Reweries Breweries Leon Chung Jorge Cruz Darren Devine Cameron McLeod.

reweries

BreweriesBreweries

Leon ChungJorge Cruz

Darren DevineCameron McLeod

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BreweriesBreweries

““All right, brain. You don't like me and I don't like you, but let's just do this and I All right, brain. You don't like me and I don't like you, but let's just do this and I can get back to killing you with beer” (Simpson, 1999).can get back to killing you with beer” (Simpson, 1999).

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OutlineOutline

• IntroductionIntroduction– Industry Analysis:Industry Analysis:

History of the international and North American beer History of the international and North American beer industry.industry.

The Global Industry.The Global Industry. The North American Market.The North American Market.

• Valuation:Valuation:– BudBud– CoorsCoors– MolsonMolson

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Industry Overview: HistoryIndustry Overview: History

• Ancient History:Ancient History:– Historians speculate that prehistoric nomads may have made Historians speculate that prehistoric nomads may have made

beer from grain & water beer from grain & water before learning to make breadbefore learning to make bread..– 4300 BC, Babylonian clay tablets detail recipes for beer.4300 BC, Babylonian clay tablets detail recipes for beer.– Beer around the worldBeer around the world:: There is evidence that beer was There is evidence that beer was

elaborated by the Babylonian, Assyrian, Egyptian (for medical elaborated by the Babylonian, Assyrian, Egyptian (for medical purposes), Hebrew, Chinese, and Inca cultures.purposes), Hebrew, Chinese, and Inca cultures.

– Romans brewed "cerevisia" (Romans brewed "cerevisia" (CeresCeres the goddess of agriculture & the goddess of agriculture & visvis meaning strength in Latin). meaning strength in Latin).

– 55 BC Roman legions introduce beer to Northern Europe55 BC Roman legions introduce beer to Northern Europe..– 23 BC Chinese brewed beer called "kiu“23 BC Chinese brewed beer called "kiu“

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• Ancient History:Ancient History:– 500-1000 AD the first half of the Middle Ages, 500-1000 AD the first half of the Middle Ages,

brewing begins to be practiced in Europebrewing begins to be practiced in Europe, shifting , shifting from family tradition to from family tradition to centralized productioncentralized production in in monasteries and convents (hospitality for traveling monasteries and convents (hospitality for traveling pilgrims).pilgrims).

– 1200 AD beer making is firmly established as a 1200 AD beer making is firmly established as a commercial enterprisecommercial enterprise in Germany, Austria, and in Germany, Austria, and England.England.

– 1420 1420 German brewersGerman brewers develop the develop the lager method of lager method of brewingbrewing..

– 1489 Germany's first brewing guild, Brauerei Beck, 1489 Germany's first brewing guild, Brauerei Beck, was established.was established.

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• Renascence History:Renascence History:– 1553 Beck's Brewery founded & still brewing today.1553 Beck's Brewery founded & still brewing today.– 1587 the 1587 the first beerfirst beer brewed in New World at Sir Walter brewed in New World at Sir Walter

Raleigh's colony in Raleigh's colony in VirginiaVirginia..– 1602 Dr. Alexander Nowell discovers that ale can be stored 1602 Dr. Alexander Nowell discovers that ale can be stored

longer in cork sealed, glass bottles.longer in cork sealed, glass bottles.– 1612 the 1612 the first commercial breweryfirst commercial brewery opened in New Amsterdam opened in New Amsterdam

(NYC, Manhattan).(NYC, Manhattan).– 1674 Harvard College has its own brew-house.1674 Harvard College has its own brew-house.– 1680 William Penn (founder of Pennsylvania) operated a 1680 William Penn (founder of Pennsylvania) operated a

commercial brewery.commercial brewery.– 1786 Molson brewery is founded in what is today Canada1786 Molson brewery is founded in what is today Canada..

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• Modern History:Modern History:– In the mid-19th Century (1850's) In the mid-19th Century (1850's) German German

immigrant brewersimmigrant brewers introduced introduced cold maturation cold maturation lagerslagers to the US (Anheuser-Busch, Miller, Coors, to the US (Anheuser-Busch, Miller, Coors, Stroh, Schlitz, and Pabst roots begin here).Stroh, Schlitz, and Pabst roots begin here).

– The modern era of brewing in the US began in the The modern era of brewing in the US began in the late 1800's with late 1800's with commercial refrigeration (1860),commercial refrigeration (1860), automatic bottling, automatic bottling, pasteurization (1876),pasteurization (1876), and and railroad distributionrailroad distribution. .

– 1870's Adolphus Busch pioneers the use of double-1870's Adolphus Busch pioneers the use of double-walled railcars, a network of icehouses to make walled railcars, a network of icehouses to make Budweiser the first national brandBudweiser the first national brand..

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• Modern History:Modern History:– 1876 Pasteur unraveled the secrets of yeast in the 1876 Pasteur unraveled the secrets of yeast in the

fermentation process, and he also developed fermentation process, and he also developed pasteurization to stabilize beers 22 years before the pasteurization to stabilize beers 22 years before the process was applied to milk.process was applied to milk.

– 1880 there were approximately 2,300 breweries in 1880 there were approximately 2,300 breweries in the US.the US.

– 1890s Pabst was the first US brewer to sell over 1 1890s Pabst was the first US brewer to sell over 1 million barrels in a year.million barrels in a year.

– 1914 1914 commercial competitioncommercial competition drove the number of drove the number of operating breweries down to 1,400. operating breweries down to 1,400.

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Industry Overview: HistoryIndustry Overview: History• Modern History:Modern History:

– 1919 House of Representatives Bill No. 6810, establishing the 1919 House of Representatives Bill No. 6810, establishing the apparatus for the enforcement of prohibition. The bill was apparatus for the enforcement of prohibition. The bill was passed October 10, vetoed by President Wilson on October 27. passed October 10, vetoed by President Wilson on October 27. The veto was subsequently overridden by Congressional vote.The veto was subsequently overridden by Congressional vote.

– 1920 Prohibition Starts for beer1920 Prohibition Starts for beer, even though some regions , even though some regions started as early as 1846, e.g. Maine. Prohibition started as early as 1846, e.g. Maine. Prohibition focused more focused more on whiskey and other distilled products.on whiskey and other distilled products.

– 1920s 1920s Near beersNear beers brewed during prohibition: Pablo by Pabst, brewed during prohibition: Pablo by Pabst, Famo by Schlitz, Vivo by Miller, Lux-O by Stroh and Bevo by Famo by Schlitz, Vivo by Miller, Lux-O by Stroh and Bevo by Anheuser-Busch. Anheuser-Busch.

– 1933 Prohibition ends for beer (April 7).1933 Prohibition ends for beer (April 7).– 1935 only 160 breweries survive Prohibition.1935 only 160 breweries survive Prohibition.

Source: Source: http://www.beerhistory.com/library/holdings/raley_timetable.shtmlhttp://www.beerhistory.com/library/holdings/raley_timetable.shtml

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Industry Overview: HistoryIndustry Overview: History• Modern History:Modern History:

– 1935 the 1935 the beer can is introducedbeer can is introduced (American Can Co. & Kreuger (American Can Co. & Kreuger Brewing).Brewing).

– 1966 Budweiser is the first brand to sell 10 million barrels in 1966 Budweiser is the first brand to sell 10 million barrels in a year.a year.

– 1976 New Albion is the first in the rebirth of brewpubs and 1976 New Albion is the first in the rebirth of brewpubs and microbreweries in the US first opening in California.microbreweries in the US first opening in California.

– First half of the 1900's beer was First half of the 1900's beer was associated withassociated with men, blue- men, blue-collar workers, college students, and mainstream sports collar workers, college students, and mainstream sports enthusiasts.enthusiasts.

– Late 1900's beer had a different image and cultural function, with Late 1900's beer had a different image and cultural function, with growth in popularity among a more diverse share of the growth in popularity among a more diverse share of the population.population.

Source: Source: http://www.beerhistory.com/library/holdings/raley_timetable.shtmlhttp://www.beerhistory.com/library/holdings/raley_timetable.shtml

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The Brew ProcessThe Brew Process1. Malted barley is cracked in the Roll Mill turning into

grist and then stored in the grist case. 2. The grist drops into the mash lauter tun and mixes

with hot water provided by the hot liquor tank producing a sugary liquid called wort.

3. The wort travels to the brew kettle where it's heated to a rolling boil. Hops are added to provide bitterness, flavor, and aroma.

4. The hopped wort passes through the heat exchanger cooling to the right temperature for fermentation.

5. The now chilled, hopped wort meets up with the yeast in the fermenter to begin the fermentation process. Once completed, the liquid referred to as wort is now called beer.

6. The beer enters a filter designed to help remove yeast and haze producing compounds.

• PASTEURISATION: This is a process of heating and rapid cooling which prolongs shelf-life and destroys any bacteria or other organisms in the beer.

7. The finished beer exits the filter and enters the serving tank ready to be dispensed.

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Industry Overview: Industry Overview: General CharacteristicsGeneral Characteristics

– Beer is a Beer is a Mature ProductMature Product..– It is the largest seller in the alcohol drinks sector.It is the largest seller in the alcohol drinks sector.– Sales are related to:Sales are related to:

Weather (summer months)Weather (summer months) Holidays: Christmas and the 4Holidays: Christmas and the 4thth of July in the US of July in the US The first and fourth quarters historically are the slowest with The first and fourth quarters historically are the slowest with

the rest of the year typically demonstrating stronger sales the rest of the year typically demonstrating stronger sales

– Consumer base: heavily Consumer base: heavily male dominatedmale dominated..Source: Source: The Brewers’ Handbook (The Brewers’ Handbook (http://www.beer-brewing.com/)http://www.beer-brewing.com/)

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Industry OverviewIndustry Overview

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Global Beer Market: Global Beer Market: General CharacteristicsGeneral Characteristics

• Beer is one of the smallest global Beer is one of the smallest global consumer goods.consumer goods.

• Although globalization is a general trend Although globalization is a general trend in many industries, the brewing industry in many industries, the brewing industry has long been has long been lagging behindlagging behind and has and has remained remained very fragmentedvery fragmented..

• Globalization in the beer industry has Globalization in the beer industry has proceeded at a much slower pace than in proceeded at a much slower pace than in many similar industries (e.g. tobacco).many similar industries (e.g. tobacco).

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Global Beer Market: Global Beer Market: Recent TrendsRecent Trends

• Consolidation led by major international brewers.Consolidation led by major international brewers.– During recent years brewers like Heineken and Interbrew have During recent years brewers like Heineken and Interbrew have

started internationalizing their activities.started internationalizing their activities.• Volume growth in developing markets Volume growth in developing markets

– China:China: Second largest market (by sales) and growing. Largest Second largest market (by sales) and growing. Largest market in total volume.market in total volume.

– Eastern Europe and RussiaEastern Europe and Russia• Big gets bigger:Big gets bigger:

– According to various studies According to various studies aggregate volume of the world’s aggregate volume of the world’s top 10 brewerstop 10 brewers has grown at more than four times the pace of has grown at more than four times the pace of total industry volume since the mid-1990s.total industry volume since the mid-1990s.

Source: Ludwig Theuvsen and Oliver Ebneth (2004).Source: Ludwig Theuvsen and Oliver Ebneth (2004).International Food and Agribusiness Management Association (IFAMA). International Food and Agribusiness Management Association (IFAMA).

http://www.ifama.org/conferences/2004Conference/Posters/Ebneth1022.pdfhttp://www.ifama.org/conferences/2004Conference/Posters/Ebneth1022.pdf

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Development of the Top 10 Brewers and the World Development of the Top 10 Brewers and the World Market Market

(in millions of hl*)(in millions of hl*)

• hl = hectoliter, measure used in the brewing industry equivalent to 100 liters.hl = hectoliter, measure used in the brewing industry equivalent to 100 liters.Source: International Food and Agribusiness Management Association (IFAMA). Source: International Food and Agribusiness Management Association (IFAMA).

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Top 10 Global Brewers (2003) Top 10 Global Brewers (2003) (57% Market Share)*(57% Market Share)*

* Volume of the world beer market in 2003: 1.455 billion hl.* Volume of the world beer market in 2003: 1.455 billion hl.Source: International Food and Agribusiness Management Association (IFAMA). Source: International Food and Agribusiness Management Association (IFAMA).

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Above Average Growth of the 5 largest Above Average Growth of the 5 largest brewing companies over the last 5 brewing companies over the last 5

yearsyears

Source: International Food and Agribusiness Management Association (IFAMA). Source: International Food and Agribusiness Management Association (IFAMA).

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Global Beer ConsumptionGlobal Beer Consumption

CountryShare(2001)

Per Capita Consumption

(in liters)US 16.4 83.1

China 14.3 15.8Germany 7.3 123.1

Brazil 5.8 46.7UK 4.1 97.1

Japan 3.6 40Mexico 3.5 48.6

Russian Federation 3.1 30Poland 1.7 60.5France 1.5 35.9

Czech Republic 1.2 158.1

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Global Beer MarketGlobal Beer Market

• Reasons for global expansion:Reasons for global expansion:– Growth potential Growth potential – Expansion in view of saturated home markets.Expansion in view of saturated home markets.

Source: Ludwig Theuvsen and Oliver Ebneth (2004).Source: Ludwig Theuvsen and Oliver Ebneth (2004).International Food and Agribusiness Management Association (IFAMA). International Food and Agribusiness Management Association (IFAMA).


• Global market share of top 20 brewers is increasingGlobal market share of top 20 brewers is increasing– 1990 - 51%1990 - 51%– 2000 - 65%2000 - 65%

• Industry remains fragmentedIndustry remains fragmented– 5 largest account for approximately 30% of total volume5 largest account for approximately 30% of total volume– Compare this to the cigarette industry – 5 largest, 60% shareCompare this to the cigarette industry – 5 largest, 60% share

• Home Market Dependence.Home Market Dependence.

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• According to Theuvsen and Ebneth According to Theuvsen and Ebneth (2004)(2004)

““consolidation in the brewing sector is far from consolidation in the brewing sector is far from ending and the internationalization process has ending and the internationalization process has just begun to pick up speed”just begun to pick up speed”

Source: Ludwig Theuvsen and Oliver Ebneth (2004).Source: Ludwig Theuvsen and Oliver Ebneth (2004).

International Food and Agribusiness Management Association (IFAMA). International Food and Agribusiness Management Association (IFAMA).


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• Internationalization Process: Internationalization Process: – According to Kutschker et al. (1997) the process can be According to Kutschker et al. (1997) the process can be

classified into three categories: classified into three categories: international evolutioninternational evolution international episodesinternational episodes international epochsinternational epochs

– According to Theuvsen and Ebneth (2004) in the brewing According to Theuvsen and Ebneth (2004) in the brewing industry we could identify an industry we could identify an international epochinternational epoch over the last over the last five years, which is characterized by five years, which is characterized by

a broad scope a broad scope high speedhigh speed long duration of change long duration of change

– They also predict that They also predict that “during the following years, “during the following years, consolidation and integration will be the overall pattern”consolidation and integration will be the overall pattern”..

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• Source: Source: International evolution, international episodes, and international epochs--implications for International evolution, international episodes, and international epochs--implications for managing internationalizationmanaging internationalization. Michael Kutschker, Iris Baurle, Stefan Schmid. Management International . Michael Kutschker, Iris Baurle, Stefan Schmid. Management International Review. Wiesbaden: 1997.Vol.37, Iss. 2; pg. 101, 24 pgsReview. Wiesbaden: 1997.Vol.37, Iss. 2; pg. 101, 24 pgs

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The Internationalization The Internationalization MatrixMatrix

Source: Ludwig Theuvsen and Oliver Ebneth (2004).International Food and Agribusiness Management Association (IFAMA).

http://www.ifama.org/conferences/2004Conference/Posters/Ebneth1022.pdf

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The North American Market: The North American Market: General CharacteristicsGeneral Characteristics

• 3 basic levels of brewing according to annual production: 3 basic levels of brewing according to annual production: – High-volumeHigh-volume (shipments of over 15 million barrels): (shipments of over 15 million barrels):

They account for around They account for around 80% of total production.80% of total production. All of them are All of them are owned by the 3 largest brewing companiesowned by the 3 largest brewing companies in the US (Anheuser- in the US (Anheuser-

Busch Inc., Miller Brewing Co., and Adolph Coors Co.)Busch Inc., Miller Brewing Co., and Adolph Coors Co.)– RegionalRegional (15,000 – 15M barrels): (15,000 – 15M barrels):

They account for They account for 15% of total production15% of total production Usually focused on Usually focused on local distributionlocal distribution Many micro-breweries have grown into this category in the last 5 years.Many micro-breweries have grown into this category in the last 5 years. Examples: Stroh Brewery Co., Pabst Brewing Co., Genessee Brewing Co. Examples: Stroh Brewery Co., Pabst Brewing Co., Genessee Brewing Co.

– Small BreweriesSmall Breweries (less than 15,000 barrels): (less than 15,000 barrels): They account for They account for 5% or less of total production.5% or less of total production. Microbreweries and brewpubsMicrobreweries and brewpubs (also restaurant-breweries or “craft brewers”). (also restaurant-breweries or “craft brewers”). They started in the late 1970sThey started in the late 1970s

Source: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbookhttp://www.beer-brewing.com/US_beer_market/beer_retailers.htmhttp://www.beer-brewing.com/US_beer_market/beer_retailers.htm

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The North American Market: The North American Market: Market SegmentsMarket Segments

• Domestic, imported and specialty beers:Domestic, imported and specialty beers:– Domestic BeersDomestic Beers

Sub-premiumSub-premium PremiumPremium Malt liquor segmentsMalt liquor segments Super premium*Super premium* Light*Light* Ice*Ice* Dry*Dry*

* * They are the result of high price competition during the 1970s and They are the result of high price competition during the 1970s and 1980s. They are priced high and their purpose is to reclaim some of the 1980s. They are priced high and their purpose is to reclaim some of the revenue lost during the “price wars”.revenue lost during the “price wars”.

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– Imports:Imports: They’re growing steadily (around 5-8% They’re growing steadily (around 5-8% since 1990s). Reasons for growth:since 1990s). Reasons for growth:

Expanding economyExpanding economy Consumer interest in ‘higher-quality’ (higher-priced) beer.Consumer interest in ‘higher-quality’ (higher-priced) beer. Growth of the Hispanic community in the US.Growth of the Hispanic community in the US. Most importantly, Most importantly, corporate partnerships/ownerships of corporate partnerships/ownerships of

foreign breweriesforeign breweries that allow foreign brands to access the that allow foreign brands to access the local local distribution networksdistribution networks..

Since 1995 the No. 1 import is Corona Extra from Cerveceria Since 1995 the No. 1 import is Corona Extra from Cerveceria Modelo.Modelo.

Source: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbook

http://www.beer-brewing.com/US_beer_market/beer_retailers.htmhttp://www.beer-brewing.com/US_beer_market/beer_retailers.htm

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– Specialty Beers:Specialty Beers: Fastest growing segment (10-15% since 1990).Fastest growing segment (10-15% since 1990). They are perceived as higher quality by They are perceived as higher quality by

consumers.consumers. Subcategories include:Subcategories include:

o large breweries large breweries o regional breweriesregional brewerieso contract brewing companiescontract brewing companieso microbreweriesmicrobrewerieso brewpubs brewpubs


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The North American Market: The North American Market: Industry StructureIndustry Structure

• Flat consumption trends:Flat consumption trends: only some international markets and the only some international markets and the micro-brewing segment show growing opportunities.micro-brewing segment show growing opportunities.– The Western and the Southern regions have accounted for most of the The Western and the Southern regions have accounted for most of the

growth (around 1.4% in 2002).growth (around 1.4% in 2002).• Highly Concentrated:Highly Concentrated: The industry includes more than 300 The industry includes more than 300

breweries but is dominated by three producers who command a breweries but is dominated by three producers who command a nearly 80 percent market share:nearly 80 percent market share:– Anheuser-Busch (45%)Anheuser-Busch (45%)– Miller Brewing (23%)Miller Brewing (23%)– Adolph Coors (10%)Adolph Coors (10%)

• The market leaders have expanded their respective market shares The market leaders have expanded their respective market shares at the expense of other national brewers like Strohs Brewery.at the expense of other national brewers like Strohs Brewery.

• The industry as a whole has The industry as a whole has stable and relatively predictable stable and relatively predictable CFsCFs..

Source: Department of Employment and Economic Development of Minnesota (2004)Source: Department of Employment and Economic Development of Minnesota (2004)http://www.deed.state.mn.us/bizdev/PDFs/beer.pdfhttp://www.deed.state.mn.us/bizdev/PDFs/beer.pdf

Goldammer (2000) - The Brewers HandbookGoldammer (2000) - The Brewers Handbookhttp://www.beer-brewing.com/US_beer_market/beer_retailers.htmhttp://www.beer-brewing.com/US_beer_market/beer_retailers.htm

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Source: Poitras (2003) – US Breweries: Anheuser-Busch Source: Poitras (2003) – US Breweries: Anheuser-Busch

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• Market Leadership:Market Leadership:– For any consumer product company and for brewers in specific, ML is For any consumer product company and for brewers in specific, ML is

very important as it gives benefits over their rivals (i.e. production, very important as it gives benefits over their rivals (i.e. production, distribution and advertising economies of scale).distribution and advertising economies of scale).

• Distribution:Distribution:– Expensive to shipExpensive to ship: beer has low value relative to weight.: beer has low value relative to weight.– Therefore, several breweries are needed for successful distribution.Therefore, several breweries are needed for successful distribution.– This sometimes explains why large breweries This sometimes explains why large breweries take over small onestake over small ones..– The importance of good The importance of good distribution networksdistribution networks..

• The importance of branding and pricing:The importance of branding and pricing:– Price elasticity of demand.Price elasticity of demand.– Premium PricingPremium Pricing

Sources: Sources: Department of Employment and Economic Development of Minnesota (2004)Department of Employment and Economic Development of Minnesota (2004)

http://www.deed.state.mn.us/bizdev/PDFs/beer.pdfhttp://www.deed.state.mn.us/bizdev/PDFs/beer.pdfPoitras (2003) – US Breweries: Anheuser-Busch Poitras (2003) – US Breweries: Anheuser-Busch

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• The industry’s niche markets are very The industry’s niche markets are very fragmented, but some are growing:fragmented, but some are growing:– From 1990 – 1995 smaller brewers increased their From 1990 – 1995 smaller brewers increased their

MS from 7.1 to 8%. MS from 7.1 to 8%. – The number of U.S. brewing establishments has The number of U.S. brewing establishments has

nearly doubled since 1990 (from 73-172) but nearly nearly doubled since 1990 (from 73-172) but nearly all of the establishment growth occurred in firms all of the establishment growth occurred in firms employing fewer than 20 employees. employing fewer than 20 employees.

– Virtually all new entrants to the beer industry are Virtually all new entrants to the beer industry are niche playersniche players that pursue specialized, often regional that pursue specialized, often regional but sometime national tastes.but sometime national tastes.

Source: Department of Employment and Economic Development of Minnesota (2004)Source: Department of Employment and Economic Development of Minnesota (2004)http://http://www.deed.state.mn.us/bizdev/PDFs/beer.pdfwww.deed.state.mn.us/bizdev/PDFs/beer.pdf

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• The fastest growing market segment in the US is The fastest growing market segment in the US is the smaller the smaller microbrewsmicrobrews which are often brewed which are often brewed by regional brewers.by regional brewers.– Characteristics of the microbrews market segment:Characteristics of the microbrews market segment:

High barriers to entry (i.e. legal, manufacturing and High barriers to entry (i.e. legal, manufacturing and distribution costs)distribution costs)

Small consumer market with less consumer price Small consumer market with less consumer price differentiation (i.e. differentiation (i.e. low price elasticitylow price elasticity) than for major ) than for major brands.brands.

Due to the high costs of entry microbrews rely on regional Due to the high costs of entry microbrews rely on regional brewers to produce their products under contract (e.g. brewers to produce their products under contract (e.g. Minnesota Brewing, Samuel Adams)Minnesota Brewing, Samuel Adams)


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The North American Market: The North American Market: DemographicsDemographics

– Beer consumption is overwhelmingly Beer consumption is overwhelmingly male-dominatedmale-dominated; men ; men account for more than account for more than 80% of the volume consumed80% of the volume consumed..

– The largest group of male consumers are white and they favor The largest group of male consumers are white and they favor domestic light beer.domestic light beer.

– African American drinkers make up about 10% of the beer African American drinkers make up about 10% of the beer market overall, and they are the biggest consumers of malt market overall, and they are the biggest consumers of malt liquors, followed by ice beer.liquors, followed by ice beer.

– Women beer drinkers are more attracted to specialty micro-Women beer drinkers are more attracted to specialty micro-brewed beers than they are to the big brands, due to their brewed beers than they are to the big brands, due to their greater variety.greater variety.

– Craft-beer is more appealing to white beer drinkers than to Craft-beer is more appealing to white beer drinkers than to African Americans.African Americans.

Source: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbookhttp://www.beer-brewing.com/US_beer_market/beer_demographics.htmhttp://www.beer-brewing.com/US_beer_market/beer_demographics.htm

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The North American Market: The North American Market: Market TrendsMarket Trends

• Consolidation (e.g. mergers and acquisitions) due to:Consolidation (e.g. mergers and acquisitions) due to:– Flat consumption trendsFlat consumption trends– Regulatory burdensRegulatory burdens– High TaxationHigh Taxation

• The market is mature with flat consumption trends due The market is mature with flat consumption trends due to: to: – Increased alcohol awareness.Increased alcohol awareness.– Slow population growth.Slow population growth.– Aging population (young [male] adults are the largest beer Aging population (young [male] adults are the largest beer

consumers).consumers).


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• As competitors fight to maintain market shares, As competitors fight to maintain market shares, competitive pricingcompetitive pricing could result in decreases in could result in decreases in industry-wide pricing levels and ultimately decreased industry-wide pricing levels and ultimately decreased operating margins. operating margins.

• Price competition combined with increasing Price competition combined with increasing vertical vertical integrationintegration (i.e. Anheuser-Busch) and the inherent (i.e. Anheuser-Busch) and the inherent production economies of the market leaders makes it production economies of the market leaders makes it very very difficult for an inefficient major brewer to difficult for an inefficient major brewer to compete on a national scale.compete on a national scale.

Source: Standard & Poors Industry Surveys as quoted by the Source: Standard & Poors Industry Surveys as quoted by the Department of Employment and Economic Development of Minnesota (2004)Department of Employment and Economic Development of Minnesota (2004)

http://http://www.deed.state.mn.us/bizdev/PDFs/beer.pdfwww.deed.state.mn.us/bizdev/PDFs/beer.pdf

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• Changes in tastesChanges in tastes– Shift to Shift to “light beer“light beer” (started by Miller in 1972 – Miller Light).” (started by Miller in 1972 – Miller Light).– Affected companies:Affected companies:

SchiltzSchiltz PabstPabst StrohStroh

– Light beer segment grew from 0% to 23% of US beer Light beer segment grew from 0% to 23% of US beer consumption since 1972.consumption since 1972.

– A-B has deterred Miller’s leadership in this segment. In 2001 A-B has deterred Miller’s leadership in this segment. In 2001 Bud Light became the top selling beer overall.Bud Light became the top selling beer overall.

Source: Standard & Poors Industry Surveys as quoted by the Source: Standard & Poors Industry Surveys as quoted by the Department of Employment and Economic Development of Minnesota (2004)Department of Employment and Economic Development of Minnesota (2004)

http://http://www.deed.state.mn.us/bizdev/PDFs/beer.pdfwww.deed.state.mn.us/bizdev/PDFs/beer.pdf

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• Distribution:Distribution:– Increasing number of independent (multi-brand) wholesalers.Increasing number of independent (multi-brand) wholesalers.– More wholesalers going out of their home-states.More wholesalers going out of their home-states.– However, the total number of wholesalers is decreasing.However, the total number of wholesalers is decreasing.

Due to consolidation.Due to consolidation. The number of wholesalers has declined from more than 5,000 nationwide in 1970 to The number of wholesalers has declined from more than 5,000 nationwide in 1970 to

fewer than 2,500 today. fewer than 2,500 today.

• Retailing:Retailing:– Traditional stores (mom-and-pop operations) account for a significant amount of Traditional stores (mom-and-pop operations) account for a significant amount of

sales but sales but national retail chainsnational retail chains are accounting for more sales. are accounting for more sales.– While independently owned taverns, restaurants, and night clubs account for a While independently owned taverns, restaurants, and night clubs account for a

sizeable share of beer sales, sizeable share of beer sales, national restaurant/hotel chainsnational restaurant/hotel chains are growing in are growing in importance. importance.

– Consequences: Consequences: More More competitive pricingcompetitive pricing Distribution networks have become more important.Distribution networks have become more important.


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• Internationalization through:Internationalization through: Exports (i.e. Miller)Exports (i.e. Miller) Joint Ventures.Joint Ventures. Equity Purchases of foreign brewers and Equity Purchases of foreign brewers and

distributors (i.e. Anheuser-Busch and distributors (i.e. Anheuser-Busch and Grupo Modelo).Grupo Modelo).

• Ethical InvestmentEthical InvestmentSource: Standard & Poors Industry Surveys as quoted by the Source: Standard & Poors Industry Surveys as quoted by the

Department of Employment and Economic Development of Minnesota (2004)Department of Employment and Economic Development of Minnesota (2004)http://http://www.deed.state.mn.us/bizdev/PDFs/beer.pdfwww.deed.state.mn.us/bizdev/PDFs/beer.pdf

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The North American Market: The North American Market: RegulationsRegulations

• Regulations focus on: Regulations focus on: – DistributionDistribution– Labeling Labeling – Advertising Advertising – Credit Credit – Container characteristicsContainer characteristics– Alcoholic content Alcoholic content – Tax ratesTax rates– Litter assessments. Litter assessments.

Source: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbookhttp://www.beer-brewing.com/US_beer_market/beer_distribution.htmhttp://www.beer-brewing.com/US_beer_market/beer_distribution.htm

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Subject to regulation at the 3 levels:Subject to regulation at the 3 levels:• Federal:Federal:

– Formerly issued by the Bureau of Alcohol, Tobacco, Formerly issued by the Bureau of Alcohol, Tobacco, and Firearms (BATF), which was established by the and Firearms (BATF), which was established by the Federal Alcohol Administration (FAA) Act. Federal Alcohol Administration (FAA) Act.

– On November 25, 2002, the Homeland Security Act of On November 25, 2002, the Homeland Security Act of 2002 split the agency into two different agencies. 2002 split the agency into two different agencies.

The Department of Justice The Department of Justice The Alcohol and Tobacco Tax and Trade Bureau (TTB)The Alcohol and Tobacco Tax and Trade Bureau (TTB)

(kept within the United States Department of the Treasury). (kept within the United States Department of the Treasury). Source: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbook

http://www.beer-brewing.com/US_beer_market/beer_distribution.htmhttp://www.beer-brewing.com/US_beer_market/beer_distribution.htm

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• Federal: Federal: TTB responsibilities:TTB responsibilities:

o Enforce the compliance of provisions for the Enforce the compliance of provisions for the formulation formulation and labelingand labeling of alcoholic beverages, as required by the of alcoholic beverages, as required by the Internal Revenue Code and the FAA Act Internal Revenue Code and the FAA Act

o Taxes, distribution and advertising.Taxes, distribution and advertising.o International trade regulations International trade regulations o Lab testing (approval of brewing formulas and Lab testing (approval of brewing formulas and

equipment)equipment)

Source: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbook


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• State:State:– After After ProhibitionProhibition, state governments were given considerable , state governments were given considerable

authority over the production, importation, distribution, sale, and authority over the production, importation, distribution, sale, and consumption of beer within their borders.consumption of beer within their borders.

– Regulations vary across statesRegulations vary across states (i.e. Minnesota requires that (i.e. Minnesota requires that the beer label show the alcohol content, while Michigan does not the beer label show the alcohol content, while Michigan does not permit the label to show alcohol content).permit the label to show alcohol content).

– Other regulations include:Other regulations include: Max – Min alcohol contentMax – Min alcohol content Max – Min size of containersMax – Min size of containers Credit salesCredit sales AdvertisingAdvertising Production, distribution and retailingProduction, distribution and retailing TaxesTaxes

Source: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbookhttp://www.beer-brewing.com/US_beer_market/beer_distribution.htmhttp://www.beer-brewing.com/US_beer_market/beer_distribution.htm

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• Local:Local:– Many states permit local jurisdictions to regulate and Many states permit local jurisdictions to regulate and

separately tax beer sales, and even to prohibit the separately tax beer sales, and even to prohibit the sale of beer within their jurisdiction. sale of beer within their jurisdiction.

Georgia, Illinois, Louisiana, Maryland, New York, and Ohio Georgia, Illinois, Louisiana, Maryland, New York, and Ohio have cities or counties that impose local beer taxes.have cities or counties that impose local beer taxes.

– Jurisdictions in which the sale of alcoholic beverages Jurisdictions in which the sale of alcoholic beverages is prohibited are called is prohibited are called “dry”.“dry”.

about 4.3% of the U.S. population live in dry counties about 4.3% of the U.S. population live in dry counties Source: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbook


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• Other consequences of Prohibition:Other consequences of Prohibition:– ‘‘Three-tier’ system:Three-tier’ system: the industry is required the industry is required

to be divided intoto be divided into Brewers and ImportersBrewers and Importers Wholesalers Wholesalers

o Exclusive Exclusive (often partially owned by the brewery).(often partially owned by the brewery).o Independent or multi-brand:Independent or multi-brand: Unlike wine and spirits Unlike wine and spirits

wholesalers, which are generally multi-state operators, wholesalers, which are generally multi-state operators, beer wholesalers tend to operate within the boundaries beer wholesalers tend to operate within the boundaries of a single state of a single state

RetailersRetailersSource: Goldammer (2000) - The Brewers HandbookSource: Goldammer (2000) - The Brewers Handbook


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The North American Market : The North American Market : RegulationsRegulations

• Taxes:Taxes:– 44% tax of beer retail price in US (2001).44% tax of beer retail price in US (2001).– taxes equal 31.7% of final sales of all products (GNP) in the U.S. (approx. 20% at the taxes equal 31.7% of final sales of all products (GNP) in the U.S. (approx. 20% at the

federal level and 12% at the state-local level)federal level and 12% at the state-local level)• BrewersBrewers

– Beer Excise TaxBeer Excise TaxSource: Source: Dawson, Havis (2002). Dawson, Havis (2002). StirStir.. Beverage World; Beverage World; Dec 15, 2002; 121, 1721; ABI/INFORM Global pg. 38Dec 15, 2002; 121, 1721; ABI/INFORM Global pg. 38

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The North American MarketThe North American Market

• Threats of new entrants:Threats of new entrants:– Barriers to entry:Barriers to entry:

Capital IntensiveCapital Intensive Distribution networksDistribution networks RegulationsRegulations

– Economies of scale in marketing, production Economies of scale in marketing, production and distribution.and distribution.

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• Rivalry (price competition has been decreasing):Rivalry (price competition has been decreasing):– Increasing competition from imported beers (however, national Increasing competition from imported beers (however, national

brewers own part of these breweries).brewers own part of these breweries).– 2,200 wholesalers.2,200 wholesalers.– 560,000 retail establishments.560,000 retail establishments.– Growing popularity of micro-breweries and other craft-beers.Growing popularity of micro-breweries and other craft-beers.– Alternative: expansion to super-premium beers and other Alternative: expansion to super-premium beers and other

segments with lower demand elasticity.segments with lower demand elasticity.

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• Substitutes (Growing):Substitutes (Growing):– Growth in:Growth in:

Premixed drinks.Premixed drinks. Alternative malt beverage.Alternative malt beverage. Alternative non-alcoholic drinks (from juices to Alternative non-alcoholic drinks (from juices to

mineral water).mineral water).

– However, beer remains the largest drink However, beer remains the largest drink sector.sector.

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• Buyer’s Bargaining Power:Buyer’s Bargaining Power:– It changes from segment to segment, but in It changes from segment to segment, but in

general:general: Low switching costsLow switching costs Price competitionPrice competition Increasing health conscience.Increasing health conscience.

– However, for craft-beers, which are perceived However, for craft-beers, which are perceived as having higher quality, these characteristics as having higher quality, these characteristics may not always hold.may not always hold.

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• Suppliers’ Bargaining Power (Low):Suppliers’ Bargaining Power (Low):– Most supplies come from competitive Most supplies come from competitive

industries which are more fragmented than industries which are more fragmented than the beer industry:the beer industry: FarmersFarmers Labor (the case of unionized labor)Labor (the case of unionized labor)

– The more consolidated supplier is that one The more consolidated supplier is that one supplying bottles/cans. supplying bottles/cans.

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• Key elements for improving operating margins for Key elements for improving operating margins for national breweries:national breweries:– Expanded market share.Expanded market share.– Low cost structure.Low cost structure.– Price increases and premium pricing (low demand elasticity).Price increases and premium pricing (low demand elasticity).– Improved production efficiencies (packaging and automation).Improved production efficiencies (packaging and automation).– International expansion to countries with increasing consumption International expansion to countries with increasing consumption

trends.trends.– Connection between branding and pricing.Connection between branding and pricing.– Distribution Networks (wholesalers’ loyalty).Distribution Networks (wholesalers’ loyalty).

Sources: Department of Employment and Economic Development of Minnesota (2004)Sources: Department of Employment and Economic Development of Minnesota (2004)http://http://www.deed.state.mn.us/bizdev/PDFs/beer.pdfwww.deed.state.mn.us/bizdev/PDFs/beer.pdf

Poitras (2003) – US Breweries: Anheuser-BuschPoitras (2003) – US Breweries: Anheuser-Busch

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VALUATIONSVALUATIONS

Molson – Leon Chung

Coors - Cameron McLeod

Bud - Darren Devine

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MolsonMolson

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Company OverviewCompany Overview

• Founded in 1786 by John MolsonFounded in 1786 by John Molson • 3,800 employees 3,800 employees • 5 breweries located in Vancouver, 5 breweries located in Vancouver,

Edmonton, Toronto, Montreal and St. Edmonton, Toronto, Montreal and St. John’sJohn’s

• Oldest beer brand in N. AmericaOldest beer brand in N. America• Operations in Canada, Brazil, and the Operations in Canada, Brazil, and the

United StatesUnited States

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• Canada’s largest brewerCanada’s largest brewer

• In 2001, Molson repurchased 100% of In 2001, Molson repurchased 100% of Molson brands in the US and has 50.1% Molson brands in the US and has 50.1% interest in Molson USAinterest in Molson USA

• Pursuing the fast growing Brazilian marketPursuing the fast growing Brazilian market

• Global gross sales of $3.5 billionGlobal gross sales of $3.5 billion

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Senior ManagementSenior Management

• Daniel J. O'Neill*Daniel J. O'Neill* President and Chief Executive OfficerPresident and Chief Executive Officer

• Brian Burden*Brian Burden* Executive Vice President and Chief Financial Officer Executive Vice President and Chief Financial Officer

• Kevin T. Boyce*Kevin T. Boyce* President and Chief Operating Officer, North America President and Chief Operating Officer, North America

• Robert Coallier*Robert Coallier* President and Chief Executive Officer, Cervejarias Kaiser and President and Chief Executive Officer, Cervejarias Kaiser and Executive Vice President, Molson Inc. Executive Vice President, Molson Inc.

• Raynald H. Doin*Raynald H. Doin* Senior Vice-President Strategy and Integration, Human Resources Senior Vice-President Strategy and Integration, Human Resources

• Marie Giguère* Marie Giguère* Senior Vice President, Chief Legal Officer and Secretary Senior Vice President, Chief Legal Officer and Secretary

• Peter L. Amirault*Peter L. Amirault* Senior Vice-President Business Development and Innovation Senior Vice-President Business Development and Innovation

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Portfolio of BrandsPortfolio of Brands

Core BrandsCore Brands• Canadian, Canadian Canadian, Canadian

Light, Carling Black Light, Carling Black Label, Exlight, Export, Label, Exlight, Export, Golden, Marca Bavaria, Golden, Marca Bavaria, Kaiser, Molson Dry, and Kaiser, Molson Dry, and Rickard’sRickard’s

Molson’s PartnersMolson’s Partners

• Coors Light, Corona, Coors Light, Corona,

Heineken, and MGDHeineken, and MGD

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Challenges in 2003Challenges in 2003

• Faced same challenges in US as Coors Faced same challenges in US as Coors diddid

• In Canada, Alberta and Ontario faced In Canada, Alberta and Ontario faced strong discount activity and Molson had a strong discount activity and Molson had a hard time respondinghard time responding

• In Brazil, market share decreased by over In Brazil, market share decreased by over 2% due to increased competition2% due to increased competition

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Plans for the FuturePlans for the Future

Five Key ObjectivesFive Key Objectives

• Grow operating profitGrow operating profit

• Grow market shareGrow market share

• Grow volumeGrow volume

• Organizational renewalOrganizational renewal

• Improve qualityImprove quality

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1) Grow Operating Profit1) Grow Operating Profit

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1) Grow Operating Profit1) Grow Operating Profit

• Revenue growth Revenue growth • – – through both pricing and product mix improvementthrough both pricing and product mix improvement• Cost savingsCost savings

– Project 125 Project 125 Capacity utilization savings are expected to reach $41 million Capacity utilization savings are expected to reach $41 million

through improved brewery assets usage and equipment through improved brewery assets usage and equipment modernization.modernization.

Best-in-class practices and materials sourcing aim at procurement Best-in-class practices and materials sourcing aim at procurement savings of $35 million.savings of $35 million.

Costs savings of $40 million for distribution are anticipatedCosts savings of $40 million for distribution are anticipated through capital investment, productivity and supply chain through capital investment, productivity and supply chain

integration.integration. Savings in organizational costs of $9 million are planned.Savings in organizational costs of $9 million are planned.

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2) Grow Market Share2) Grow Market Share

Segmentation of Canadian Beer MarketSegmentation of Canadian Beer Market

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CanadaCanada• Total market share in Canada decreased by 0.6% from Total market share in Canada decreased by 0.6% from

44.4% to 43.8% - however, customers’ preference for 44.4% to 43.8% - however, customers’ preference for core owned brands (increase in share by 0.9%) lead to core owned brands (increase in share by 0.9%) lead to a rebalancing in Molson’s brand portfolio in favour of a rebalancing in Molson’s brand portfolio in favour of owned brandsowned brands

• Strengthen the CANADIAN brand in the premium Strengthen the CANADIAN brand in the premium segmentsegment

• Redesigned packaging including a customized die-cut Redesigned packaging including a customized die-cut label for bottleslabel for bottles

• New look for cansNew look for cans• Refreshed outer caseRefreshed outer case

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BrazilBrazil

• Market share decreased from 14.6% to Market share decreased from 14.6% to 12.4% in Brazil12.4% in Brazil

• The flagship brand, KAISER PILSEN, was The flagship brand, KAISER PILSEN, was reformulated the liquid and launched a reformulated the liquid and launched a new advertising campaignnew advertising campaign

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United StatesUnited States

• Market erosion of GOLDEN and Market erosion of GOLDEN and MOLSON ICEMOLSON ICE

• Molson used print, radio and outdoor Molson used print, radio and outdoor advertising to win the young adult advertising to win the young adult consumerconsumer

• Use of Molson Twin LabelsUse of Molson Twin Labels

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3) Volume by Geographic 3) Volume by Geographic SectorSector

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3) Volume by Hectolitres3) Volume by Hectolitres

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3) Grow volume3) Grow volume

CanadaCanada• Volume grew by 0.7% but was slower than Volume grew by 0.7% but was slower than

industry which moved up 2.0%industry which moved up 2.0%• Product innovations and new packaging are and Product innovations and new packaging are and

will be biggest drivers of volumewill be biggest drivers of volume• New products such as COLD SHOTS, New products such as COLD SHOTS,

CANADIAN LIGHT, and MOLSON ULTRA CANADIAN LIGHT, and MOLSON ULTRA should increase volume in fiscal 2005should increase volume in fiscal 2005

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Brazil Brazil • Brazilian operations experienced volume drop Brazilian operations experienced volume drop

of 17.5% over fiscal year while industry only of 17.5% over fiscal year while industry only declined by 3.4%declined by 3.4%

• Have hired key sales leadership with beer sales Have hired key sales leadership with beer sales experienceexperience

• Created Kaiser-managed sales teams to work Created Kaiser-managed sales teams to work with Coca-Cola distributorswith Coca-Cola distributors

• These and other measures lessened and even These and other measures lessened and even reversed the negative trend in some geographic reversed the negative trend in some geographic areasareas

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United States United States • Molson USA grew by 1.4%Molson USA grew by 1.4%• Aligned itself with Coors distributors which Aligned itself with Coors distributors which

accounted for 85% of Molson USA’s distributorsaccounted for 85% of Molson USA’s distributors• Improved results and leveraged Coors market Improved results and leveraged Coors market

infrastructureinfrastructure• Continue to build on strength of CANADIAN Continue to build on strength of CANADIAN

trademark and use innovative packaging trademark and use innovative packaging

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4) Organizational Renewal4) Organizational Renewal

Organizational DesignOrganizational Design• New structure of an integrated but decentralized sales New structure of an integrated but decentralized sales

force connected to local marketsforce connected to local markets• Brazil: hiring of more than 1,200 experienced sales Brazil: hiring of more than 1,200 experienced sales

people in six regional sales centrespeople in six regional sales centresLeadership Development and Succession PlanningLeadership Development and Succession Planning• Production Leadership ProgramProduction Leadership Program• New program for development of talent in strategic New program for development of talent in strategic

marketing functionmarketing function• Optimal Work Environment philosophyOptimal Work Environment philosophyOptimal Work EnvironmentOptimal Work Environment

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5) Improve quality5) Improve quality

• Renaissance in Brewing initiativeRenaissance in Brewing initiative• QualityQuality

– Incoming raw materialsIncoming raw materials– Conversion in the breweryConversion in the brewery– Consumer and customer satisfactionConsumer and customer satisfaction

• SafetySafety– Frequency of down time declined by 16%Frequency of down time declined by 16%– Severity of accidents resulting in down time declined Severity of accidents resulting in down time declined

by 11%by 11%

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Events in the NewsEvents in the News

• Molson and Coors Announce Merger of Molson and Coors Announce Merger of Equals to Create World's Fifth Largest Equals to Create World's Fifth Largest Brewer Brewer

• Molson and Coors Announce Agreement Molson and Coors Announce Agreement to Pay Special Dividend to Molson to Pay Special Dividend to Molson Shareholders Molson to Build New $35 Shareholders Molson to Build New $35 Million Brewery in New Brunswick Million Brewery in New Brunswick

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Molson and Coors Announce Molson and Coors Announce MergerMerger

• Pentland agrees to forego participation in Pentland agrees to forego participation in special dividend special dividend

• Molson Coors Brewing Company will be fifth Molson Coors Brewing Company will be fifth largest in worldlargest in world

• Combined total of 60 million hectolitresCombined total of 60 million hectolitres• Management structure and board compositionManagement structure and board composition

– Chairman: Eric H. Molson (Molson)Chairman: Eric H. Molson (Molson)– CEO: Leo Kiely III (Coors)CEO: Leo Kiely III (Coors)– Vice Chairman: Daniel J. O’Neill (Molson)Vice Chairman: Daniel J. O’Neill (Molson)– CFO: Timothy V. Wolf (Coors)CFO: Timothy V. Wolf (Coors)

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Special Dividend to Molson Special Dividend to Molson ShareholdersShareholders

• Announced on Nov. 5Announced on Nov. 5thth

• As part of Molson and Coors mergerAs part of Molson and Coors merger

• Pentland will forego special dividendPentland will forego special dividend– As a result, dividend will be $3.26 rather than As a result, dividend will be $3.26 rather than

$3.00$3.00

• Pentland is owned by Chairman Eric Pentland is owned by Chairman Eric Molson and Director Stephen MolsonMolson and Director Stephen Molson

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New BreweryNew Brewery

• Cost of $35 millionCost of $35 million

• Located in Moncton, New BrunswickLocated in Moncton, New Brunswick

• Completed by January 2007Completed by January 2007

• Capacity of 6 million 12 packs annuallyCapacity of 6 million 12 packs annually

• Implementation of distribution systemImplementation of distribution system

• $3.5 million forgivable loan$3.5 million forgivable loan

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Income StatementIncome Statement

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Income Statement Analysis Income Statement Analysis

• P/E 17.99P/E 17.99

• Price to Sales 1.22Price to Sales 1.22

• Price to Book 3.50Price to Book 3.50

• Dividend Per Share 0.56Dividend Per Share 0.56

• Book Value Per Share 9.57Book Value Per Share 9.57

• Revenue Per Share 27.34Revenue Per Share 27.34

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Balance SheetBalance Sheet

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Balance Sheet AnalysisBalance Sheet Analysis

• Quick Ratio 0.25Quick Ratio 0.25

• Current Ratio 0.42Current Ratio 0.42

• Debt to Equity 0.65Debt to Equity 0.65

• Return on Equity (ROE) 25.1%Return on Equity (ROE) 25.1%

• Return on Assets (ROA) 6.03%Return on Assets (ROA) 6.03%

• Return on Invested Capital (ROIC) 10.7%Return on Invested Capital (ROIC) 10.7%

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Cash Flows StatementCash Flows Statement

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Cash Flow AnalysisCash Flow Analysis

• Operating Activities 216.4Operating Activities 216.4• Investing Activities (73.1)Investing Activities (73.1)• Financing Activities Financing Activities (125.8)(125.8)• Net 21.2Net 21.2• Operating Activities is greater than other Operating Activities is greater than other

expendituresexpenditures• Investing Activities, Molson has been investing Investing Activities, Molson has been investing

in newer equipmentin newer equipment• Financing Activities, repayment of long term Financing Activities, repayment of long term

debt was greater than refinancingdebt was greater than refinancing

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Stock Price SummaryStock Price Summary

• Traded the TSXTraded the TSX– Symbol: MOL.A PSymbol: MOL.A P– Price: 33.460Price: 33.460– 52 week high: $36.8052 week high: $36.80– 52 week low: $28.5052 week low: $28.50– Market Capitalization of approximately $4121 Market Capitalization of approximately $4121

millionmillion

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Stock Price Performance: One Stock Price Performance: One Year Chart (TSX)Year Chart (TSX)

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Stock Price Performance: Five Stock Price Performance: Five Year Chart (NYSE)Year Chart (NYSE)

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RecommendationRecommendation

HoldHold

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• Adolph Coors company was founded in 1873Adolph Coors company was founded in 1873• World’s 9World’s 9thth largest brewer with $4 billion in annual sales largest brewer with $4 billion in annual sales• Principal subsidiary is the Coors Brewing Company, Principal subsidiary is the Coors Brewing Company,

which is the 3which is the 3rdrd largest brewer in the U.S. largest brewer in the U.S.• Also owns Coors Brewers Limited in the U.K., which is Also owns Coors Brewers Limited in the U.K., which is

the U.K.’s 2the U.K.’s 2ndnd largest brewer largest brewer• Primary product in the U.S. is Coors light and in the U.K. Primary product in the U.S. is Coors light and in the U.K.

their flagship is Carling. They rank #3 and #1 their flagship is Carling. They rank #3 and #1 respectively in sales per marketrespectively in sales per market

• Traded on the NYSE, ticker symbol (RKY)Traded on the NYSE, ticker symbol (RKY)

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Company Overview Con’tCompany Overview Con’t

• Corporate headquarters and primary brewery Corporate headquarters and primary brewery are located in Golden, Coloradoare located in Golden, Colorado

• The Coors Golden brewery is the world's largest The Coors Golden brewery is the world's largest on a single site. Coors owns a second brewery on a single site. Coors owns a second brewery in Memphis, Tenn., and a packaging facility in in Memphis, Tenn., and a packaging facility in Virginia's Shenandoah Valley, near the town of Virginia's Shenandoah Valley, near the town of Elkton, Va.Elkton, Va.

• Coors products are available in over 30 Coors products are available in over 30 international marketsinternational markets

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Portfolio of BrandsPortfolio of Brands

• Coors has a wide array Coors has a wide array of brands including:of brands including:– Coors Light, Coors Coors Light, Coors

Original, Aspen Edge, Original, Aspen Edge, Killian’s, Blue Moon, Killian’s, Blue Moon, Keystone Ice, Keystone Keystone Ice, Keystone Premium, Coors NA, Extra Premium, Coors NA, Extra Gold, Zima XXX Hard Gold, Zima XXX Hard Lemon Lime, Zima XXX Lemon Lime, Zima XXX Hard Black Cherry, Zima Hard Black Cherry, Zima XXX Hard OrangXXX Hard Orang

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Flagship BrandsFlagship Brands

• Carling is the #1 selling Carling is the #1 selling beer in the U.K. and beer in the U.K. and Coors Brewing Limited is Coors Brewing Limited is ranked #2 for total ranked #2 for total market share with 21%market share with 21%

• Coors Light is the #3 Coors Light is the #3 selling beer in the U.S. selling beer in the U.S. and Coors Brewing and Coors Brewing Company is ranked #3 in Company is ranked #3 in total market share with total market share with 11%11%

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Brewing BitsBrewing Bits

• Coors uses an all-natural brewing process and Coors uses an all-natural brewing process and the finest ingredients: ideal brewing water, the finest ingredients: ideal brewing water, hops, cereal grains (rice and refined corn hops, cereal grains (rice and refined corn starches), and barley. Coors has developed starches), and barley. Coors has developed special strains of barley it malts itself to ensure special strains of barley it malts itself to ensure product quality. Nothing artificial is in Coors product quality. Nothing artificial is in Coors beers.beers.

• On average, Coors takes 55 days to brew, age, On average, Coors takes 55 days to brew, age, finish and package its lagers—about twice as finish and package its lagers—about twice as long as its major competitors. The result is a long as its major competitors. The result is a naturally aged, stable and smooth product.naturally aged, stable and smooth product.

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Challenges in 2003Challenges in 2003

• Continued weakness in the US economy during 2003 Continued weakness in the US economy during 2003 and, specifically, high unemployment levels among the and, specifically, high unemployment levels among the key 21- to 24-year-old male consumer population,key 21- to 24-year-old male consumer population,

• Unfavorable weather, particularly in the Northeast, for a Unfavorable weather, particularly in the Northeast, for a significant part of the peak summer selling season,significant part of the peak summer selling season,

• The popularity of low-carbohydrate diets that softened The popularity of low-carbohydrate diets that softened demand for beer,demand for beer,

• The rise in popularity of distilled spirits and other The rise in popularity of distilled spirits and other alternative beverages, particularly among 21- to 29-year alternative beverages, particularly among 21- to 29-year olds, andolds, and

• A grocery store strike in California that likely impacted A grocery store strike in California that likely impacted sales in the largest beer state.sales in the largest beer state.

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Plans For The FuturePlans For The Future

• They are striving to capture an increasing share of each They are striving to capture an increasing share of each new generation of legal-drinking-age beer drinkers in new generation of legal-drinking-age beer drinkers in order to gain their brand loyalty for the long-termorder to gain their brand loyalty for the long-term

• They intend to seek publicity through both new products They intend to seek publicity through both new products and brands, or product developments with existing and brands, or product developments with existing brands, such as Coors Light and Carlingbrands, such as Coors Light and Carling

• Strengthen their access to retail by creating a solid Strengthen their access to retail by creating a solid distribution network with wholesalers and retailersdistribution network with wholesalers and retailers

• Lower the cost structure in order to grow profits and Lower the cost structure in order to grow profits and afford the investments needed to grow and succeedafford the investments needed to grow and succeed

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Sales VolumeSales Volume

• Has risen Has risen dramatically with the dramatically with the acquisition of Coors acquisition of Coors Brewers LimitedBrewers Limited

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New Global StrategyNew Global Strategy

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Financial ReviewFinancial Review

• Have become globalized and diversifiedHave become globalized and diversified.. In 2003, CBL In 2003, CBL performance in the U.K. and Coors Light in Canada performance in the U.K. and Coors Light in Canada showed the advantages of becoming more than a one-showed the advantages of becoming more than a one-brand, one-market company.brand, one-market company.

• Continued cost reduction and productivity despite Continued cost reduction and productivity despite difficultiesdifficulties. . Improved upon costs and productivity, in Improved upon costs and productivity, in spite of challenges, particularly in the U.S. market.spite of challenges, particularly in the U.S. market.

• Reducing debt ahead of scheduleReducing debt ahead of schedule.. In just two years, In just two years, they reduced debt by nearly a third through an they reduced debt by nearly a third through an emphasis on cash generation and disciplined capital emphasis on cash generation and disciplined capital management. management.

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Sales by Volume & DollarsSales by Volume & Dollars

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After Tax IncomeAfter Tax Income

• Figures are in millions Figures are in millions of dollarsof dollars

• Coors has seen Coors has seen steady growth in steady growth in incomeincome

• Large increase in 02 Large increase in 02 is due to the is due to the acquisition of Coors acquisition of Coors Brewing Limited Brewing Limited (U.K.)(U.K.)

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Financial In BriefFinancial In Brief

• Adolph Coors Company is ranked among the Adolph Coors Company is ranked among the 500 largest publicly traded corporations in the 500 largest publicly traded corporations in the U.S., based on annual sales. The company is U.S., based on annual sales. The company is the world's 9the world's 9thth largest brewer. largest brewer.

• In 2003, Coors sales volume was 32.7 million In 2003, Coors sales volume was 32.7 million barrels (1 U.S. barrel equals 31 gallons).barrels (1 U.S. barrel equals 31 gallons).

• Net sales for 2003 totaled $4.0 billion. 2003 net Net sales for 2003 totaled $4.0 billion. 2003 net income was $174.7 million, up 8.0 percent from income was $174.7 million, up 8.0 percent from 2002.2002.

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Merger With MolsonMerger With Molson

• Coors is planning on merging with Molson Coors is planning on merging with Molson in December, 2004in December, 2004

• It will become the 5It will become the 5thth largest brewing largest brewing company in the worldcompany in the world

• Goals are to increase penetration into Goals are to increase penetration into new marketsnew markets

• Allows the company’s to compete with the Allows the company’s to compete with the “superpower’s” of the brewing industry“superpower’s” of the brewing industry

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Propels MolsonCoors into Propels MolsonCoors into ‘Top5’‘Top5’

Volume (M hl)

17Foster’s

21Molson

39Coors

42Grupo Modelo

60Molson Coors

54Carlsberg(1)

109Heineken

116SABMiller

152A-B

215InterbrewAmBev

25FEMSA

50Scottish &Newcastle

23Kirin

36Asahi

33Tsingtao

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Income Statement AnalysisIncome Statement Analysis

• Increased sales due to U.K. and Canadian successIncreased sales due to U.K. and Canadian success• High interest expense due to the $1.6 billion investment in CBLHigh interest expense due to the $1.6 billion investment in CBL• Steady increase in net income even with a highly competitive U.S. Steady increase in net income even with a highly competitive U.S.

marketmarket• P/E:P/E: 14.814.8• Price to Cash Flow Ratio: Price to Cash Flow Ratio: 5.255.25• Price To Sales: Price To Sales: 0.640.64• Price To Book: Price To Book: 1.931.93• Dividend Per Share:Dividend Per Share: 0.820.82• Book Value Per Share: Book Value Per Share: 34.6234.62• Revenue Per Share: Revenue Per Share: 108.0108.0

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Balance Sheet AnalysisBalance Sheet Analysis

• Only has $0.53 cash on hand per shareOnly has $0.53 cash on hand per share• Quick Ratio: Quick Ratio: 0.670.67• Current Ratio: Current Ratio: 0.950.95• LT Debt to Equity: LT Debt to Equity: 91.591.5• Total Debt to Equity: Total Debt to Equity: 98.798.7• Return on Equity (ROE) Per Share: Return on Equity (ROE) Per Share: 18.018.0• Return on Assets (ROA): Return on Assets (ROA): 5.575.57• Return on Invested Capital (ROIC): Return on Invested Capital (ROIC): 9.079.07

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Cash Flow AnalysisCash Flow Analysis

• Dividend Yield: Dividend Yield: 1.171.17• Dividend Yield - 5 Yr. Avg: Dividend Yield - 5 Yr. Avg: 1.251.25• Dividend Per Share: Dividend Per Share: 0.820.82• Dividend Payout Ratio:Dividend Payout Ratio: 17.017.0• 5 Year Annual Growth: 5 Year Annual Growth: 20.820.8• Revenue - 5 Year Growth: Revenue - 5 Year Growth: 15.715.7• Dividends Per Share - 5 Year Growth: 6.44Dividends Per Share - 5 Year Growth: 6.44• EPS - 5 Year Growth: EPS - 5 Year Growth: 21.321.3

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Stock Price SummaryStock Price Summary

• Traded on the NYSETraded on the NYSE– Symbol: RKYSymbol: RKY– Price: $71.88Price: $71.88– 52 week high: $80.1152 week high: $80.11– 52 week low: $53.7352 week low: $53.73– Market Capitalization of approximately $2.6 Market Capitalization of approximately $2.6

billionbillion

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Stock Price Performance: Stock Price Performance: One Year Chart (NYSE)One Year Chart (NYSE)

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Stock Price Performance: Stock Price Performance: Five Year Chart (NYSE)Five Year Chart (NYSE)

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HoldHold

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OverviewOverview• Established in 1864Established in 1864

• Largest Brewer in the worldLargest Brewer in the world

• Budweiser is #1 brand of beer in the worldBudweiser is #1 brand of beer in the world

• Beer Production, Entertainment, Beer Production, Entertainment, Packaging, Real Estate Development & Packaging, Real Estate Development & TransportationTransportation

• Almost 50% domestic market shareAlmost 50% domestic market share

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OperationsOperations• 12 US Breweries12 US Breweries

• 2 International Breweries (China/ UK)2 International Breweries (China/ UK)

• Produced 111 Million Barrels of Beer Produced 111 Million Barrels of Beer

• 66thth consecutive year with double digit consecutive year with double digit growth in earnings per sharegrowth in earnings per share

• $16 Billion in Sales$16 Billion in Sales

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Competitive AdvantageCompetitive Advantage• Three divisions: Brewers, Wholesalers & Three divisions: Brewers, Wholesalers &

RetailersRetailers• 2/3rds of volume delivered by wholesalers who 2/3rds of volume delivered by wholesalers who

only carry Anheuser-Busch (A-B)only carry Anheuser-Busch (A-B)• Loyalty of wholesalers is compensated by large Loyalty of wholesalers is compensated by large

profit marginsprofit margins• Leverage 49.8% market share into 75% of Leverage 49.8% market share into 75% of

markets operating profit through Procurement, markets operating profit through Procurement, Manufacturing efficiency and MarketingManufacturing efficiency and Marketing

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ProductsProducts• Budweiser & Bud LightBudweiser & Bud Light

• Michelob and Michelob UltraMichelob and Michelob Ultra

• Busch and Busch LightBusch and Busch Light

• Hurricane and Malt liquorsHurricane and Malt liquors

• Bacardi Silver & Mike’s Hard LemonadeBacardi Silver & Mike’s Hard Lemonade

• O’doul’s & non-alcoholic beveragesO’doul’s & non-alcoholic beverages

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Subsidiaries & SatellitesSubsidiaries & Satellites• A-B PackagingA-B Packaging: : Recycling, Printing/ Packaging, Recycling, Printing/ Packaging,

Aluminum ProductionAluminum Production

• Busch EntertainmentBusch Entertainment: : Sea World, Busch Sea World, Busch GardensGardens

• 50% Share in Grupo Modelo50% Share in Grupo Modelo: : Corona (93-98)Corona (93-98)

• 27% Share in Tsingtao27% Share in Tsingtao: : China’s largest brewerChina’s largest brewer

• 20% Share in Cervecerias20% Share in Cervecerias: : Chile’s largest brewerChile’s largest brewer

• Distribution partnershipsDistribution partnerships: : Labatt & Kirin (Japan)Labatt & Kirin (Japan)

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ExecutivesExecutives• August A Busch III August A Busch III Chairman of the Board (29 Years)Chairman of the Board (29 Years)

• Patrick T. StokesPatrick T. Stokes President & CEO (20 Years)President & CEO (20 Years)

• W. Randolph Baker W. Randolph Baker CFO & Vice President (8 Years)CFO & Vice President (8 Years)

• John E JacobJohn E Jacob Director of Global Communications (14 Years)Director of Global Communications (14 Years)

• Carlos F Gonzales Carlos F Gonzales Director “Grupo Modello”(8 Years)Director “Grupo Modello”(8 Years)

• James J Forese James J Forese Director (26 Years) Americas Most Powerful PeopleDirector (26 Years) Americas Most Powerful People

• Charles F Knight Charles F Knight Director (21 Years) Americas Most Powerful PeopleDirector (21 Years) Americas Most Powerful People

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Financials-2003 Annual ReportFinancials-2003 Annual Report• SymbolSymbol BUDBUD

• Price (Nov 12-04)Price (Nov 12-04) $51.06$51.06

• Outstanding SharesOutstanding Shares $837 Million$837 Million

• P/EP/E 20.5920.59

• EPSEPS 2.482.48

• Dividends PaidDividends Paid $685.4 Million$685.4 Million

• ROE ROE 70%70%

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Financials Cont.Financials Cont.

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Balance Sheet AnalysisBalance Sheet Analysis• Invested $200 Million in Bonds & Loans Invested $200 Million in Bonds & Loans

with Tsingtao Brewery in Chinawith Tsingtao Brewery in China

• Net Increase to Debt $682.2 Million with Net Increase to Debt $682.2 Million with US Dollar Notes and Commercial PaperUS Dollar Notes and Commercial Paper

• Current Ratio .88Current Ratio .88

• 11% Decrease in Shareholders Equity11% Decrease in Shareholders Equity

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Debt AnalysisDebt Analysis

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Income Statement AnalysisIncome Statement Analysis• 9% Increase in 9% Increase in

RevenuesRevenues

• 7% Increase in 7% Increase in COGSCOGS

• 18% Increase in 18% Increase in Operating IncomeOperating Income

• 22% Increase in Net 22% Increase in Net IncomeIncome

Anheuser Busch Income Growth

02000400060008000

1000012000140001600018000

2001 2002 2003

$ Mill

ions

Revenue

COGS

Operating Income

Net Income

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Income Statement ContIncome Statement Cont• Advertising and promotional activities are Advertising and promotional activities are

a key component of A-B’s Strategya key component of A-B’s Strategy

• Advertising Costs were $806.7 MillionAdvertising Costs were $806.7 Million

• Promotional Costs were $511.8 MillionPromotional Costs were $511.8 Million

• A-B is able to gain a competitive A-B is able to gain a competitive advantage through their advertisingadvantage through their advertising

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Cash Flow Statement AnalysisCash Flow Statement Analysis• 1.82 Billion in Free Cash Flow1.82 Billion in Free Cash Flow• Acquired almost $2 Billion in Treasury StockAcquired almost $2 Billion in Treasury Stock• Paid $652 Million in DebtPaid $652 Million in Debt• However, increased Debt by $1.4 BillionHowever, increased Debt by $1.4 Billion• Issued $685.4 Million in DividendsIssued $685.4 Million in Dividends• Continue to acquire businesses and invest in Continue to acquire businesses and invest in

packaging and related operationspackaging and related operations• Future Cash may be directed towards ChinaFuture Cash may be directed towards China

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Cash Flow Statement ContCash Flow Statement Cont• Reached 5 year agreement with UnionReached 5 year agreement with Union• Pension Increases of 14%Pension Increases of 14%• $7.5 Million signing bonus$7.5 Million signing bonus• 100 Million executive stock options yet to 100 Million executive stock options yet to

be exercisedbe exercised• Price equal to price on option issue datePrice equal to price on option issue date• Employee Stock Ownership Plan (ESOP) Employee Stock Ownership Plan (ESOP)

deferred 45.4 million shares for purchasedeferred 45.4 million shares for purchase

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Impact of Stock Options on Impact of Stock Options on N.I.N.I.

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DerivativesDerivatives• Derivatives used to mitigate the company’s exposure to volatility in Derivatives used to mitigate the company’s exposure to volatility in

commodity prices, interest rates and foreign currency.commodity prices, interest rates and foreign currency.• Hedges only with derivatives that have high correlation with the Hedges only with derivatives that have high correlation with the

underlying transaction pricingunderlying transaction pricing• Company policy is not to speculate in the derivatives marketCompany policy is not to speculate in the derivatives market

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Employee Pension PlansEmployee Pension Plans• Defined contribution plansDefined contribution plans

• Pension plans cover substantially all Pension plans cover substantially all regular employeesregular employees

• Based on negotiated labour contractsBased on negotiated labour contracts

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Financial Statement Analysis Financial Statement Analysis ContCont..

VALUATION MEASURES- Nov 12VALUATION MEASURES- Nov 12

Market CapMarket Cap 40.34B40.34B

Enterprise Value (12-Nov-04)Enterprise Value (12-Nov-04) 48.14B48.14B

Trailing P/ETrailing P/E 18.8618.86

Forward P/EForward P/E 17.1917.19

PEG Ratio (5 yr expected)PEG Ratio (5 yr expected) 1.851.85

Price/SalesPrice/Sales 2.712.71

Price/BookPrice/Book 14.4914.49

Enterprise Value/RevenueEnterprise Value/Revenue 3.263.26

Enterprise Value/EBITDAEnterprise Value/EBITDA 11.311.3

Profitability- Nov 12-04Profitability- Nov 12-04

Profit Margin (ttm): 0.1235

Operating Margin (ttm): 0.226

Management EffectivenessManagement Effectiveness

Return on Assets (ttm): 0.1205

Return on Equity (ttm): 0.8121

Dividend Yield 0.02

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Technical AnalysisTechnical Analysis

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Dividend Discount ModelDividend Discount Model• Good for stable companies w/ growing Good for stable companies w/ growing

dividends. dividends. • 2001= 614.1 2002= 649.5 2003= 685.42001= 614.1 2002= 649.5 2003= 685.4• Stock Price = Stock Price = Ex (Div/Share)Ex (Div/Share)

(k – g)(k – g)g= 6% Div/ Share= .82 k= .075 g= 6% Div/ Share= .82 k= .075 Ex Stock Price= $54.67Ex Stock Price= $54.67Actual Price= $51.06Actual Price= $51.06

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HoldHold

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Reweries Breweries Leon Chung Jorge Cruz Darren Devine Cameron McLeod.

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