state-of-the-craft-beer-industry-2013.pdf

7/18/2019 State-of-the-Craft-Beer-Industry-2013.pdf

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State of the Craft Beer Industry2013

http://www.demetergroup.net/



Beer49%

Spirits34%

Wine17%

Beer55%

Spirits29%

Wine16%

Beer Continues to Lose Market Share to Wine and Spirits

2

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 – 2015PCAGR: 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 2015P

Beer 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

3

109 108 104 101 99

46 47 48 46 44

29 28 26 27 27

9 9 9 1112

9 12 11 11 11

12 12 12 13 12

214 214 210 209 206

2007 2008 2009 2010 2011

Prem ium Sub Prem ium Im po rts Craft Super Prem ium 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, typicallyproduced by large multi-national brewers, are driving thedownward trend in the overall Beer Industry

Mirroring consumer changes across the entire BeverageAlcohol landscape, Premium / Luxury priced Beer is regainingfavor with the consumer

– Craft / Import / Super Premium Beer is an affordableluxury

(Barrels in millions)

Premium Sub Premium Imports Craft Super Premium

U.S. Beer Industry Segmentation U.S. Beer Industry Growth by Segment





Craft is Premium Beer’s Fastest Growing Segment

4

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 DrinkersDrinking More

Wine

Spirits

New CraftDrinkers

214 214210 209 206

210

8.5 8.9 9.510.7

12.313.7

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% growthprojected 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 BeerIndustry 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 alcoholtrading into Craft

(Barrels in millions)

U.S. Beer Industry Components of Craft Beer Growth





5 of 10 Fastest Growing Brands are Craft

5

(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 resourcedmarketing and sales departments relative tolarger 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 inexpanding their production footprint aswell as additional capacity in coremarket




6

“Exaggerated”

Traditional mild pale / Americanlagers at Premium – Sub Premiumprice points

Marquee beer giants’ legacy brands

and traditional sub-brands (BudLight, Miller Light, Coors Light)

Craft Answers Consumer Demand for Extreme Flavor & High-Alcohol Content

“Originals” “Revisionists” “Extremists”

Premium – Super Premium lineextensions leveraging legacy brandname while varying type, flavoring,and calorie count

Super Premium independent Craftbrands / incognito Craft brands (BlueMoon, Shock Top, Leinenkugel)identifying strongly with a sense ofplace, personality, or specificproduct

Unique, hoppy, seasonal, flavored

IPAs, porter, stout, pilsner, black &tan, rye, wheat beer, etc.

Super Premium independent Craftbrands producing extreme /adventurous / intense Craft Beer

Innovative brewing, double portions ofhops, barrel fermenting / aging, bottlefermenting, fruit infusing, large formatbottles

Additional Beer types: imperial stout,double IPA, sour ale, smoked porter etc.

Experimentation with Beer–Wine hybrids




7

By Definition, Craft Drinkers are Explorers with Non-Linear Taste Preferences

Increasing Flavor / Intensity

“Revisionists” “Extremists”




Growth in Number of Craft Breweries Driven by “Extremists”

8

Overview

New Craft Breweries areexperimenting withuncommon ingredients andtechniques, driving industryinnovation

Craft breweries haveincreased 12% in 2011 withstrong growth coming fromstates east of the Mississippi

– Over 30% of 2011growth is from 5 states,4 of which are east ofthe 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+1124

+1

10+2

47+0

43+8

102+17

42+5

5(1)

93+16

72+13

33+2

20+1

9(2)

24+317

+142+0

6+2

15+126+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

9

New Belgium – Building new 150,000

sq. ft. brewery on 17.5 acres inAshville, North Carolina. Initialcapacity 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 includeAlaska and Louisiana in Q2 2013.

Sierra Nevada – Building newbrewery in Mills River, North

Carolina (12 miles south of Asheville)with initial capacity of 300,000barrels and space for additionalgrowth. 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 a300,000 sq. ft. steel

fabrication plant in Chicago,Illinois into a second brewery

with capacity of 600,000barrels and to be built as“exact copy” of Petaluma

facility. A taproom is alsoplanned for the site.

Expected completion in mid-2013. Estimated cost: $15 –

$25 million. Currentlyavailable in 35 states.

Goose Island (AB InBev) -Outsourcing a portion of its brewing

operations to an AB plant inBaldwinsville, New York and NewHampshire’s Redhook Ale Brewery

(part of Craft Brew Alliance, inwhich AB holds a stake) to achievenational distribution by Q1 2013.

D.G. Yuengling & Son – Expansion of production

facility purchased in1999 by approximately40%; further expansionof existing facilities in

Pennsylvania. EstimatedCapital Expenditure innext 24 months: $100

million. Currentlyavailable in 15 states.

Source: Press releases and news articles as of January 30, 2013.




Big Beer is Brewing Craft-Like Brands Utilizing “Back of House” Assets / Resources

10

ParentCompany

Craft BeerIncubator

SelectBrands

Formed in 2008 with the merger of leading PacificNorthwest craft brewers Widmer Brothers Brewingand 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 asnationwide distributor

>700,000 barrels sold in 2012P

Craft and import division of MillerCoors developed inAugust 2010

– Yearly double digit growth since formation

Acquired minority interest in Terrapin Beer Companyin October 2011

Acquired Crispin Cider Company in February 2012

Acquired Franciscan Well Brewery in January 2013

(AB Craft-Like Brand)

(AB Craft-Like Brand)




Craft is Reshaping the Way Beer is Marketed from “Brand” to “Style” like Wine

11

Commentary New Merchandising of Beer by Style

Style (instead of brand) is becoming the moreimportant aspect of consumer choice,especially among Millennials

– The consumer chooses style first (Pale,Ale, IPA, Wheat, etc.) and then choosesbrand within style (Sierra Nevada,Lagunitas, Blue Moon, etc.)

Craft is enabling producers to dialogue withretailers about maintaining and expandingshelf space to prevent further erosion fromWine and Spirits

Retailers are beginning to merchandise beerby style, just as they merchandise wine byvarietal

Cider and Flavored Malt Beverages (FMBs) arefurther expanding Beer’s retailer shelf space

Pale Ale

IPA

WheatBeer




Optimism for Reaching Craft Drinkers from Multiple Angles Explains M&A in Cider

12

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 Dev on C ider Company A ston M anor 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 Pubdraftsacquired by C&C Group in 2011.

5.7 million case cider market estimated to rise at an 11% CAGRby volume through 2016

– Cider drawing drinkers away from Wine (typically femaleconsumer) 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 LightCider, 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

13

Commentary

Big Beer’s current focus is on high

returns in emerging markets; only whenglobal returns cool off will U.S. Craft /

Premium Beer brands be interestingacquisition targets

Current global interest allows currentCraft brands to develop beachheadsand gain scale / expand geographicdistribution while Big Beer is focusedoverseas

– At this point, many Craft /Premium brands will be attractive

targets for both Big Beer as well asdomestic Craft brewers of scale

◦ National scalability /brand appeal will factorsignificantly into whichCraft 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

42 3

Rank Brewer

2011 Barrels

(Thousands)

1 AB / In-Bev 300,600

2 SAB Miller 190,310

3 Heineken 182,243

4 Carlsberg 101,132





Demeter Group Recent Transactions (December 2010 – 2012)

14

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 Marketedto Fewer Than 5

Potential Buyers

$850 millionCompleted Transaction Value

15Completed

Transactions

71% 36%

TransactionsMarketed to

1 Buyer

67%Completed Transactions

in Beverage Alcohol

Acquired by




Demeter Group Recent Beverage Alcohol Transactions

15

July 2012

Acquired By:Constellation Brands

May 2011

Acquired By:Crimson Wine Group

March 2011

Acquired By:Beam Global Spirits & Wine

December 2010

Acquired By:Fiji Water

September 2012

Acquired By:E. & J. Gallo Winery

August 2012


June 2012

Acquired By: Accolade Wines

June 2012


May 2012

Acquired By:Precept Wines

August 2011

Acquired By:Fiji Water




Jeff MenasheChief Executive Officer

[email protected]

220 Halleck Street, Suite 110San Francisco, CA 94129

(415) 632-4400www.demetergroup.net


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