/2012 Stasseen Heineken —
2/6/2012 Crispin Cider Company MillerCoors —
11/8/2011 Hornsby's Pubdrafts C&C Group 28
4/12/2011 M.H. Zeigler & Sons LiDestri Foods —
1/26/2010 Fox Barrel Cider Company Crispin Cider Company —
11/30/2009 Gaymer Cider Company C&C Group 74
11/5/2009 Devon Cider Company Aston Manor Brewery —
Source: Euromonitor, Impact Databank, press releases & industry research. (1) Vermont Hard Cider Company (Woodchuck brand) acquired by C&C group in 2012. (2) Hornsby’s Pubdrafts
acquired by C&C Group in 2011.
5.7 million case cider market estimated to rise at an 11% CAGR
by volume through 2016
–
Cider drawing drinkers away from Wine (typically female
consumer) vs. eating into Beer sales
–
Leads innovation and creativity into new Beer / Wine /
Spirits mixed category (Blue Moon’s Impulse Beer / Wine
hybrid, and Pernod Ricard’s ABSOLUT Tune Vodka / Wine)
Established Beer players making inroads with new Cider brands
(Boston Beer’s Angry Orchard, AB-InBev’s Michelob Ultra Light
Cider, MillerCoors’ acquisition of Crispin Cider)
$217 $238 $268 $304 $364 $449 $521 $595 $659 $718 $769 2006 2007 2008 2009 2010 2011 2012P 2013P 2014P 2015P 2016P ($ in millions)
Craft M&A May Be Tempered by Returns Global Brewers Attain in Emerging Markets
Commentary
Big Beer’s current focus is on high
returns in emerging markets; only when
global returns cool off will U.S. Craft /
Premium Beer brands be interesting
acquisition targets
Current global interest allows current
Craft brands to develop beachheads
and gain scale / expand geographic
distribution while Big Beer is focused
overseas
–
At this point, many Craft /
Premium brands will be attractive
targets for both Big Beer as well as
domestic Craft brewers of scale
◦ National scalability /
brand appeal will factor
significantly into which
Craft brands are acquired
Source: Canadean.
2012 – 2016 Projected Compound Annual Growth Rate
>4%
3% - 4%
2% - 3%
<2%
+4.6%
+3.5%
(0.6%)
0.0%
+3.8%
+2.9%
(0.5%)
1
4
2
3
Rank Brewer 2011 Barrels (Thousands) 1 AB / In-Bev 300,600 2 SAB Miller 190,310 3 Heineken 182,243 4 Carlsberg 101,132Demeter Group Recent Transactions
(December 2010 – 2012)
Acquired by
Acquired by
Acquired by
Acquired by
Acquired by
Acquired by
Acquired by
Acquired by
Has Acquired
Acquired by
Joint Venture With
Acquired by
Acquired by
Private Placement
Transactions Marketed
to Fewer Than 5
Potential Buyers
$850 million
Completed Transaction Value
15
Completed
Transactions
71%
36%
Transactions
Marketed to
1 Buyer
67%
Completed Transactions
in Beverage Alcohol
Acquired by
Demeter Group Recent Beverage Alcohol Transactions
July 2012
Acquired By: Constellation BrandsMay 2011
Acquired By: Crimson Wine GroupMarch 2011
Acquired By: Beam Global Spirits & Wine
December 2010
Acquired By: Fiji Water
September 2012
Acquired By: E. & J. Gallo Winery
August 2012
Acquired By: E. & J. Gallo Winery
June 2012
Acquired By: Accolade Wines
June 2012
Acquired By: E. & J. Gallo Winery
