Breweries
Leon Chung
Jorge Cruz
Darren Devine
Cameron McLeod
reweries
Breweries
“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).
reweries
Outline
• Introduction
– Industry Analysis:



History of the international and North American beer
industry.
The Global Industry.
The North American Market.
• Valuation:
– Bud
– Coors
– Molson
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Industry Overview: History
• Ancient History:
– Historians speculate that prehistoric nomads may have made
beer from grain & water before learning to make bread.
– 4300 BC, Babylonian clay tablets detail recipes for beer.
– Beer around the world: There is evidence that beer was
elaborated by the Babylonian, Assyrian, Egyptian (for medical
purposes), Hebrew, Chinese, and Inca cultures.
– Romans brewed "cerevisia" (Ceres the goddess of agriculture &
vis meaning strength in Latin).
– 55 BC Roman legions introduce beer to Northern Europe.
– 23 BC Chinese brewed beer called "kiu“
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Industry Overview: History
• Ancient History:
– 500-1000 AD the first half of the Middle Ages,
brewing begins to be practiced in Europe, shifting
from family tradition to centralized production in
monasteries and convents (hospitality for traveling
pilgrims).
– 1200 AD beer making is firmly established as a
commercial enterprise in Germany, Austria, and
England.
– 1420 German brewers develop the lager method of
brewing.
– 1489 Germany's first brewing guild, Brauerei Beck,
was established.
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Industry Overview: History
• Renascence History:
– 1553 Beck's Brewery founded & still brewing today.
– 1587 the first beer brewed in New World at Sir Walter Raleigh's
colony in Virginia.
– 1602 Dr. Alexander Nowell discovers that ale can be stored
longer in cork sealed, glass bottles.
– 1612 the first commercial brewery opened in New Amsterdam
(NYC, Manhattan).
– 1674 Harvard College has its own brew-house.
– 1680 William Penn (founder of Pennsylvania) operated a
commercial brewery.
– 1786 Molson brewery is founded in what is today Canada.
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Industry Overview: History
• Modern History:
– In the mid-19th Century (1850's) German
immigrant brewers introduced cold maturation
lagers to the US (Anheuser-Busch, Miller, Coors,
Stroh, Schlitz, and Pabst roots begin here).
– The modern era of brewing in the US began in the
late 1800's with commercial refrigeration (1860),
automatic bottling, pasteurization (1876), and
railroad distribution.
– 1870's Adolphus Busch pioneers the use of doublewalled railcars, a network of icehouses to make
Budweiser the first national brand.
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Industry Overview: History
• Modern History:
– 1876 Pasteur unraveled the secrets of yeast in the
fermentation process, and he also developed
pasteurization to stabilize beers 22 years before the
process was applied to milk.
– 1880 there were approximately 2,300 breweries in
the US.
– 1890s Pabst was the first US brewer to sell over 1
million barrels in a year.
– 1914 commercial competition drove the number of
operating breweries down to 1,400.
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Industry Overview: History
• Modern History:
– 1919 House of Representatives Bill No. 6810, establishing the
apparatus for the enforcement of prohibition. The bill was passed
October 10, vetoed by President Wilson on October 27. The veto
was subsequently overridden by Congressional vote.
– 1920 Prohibition Starts for beer, even though some regions
started as early as 1846, e.g. Maine. Prohibition focused more
on whiskey and other distilled products.
– 1920s Near beers brewed during prohibition: Pablo by Pabst,
Famo by Schlitz, Vivo by Miller, Lux-O by Stroh and Bevo by
Anheuser-Busch.
– 1933 Prohibition ends for beer (April 7).
– 1935 only 160 breweries survive Prohibition.
Source: http://www.beerhistory.com/library/holdings/raley_timetable.shtml
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Industry Overview: History
• Modern History:
– 1935 the beer can is introduced (American Can Co. & Kreuger
Brewing).
– 1966 Budweiser is the first brand to sell 10 million barrels in
a year.
– 1976 New Albion is the first in the rebirth of brewpubs and
microbreweries in the US first opening in California.
– First half of the 1900's beer was associated with men, bluecollar workers, college students, and mainstream sports
enthusiasts.
– Late 1900's beer had a different image and cultural function, with
growth in popularity among a more diverse share of the
population.
Source: http://www.beerhistory.com/library/holdings/raley_timetable.shtml
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The Brew Process
1.
Malted barley is cracked in the Roll Mill turning into
grist and then stored in the grist case.
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.
The wort travels to the brew kettle where it's heated
to a rolling boil. Hops are added to provide
bitterness, flavor, and aroma.
The hopped wort passes through the heat exchanger
cooling to the right temperature for fermentation.
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.
The beer enters a filter designed to help remove
yeast and haze producing compounds.
2.
3.
4.
5.
6.
•
7.
PASTEURISATION: This is a process of heating and
rapid cooling which prolongs shelf-life and destroys any
bacteria or other organisms in the beer.
The finished beer exits the filter and enters the
serving tank ready to be dispensed.
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Industry Overview:
General Characteristics
– Beer is a Mature Product.
– It is the largest seller in the alcohol drinks sector.
– Sales are related to:



Weather (summer months)
Holidays: Christmas and the 4th of July in the US
The first and fourth quarters historically are the slowest with
the rest of the year typically demonstrating stronger sales
– Consumer base: heavily male dominated.
Source: The Brewers’ Handbook (http://www.beer-brewing.com/)
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Industry Overview
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Global Beer Market:
General Characteristics
• Beer is one of the smallest global
consumer goods.
• Although globalization is a general trend
in many industries, the brewing industry
has long been lagging behind and has
remained very fragmented.
• Globalization in the beer industry has
proceeded at a much slower pace than in
many similar industries (e.g. tobacco).
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Global Beer Market:
Recent Trends
• Consolidation led by major international brewers.
– During recent years brewers like Heineken and Interbrew have
started internationalizing their activities.
• Volume growth in developing markets
– China: Second largest market (by sales) and growing. Largest
market in total volume.
– Eastern Europe and Russia
• Big gets bigger:
– According to various studies aggregate volume of the world’s
top 10 brewers has grown at more than four times the pace of
total industry volume since the mid-1990s.
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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Development of the Top 10 Brewers and the World
Market
(in millions of hl*)
•
hl = hectoliter, measure used in the brewing industry equivalent to 100 liters.
Source: International Food and Agribusiness Management Association (IFAMA).
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Top 10 Global Brewers (2003)
(57% Market Share)*
* Volume of the world beer market in 2003: 1.455 billion hl.
Source: International Food and Agribusiness Management Association (IFAMA).
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Above Average Growth of the 5 largest
brewing companies over the last 5 years
Source: International Food and Agribusiness Management Association (IFAMA).
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Global Beer Consumption
Share
Country
(2001)
US
16.4
China
14.3
Germany
7.3
Brazil
5.8
UK
4.1
Japan
3.6
Mexico
3.5
Russian Federation 3.1
Poland
1.7
France
1.5
Czech Republic
1.2
Per Capita
Consumption
(in liters)
83.1
15.8
123.1
46.7
97.1
40
48.6
30
60.5
35.9
158.1
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Global Beer Market
• Reasons for global expansion:
– Growth potential
– Expansion in view of saturated home markets.
Source: Ludwig Theuvsen and Oliver Ebneth (2004).
International Food and Agribusiness Management Association (IFAMA).
http://www.ifama.org/conferences/2004Conference/Posters/Ebneth1022.pdf
• Global market share of top 20 brewers is increasing
– 1990 - 51%
– 2000 - 65%
• Industry remains fragmented
– 5 largest account for approximately 30% of total volume
– Compare this to the cigarette industry – 5 largest, 60% share
• Home Market Dependence.
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Global Beer Market
• According to Theuvsen and Ebneth
(2004)
“consolidation in the brewing sector is far from
ending and the internationalization process has
just begun to pick up speed”
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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Global Beer Market
• Internationalization Process:
– According to Kutschker et al. (1997) the process can be
classified into three categories:



international evolution
international episodes
international epochs
– According to Theuvsen and Ebneth (2004) in the brewing
industry we could identify an international epoch over the last
five years, which is characterized by



a broad scope
high speed
long duration of change
– They also predict that “during the following years,
consolidation and integration will be the overall pattern”.
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Global Beer Market
•
Source: International evolution, international episodes, and international epochs--implications for
managing internationalization. Michael Kutschker, Iris Baurle, Stefan Schmid. Management International
Review. Wiesbaden: 1997.Vol.37, Iss. 2; pg. 101, 24 pgs
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The Internationalization
Matrix
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:
General Characteristics
•
3 basic levels of brewing according to annual production:
– High-volume (shipments of over 15 million barrels):


They account for around 80% of total production.
All of them are owned by the 3 largest brewing companies in the US (AnheuserBusch Inc., Miller Brewing Co., and Adolph Coors Co.)
– Regional (15,000 – 15M barrels):




They account for 15% of total production
Usually focused on local distribution
Many micro-breweries have grown into this category in the last 5 years.
Examples: Stroh Brewery Co., Pabst Brewing Co., Genessee Brewing Co.
– Small Breweries (less than 15,000 barrels):



They account for 5% or less of total production.
Microbreweries and brewpubs (also restaurant-breweries or “craft brewers”).
They started in the late 1970s
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_retailers.htm
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The North American Market:
Market Segments
• Domestic, imported and specialty beers:
– Domestic Beers







Sub-premium
Premium
Malt liquor segments
Super premium*
Light*
Ice*
Dry*
* 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
revenue lost during the “price wars”.
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The North American Market:
Market Segments
– Imports: They’re growing steadily (around 5-8%
since 1990s). Reasons for growth:





Expanding economy
Consumer interest in ‘higher-quality’ (higher-priced) beer.
Growth of the Hispanic community in the US.
Most importantly, corporate partnerships/ownerships of
foreign breweries that allow foreign brands to access the
local distribution networks.
Since 1995 the No. 1 import is Corona Extra from Cerveceria
Modelo.
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_retailers.htm
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The North American Market:
Market Segments
– Specialty Beers:



Fastest growing segment (10-15% since 1990).
They are perceived as higher quality by
consumers.
Subcategories include:
o
o
o
o
o
large breweries
regional breweries
contract brewing companies
microbreweries
brewpubs
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_retailers.htm
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The North American Market:
Industry Structure
• Flat consumption trends: only some international markets and the
micro-brewing segment show growing opportunities.
– The Western and the Southern regions have accounted for most of the
growth (around 1.4% in 2002).
• Highly Concentrated: The industry includes more than 300
breweries but is dominated by three producers who command a
nearly 80 percent market share:
– Anheuser-Busch (45%)
– Miller Brewing (23%)
– Adolph Coors (10%)
• The market leaders have expanded their respective market shares
at the expense of other national brewers like Strohs Brewery.
• The industry as a whole has stable and relatively predictable CFs.
Source: Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_retailers.htm
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The North American Market:
Industry Structure
Source: Poitras (2003) – US Breweries: Anheuser-Busch
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The North American Market:
Industry Structure
• Market Leadership:
– For any consumer product company and for brewers in specific, ML is
very important as it gives benefits over their rivals (i.e. production,
distribution and advertising economies of scale).
• Distribution:
–
–
–
–
Expensive to ship: beer has low value relative to weight.
Therefore, several breweries are needed for successful distribution.
This sometimes explains why large breweries take over small ones.
The importance of good distribution networks.
• The importance of branding and pricing:
– Price elasticity of demand.
– Premium Pricing
Sources:
Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
Poitras (2003) – US Breweries: Anheuser-Busch
reweries
The North American Market:
Industry Structure
• The industry’s niche markets are very
fragmented, but some are growing:
– From 1990 – 1995 smaller brewers increased their
MS from 7.1 to 8%.
– The number of U.S. brewing establishments has
nearly doubled since 1990 (from 73-172) but nearly
all of the establishment growth occurred in firms
employing fewer than 20 employees.
– Virtually all new entrants to the beer industry are
niche players that pursue specialized, often regional
but sometime national tastes.
Source: Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
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The North American Market:
Industry Structure
• The fastest growing market segment in the US is
the smaller microbrews which are often brewed
by regional brewers.
– Characteristics of the microbrews market segment:



High barriers to entry (i.e. legal, manufacturing and
distribution costs)
Small consumer market with less consumer price
differentiation (i.e. low price elasticity) than for major
brands.
Due to the high costs of entry microbrews rely on regional
brewers to produce their products under contract (e.g.
Minnesota Brewing, Samuel Adams)
Source: Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
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The North American Market:
Demographics
– Beer consumption is overwhelmingly male-dominated; men
account for more than 80% of the volume consumed.
– The largest group of male consumers are white and they favor
domestic light beer.
– African American drinkers make up about 10% of the beer
market overall, and they are the biggest consumers of malt
liquors, followed by ice beer.
– Women beer drinkers are more attracted to specialty microbrewed beers than they are to the big brands, due to their
greater variety.
– Craft-beer is more appealing to white beer drinkers than to
African Americans.
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_demographics.htm
reweries
The North American Market:
Market Trends
• Consolidation (e.g. mergers and acquisitions) due to:
– Flat consumption trends
– Regulatory burdens
– High Taxation
• The market is mature with flat consumption trends due
to:
– Increased alcohol awareness.
– Slow population growth.
– Aging population (young [male] adults are the largest beer
consumers).
Source: Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
reweries
The North American Market:
Market Trends
• As competitors fight to maintain market shares,
competitive pricing could result in decreases in
industry-wide pricing levels and ultimately decreased
operating margins.
• Price competition combined with increasing vertical
integration (i.e. Anheuser-Busch) and the inherent
production economies of the market leaders makes it
very difficult for an inefficient major brewer to
compete on a national scale.
Source: Standard & Poors Industry Surveys as quoted by the
Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
reweries
The North American Market:
Market Trends
• Changes in tastes
– Shift to “light beer” (started by Miller in 1972 – Miller Light).
– Affected companies:



Schiltz
Pabst
Stroh
– Light beer segment grew from 0% to 23% of US beer
consumption since 1972.
– A-B has deterred Miller’s leadership in this segment. In 2001
Bud Light became the top selling beer overall.
Source: Standard & Poors Industry Surveys as quoted by the
Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
reweries
The North American Market:
Market Trends
•
Distribution:
– Increasing number of independent (multi-brand) wholesalers.
– More wholesalers going out of their home-states.
– However, the total number of wholesalers is decreasing.


•
Due to consolidation.
The number of wholesalers has declined from more than 5,000 nationwide in 1970 to
fewer than 2,500 today.
Retailing:
– Traditional stores (mom-and-pop operations) account for a significant amount of
sales but national retail chains are accounting for more sales.
– While independently owned taverns, restaurants, and night clubs account for a
sizeable share of beer sales, national restaurant/hotel chains are growing in
importance.
– Consequences:


More competitive pricing
Distribution networks have become more important.
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_retailers.htm
reweries
The North American Market:
Market Trends
• Internationalization through:
Exports (i.e. Miller)
 Joint Ventures.
 Equity Purchases of foreign brewers and
distributors (i.e. Anheuser-Busch and
Grupo Modelo).

• Ethical Investment
Source: Standard & Poors Industry Surveys as quoted by the
Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
reweries
The North American Market:
Regulations
• Regulations focus on:
–
–
–
–
–
–
–
–
Distribution
Labeling
Advertising
Credit
Container characteristics
Alcoholic content
Tax rates
Litter assessments.
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_distribution.htm
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The North American Market:
Regulations
Subject to regulation at the 3 levels:
• Federal:
– Formerly issued by the Bureau of Alcohol, Tobacco,
and Firearms (BATF), which was established by the
Federal Alcohol Administration (FAA) Act.
– On November 25, 2002, the Homeland Security Act of
2002 split the agency into two different agencies.


The Department of Justice
The Alcohol and Tobacco Tax and Trade Bureau (TTB)
(kept within the United States Department of the Treasury).
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_distribution.htm
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The North American Market:
Regulations
• Federal:

TTB responsibilities:
o
o
o
o
Enforce the compliance of provisions for the formulation
and labeling of alcoholic beverages, as required by the
Internal Revenue Code and the FAA Act
Taxes, distribution and advertising.
International trade regulations
Lab testing (approval of brewing formulas and
equipment)
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_distribution.htm
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The North American Market:
Regulations
• State:
– After Prohibition, state governments were given considerable
authority over the production, importation, distribution, sale, and
consumption of beer within their borders.
– Regulations vary across states (i.e. Minnesota requires that
the beer label show the alcohol content, while Michigan does not
permit the label to show alcohol content).
– Other regulations include:






Max – Min alcohol content
Max – Min size of containers
Credit sales
Advertising
Production, distribution and retailing
Taxes
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_distribution.htm
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The North American Market:
Regulations
• Local:
– Many states permit local jurisdictions to regulate and
separately tax beer sales, and even to prohibit the
sale of beer within their jurisdiction.

Georgia, Illinois, Louisiana, Maryland, New York, and Ohio
have cities or counties that impose local beer taxes.
– Jurisdictions in which the sale of alcoholic beverages
is prohibited are called “dry”.

about 4.3% of the U.S. population live in dry counties
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_distribution.htm
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The North American Market:
Regulations
• Other consequences of Prohibition:
– ‘Three-tier’ system: the industry is required
to be divided into


Brewers and Importers
Wholesalers
o
o

Exclusive (often partially owned by the brewery).
Independent or multi-brand: Unlike wine and spirits
wholesalers, which are generally multi-state operators,
beer wholesalers tend to operate within the boundaries
of a single state
Retailers
Source: Goldammer (2000) - The Brewers Handbook
http://www.beer-brewing.com/US_beer_market/beer_distribution.htm
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The North American Market :
Regulations
•
Taxes:
–
–
•
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
federal level and 12% at the state-local level)
Brewers
–
Beer Excise Tax
Source: Dawson, Havis (2002). Stir. Beverage World; Dec 15, 2002; 121, 1721; ABI/INFORM Global pg. 38
reweries
The North American Market
• Threats of new entrants:
– Barriers to entry:



Capital Intensive
Distribution networks
Regulations
– Economies of scale in marketing, production
and distribution.
reweries
The North American Market
• Rivalry (price competition has been decreasing):
– Increasing competition from imported beers (however, national
brewers own part of these breweries).
– 2,200 wholesalers.
– 560,000 retail establishments.
– Growing popularity of micro-breweries and other craft-beers.
– Alternative: expansion to super-premium beers and other
segments with lower demand elasticity.
reweries
The North American Market
• Substitutes (Growing):
– Growth in:



Premixed drinks.
Alternative malt beverage.
Alternative non-alcoholic drinks (from juices to
mineral water).
– However, beer remains the largest drink
sector.
reweries
The North American Market
• Buyer’s Bargaining Power:
– It changes from segment to segment, but in
general:



Low switching costs
Price competition
Increasing health conscience.
– However, for craft-beers, which are perceived
as having higher quality, these characteristics
may not always hold.
reweries
The North American Market
• Suppliers’ Bargaining Power (Low):
– Most supplies come from competitive
industries which are more fragmented than
the beer industry:


Farmers
Labor (the case of unionized labor)
– The more consolidated supplier is that one
supplying bottles/cans.
reweries
The North American Market
• Key elements for improving operating margins for
national breweries:
–
–
–
–
–
Expanded market share.
Low cost structure.
Price increases and premium pricing (low demand elasticity).
Improved production efficiencies (packaging and automation).
International expansion to countries with increasing consumption
trends.
– Connection between branding and pricing.
– Distribution Networks (wholesalers’ loyalty).
Sources: Department of Employment and Economic Development of Minnesota (2004)
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
Poitras (2003) – US Breweries: Anheuser-Busch
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VALUATIONS
Molson – Leon Chung
Coors - Cameron McLeod
Bud - Darren Devine
reweries
Molson
reweries
Company Overview
• Founded in 1786 by John Molson
• 3,800 employees
• 5 breweries located in Vancouver,
Edmonton, Toronto, Montreal and St.
John’s
• Oldest beer brand in N. America
• Operations in Canada, Brazil, and the
United States
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Company Overview
• Canada’s largest brewer
• In 2001, Molson repurchased 100% of
Molson brands in the US and has 50.1%
interest in Molson USA
• Pursuing the fast growing Brazilian market
• Global gross sales of $3.5 billion
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Senior Management
• Daniel J. O'Neill*
President and Chief Executive Officer
• Brian Burden*
Executive Vice President and Chief Financial Officer
• Kevin T. Boyce*
President and Chief Operating Officer, North America
• Robert Coallier*
President and Chief Executive Officer, Cervejarias Kaiser and
Executive Vice President, Molson Inc.
• Raynald H. Doin*
Senior Vice-President Strategy and Integration, Human Resources
• Marie Giguère*
Senior Vice President, Chief Legal Officer and Secretary
• Peter L. Amirault*
Senior Vice-President Business Development and Innovation
reweries
Portfolio of Brands
Core Brands
• Canadian, Canadian
Light, Carling Black
Label, Exlight, Export,
Golden, Marca Bavaria,
Kaiser, Molson Dry, and
Rickard’s
Molson’s Partners
• Coors Light, Corona,
Heineken, and MGD
reweries
Challenges in 2003
• Faced same challenges in US as Coors
did
• In Canada, Alberta and Ontario faced
strong discount activity and Molson had a
hard time responding
• In Brazil, market share decreased by over
2% due to increased competition
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Plans for the Future
Five Key Objectives
• Grow operating profit
• Grow market share
• Grow volume
• Organizational renewal
• Improve quality
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1) Grow Operating Profit
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1) Grow Operating Profit
• Revenue growth
• – through both pricing and product mix improvement
• Cost savings
– Project 125





Capacity utilization savings are expected to reach $41 million
through improved brewery assets usage and equipment
modernization.
Best-in-class practices and materials sourcing aim at procurement
savings of $35 million.
Costs savings of $40 million for distribution are anticipated
through capital investment, productivity and supply chain
integration.
Savings in organizational costs of $9 million are planned.
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2) Grow Market Share
Segmentation of Canadian Beer Market
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2) Grow Market Share
Canada
• Total market share in Canada decreased by 0.6% from
44.4% to 43.8% - however, customers’ preference for
core owned brands (increase in share by 0.9%) lead to
a rebalancing in Molson’s brand portfolio in favour of
owned brands
• Strengthen the CANADIAN brand in the premium
segment
• Redesigned packaging including a customized die-cut
label for bottles
• New look for cans
• Refreshed outer case
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2) Grow Market Share
Brazil
• Market share decreased from 14.6% to
12.4% in Brazil
• The flagship brand, KAISER PILSEN, was
reformulated the liquid and launched a
new advertising campaign
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2) Grow Market Share
United States
• Market erosion of GOLDEN and
MOLSON ICE
• Molson used print, radio and outdoor
advertising to win the young adult
consumer
• Use of Molson Twin Labels
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3) Volume by Geographic Sector
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3) Volume by Hectolitres
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3) Grow volume
Canada
• Volume grew by 0.7% but was slower than
industry which moved up 2.0%
• Product innovations and new packaging are and
will be biggest drivers of volume
• New products such as COLD SHOTS,
CANADIAN LIGHT, and MOLSON ULTRA
should increase volume in fiscal 2005
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3) Grow volume
Brazil
• Brazilian operations experienced volume drop
of 17.5% over fiscal year while industry only
declined by 3.4%
• Have hired key sales leadership with beer sales
experience
• Created Kaiser-managed sales teams to work
with Coca-Cola distributors
• These and other measures lessened and even
reversed the negative trend in some geographic
areas
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3) Grow volume
United States
• Molson USA grew by 1.4%
• Aligned itself with Coors distributors which
accounted for 85% of Molson USA’s distributors
• Improved results and leveraged Coors market
infrastructure
• Continue to build on strength of CANADIAN
trademark and use innovative packaging
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4) Organizational Renewal
Organizational Design
• New structure of an integrated but decentralized sales
force connected to local markets
• Brazil: hiring of more than 1,200 experienced sales
people in six regional sales centres
Leadership Development and Succession Planning
• Production Leadership Program
• New program for development of talent in strategic
marketing function
• Optimal Work Environment philosophy
Optimal Work Environment
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5) Improve quality
• Renaissance in Brewing initiative
• Quality
– Incoming raw materials
– Conversion in the brewery
– Consumer and customer satisfaction
• Safety
– Frequency of down time declined by 16%
– Severity of accidents resulting in down time declined
by 11%
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Events in the News
• Molson and Coors Announce Merger of
Equals to Create World's Fifth Largest
Brewer
• Molson and Coors Announce Agreement
to Pay Special Dividend to Molson
Shareholders Molson to Build New $35
Million Brewery in New Brunswick
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Molson and Coors Announce
Merger
• Pentland agrees to forego participation in
special dividend
• Molson Coors Brewing Company will be fifth
largest in world
• Combined total of 60 million hectolitres
• Management structure and board composition
–
–
–
–
Chairman: Eric H. Molson (Molson)
CEO: Leo Kiely III (Coors)
Vice Chairman: Daniel J. O’Neill (Molson)
CFO: Timothy V. Wolf (Coors)
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Special Dividend to Molson
Shareholders
• Announced on Nov. 5th
• As part of Molson and Coors merger
• Pentland will forego special dividend
– As a result, dividend will be $3.26 rather than
$3.00
• Pentland is owned by Chairman Eric
Molson and Director Stephen Molson
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New Brewery
•
•
•
•
•
•
Cost of $35 million
Located in Moncton, New Brunswick
Completed by January 2007
Capacity of 6 million 12 packs annually
Implementation of distribution system
$3.5 million forgivable loan
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Income Statement
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Income Statement Analysis
•
•
•
•
•
•
P/E
Price to Sales
Price to Book
Dividend Per Share
Book Value Per Share
Revenue Per Share
17.99
1.22
3.50
0.56
9.57
27.34
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Balance Sheet
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Balance Sheet Analysis
•
•
•
•
•
•
Quick Ratio
0.25
Current Ratio
0.42
Debt to Equity
0.65
Return on Equity (ROE)
25.1%
Return on Assets (ROA)
6.03%
Return on Invested Capital (ROIC) 10.7%
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Cash Flows Statement
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Cash Flow Analysis
•
•
•
•
•
Operating Activities
216.4
Investing Activities
(73.1)
Financing Activities
(125.8)
Net
21.2
Operating Activities is greater than other
expenditures
• Investing Activities, Molson has been investing
in newer equipment
• Financing Activities, repayment of long term
debt was greater than refinancing
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Stock Price Summary
• Traded the TSX
– Symbol: MOL.A P
– Price: 33.460
– 52 week high: $36.80
– 52 week low: $28.50
– Market Capitalization of approximately $4121
million
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Stock Price Performance: One
Year Chart (TSX)
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Stock Price Performance: Five
Year Chart (NYSE)
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Recommendation
Hold
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Company Overview
• Adolph Coors company was founded in 1873
• World’s 9th largest brewer with $4 billion in annual sales
• Principal subsidiary is the Coors Brewing Company,
which is the 3rd largest brewer in the U.S.
• Also owns Coors Brewers Limited in the U.K., which is
the U.K.’s 2nd largest brewer
• Primary product in the U.S. is Coors light and in the U.K.
their flagship is Carling. They rank #3 and #1
respectively in sales per market
• Traded on the NYSE, ticker symbol (RKY)
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Company Overview Con’t
• Corporate headquarters and primary brewery
are located in Golden, Colorado
• The Coors Golden brewery is the world's largest
on a single site. Coors owns a second brewery
in Memphis, Tenn., and a packaging facility in
Virginia's Shenandoah Valley, near the town of
Elkton, Va.
• Coors products are available in over 30
international markets
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Portfolio of Brands
• Coors has a wide array
of brands including:
– Coors Light, Coors
Original, Aspen Edge,
Killian’s, Blue Moon,
Keystone Ice, Keystone
Premium, Coors NA, Extra
Gold, Zima XXX Hard
Lemon Lime, Zima XXX
Hard Black Cherry, Zima
XXX Hard Orang
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Flagship Brands
• Carling is the #1 selling
beer in the U.K. and
Coors Brewing Limited is
ranked #2 for total
market share with 21%
• Coors Light is the #3
selling beer in the U.S.
and Coors Brewing
Company is ranked #3 in
total market share with
11%
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Brewing Bits
• Coors uses an all-natural brewing process and
the finest ingredients: ideal brewing water, hops,
cereal grains (rice and refined corn starches),
and barley. Coors has developed special strains
of barley it malts itself to ensure product quality.
Nothing artificial is in Coors beers.
• On average, Coors takes 55 days to brew, age,
finish and package its lagers—about twice as
long as its major competitors. The result is a
naturally aged, stable and smooth product.
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Challenges in 2003
• Continued weakness in the US economy during 2003
and, specifically, high unemployment levels among the
key 21- to 24-year-old male consumer population,
• Unfavorable weather, particularly in the Northeast, for a
significant part of the peak summer selling season,
• The popularity of low-carbohydrate diets that softened
demand for beer,
• The rise in popularity of distilled spirits and other
alternative beverages, particularly among 21- to 29-year
olds, and
• A grocery store strike in California that likely impacted
sales in the largest beer state.
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Plans For The Future
• They are striving to capture an increasing share of each
new generation of legal-drinking-age beer drinkers in
order to gain their brand loyalty for the long-term
• They intend to seek publicity through both new products
and brands, or product developments with existing
brands, such as Coors Light and Carling
• Strengthen their access to retail by creating a solid
distribution network with wholesalers and retailers
• Lower the cost structure in order to grow profits and
afford the investments needed to grow and succeed
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Sales Volume
• Has risen
dramatically with the
acquisition of Coors
Brewers Limited
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New Global Strategy
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Financial Review
• Have become globalized and diversified. In 2003, CBL
performance in the U.K. and Coors Light in Canada
showed the advantages of becoming more than a onebrand, one-market company.
• Continued cost reduction and productivity despite
difficulties. Improved upon costs and productivity, in
spite of challenges, particularly in the U.S. market.
• Reducing debt ahead of schedule. In just two years,
they reduced debt by nearly a third through an
emphasis on cash generation and disciplined capital
management.
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Sales by Volume & Dollars
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After Tax Income
• Figures are in
millions of dollars
• Coors has seen
steady growth in
income
• Large increase in 02
is due to the
acquisition of Coors
Brewing Limited
(U.K.)
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Financial In Brief
• Adolph Coors Company is ranked among the
500 largest publicly traded corporations in the
U.S., based on annual sales. The company is
the world's 9th largest brewer.
• In 2003, Coors sales volume was 32.7 million
barrels (1 U.S. barrel equals 31 gallons).
• Net sales for 2003 totaled $4.0 billion. 2003 net
income was $174.7 million, up 8.0 percent from
2002.
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Merger With Molson
• Coors is planning on merging with Molson
in December, 2004
• It will become the 5th largest brewing
company in the world
• Goals are to increase penetration into
new markets
• Allows the company’s to compete with the
“superpower’s” of the brewing industry
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Propels MolsonCoors into
‘Top5’
Volume (M hl)
215
InterbrewAmBev
A-B
152
SABMiller
116
Heineken
109
60
Molson Coors
Carlsberg(1)
Scottish &
Newcastle
54
50
Grupo Modelo
42
39
Coors
36
Asahi
Tsingtao
33
FEMSA
25
Kirin
23
21
Molson
Foster’s
17
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Income Statement Analysis
• Increased sales due to U.K. and Canadian success
• High interest expense due to the $1.6 billion investment in CBL
• Steady increase in net income even with a highly competitive U.S.
market
• P/E:
14.8
• Price to Cash Flow Ratio:
5.25
• Price To Sales:
0.64
• Price To Book:
1.93
• Dividend Per Share:
0.82
• Book Value Per Share:
34.62
• Revenue Per Share:
108.0
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Balance Sheet Analysis
•
•
•
•
•
•
•
•
Only has $0.53 cash on hand per share
Quick Ratio:
0.67
Current Ratio:
0.95
LT Debt to Equity:
91.5
Total Debt to Equity:
98.7
Return on Equity (ROE) Per Share: 18.0
Return on Assets (ROA):
5.57
Return on Invested Capital (ROIC): 9.07
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Cash Flow Analysis
•
•
•
•
•
•
•
•
Dividend Yield:
1.17
Dividend Yield - 5 Yr. Avg:
1.25
Dividend Per Share:
0.82
Dividend Payout Ratio:
17.0
5 Year Annual Growth:
20.8
Revenue - 5 Year Growth:
15.7
Dividends Per Share - 5 Year Growth: 6.44
EPS - 5 Year Growth:
21.3
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Stock Price Summary
• Traded on the NYSE
– Symbol: RKY
– Price: $71.88
– 52 week high: $80.11
– 52 week low: $53.73
– Market Capitalization of approximately $2.6
billion
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Stock Price Performance: One
Year Chart (NYSE)
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Stock Price Performance: Five
Year Chart (NYSE)
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Recommendation
Hold
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Overview
•
•
•
•
Established in 1864
Largest Brewer in the world
Budweiser is #1 brand of beer in the world
Beer Production, Entertainment,
Packaging, Real Estate Development &
Transportation
• Almost 50% domestic market share
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Operations
•
•
•
•
12 US Breweries
2 International Breweries (China/ UK)
Produced 111 Million Barrels of Beer
6th consecutive year with double digit
growth in earnings per share
• $16 Billion in Sales
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Competitive Advantage
• Three divisions: Brewers, Wholesalers &
Retailers
• 2/3rds of volume delivered by wholesalers who
only carry Anheuser-Busch (A-B)
• Loyalty of wholesalers is compensated by large
profit margins
• Leverage 49.8% market share into 75% of
markets operating profit through Procurement,
Manufacturing efficiency and Marketing
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Products
•
•
•
•
•
•
Budweiser & Bud Light
Michelob and Michelob Ultra
Busch and Busch Light
Hurricane and Malt liquors
Bacardi Silver & Mike’s Hard Lemonade
O’doul’s & non-alcoholic beverages
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Subsidiaries & Satellites
• A-B Packaging: Recycling, Printing/ Packaging,
Aluminum Production
• Busch Entertainment: Sea World, Busch
Gardens
•
•
•
•
50% Share in Grupo Modelo: Corona (93-98)
27% Share in Tsingtao: China’s largest brewer
20% Share in Cervecerias: Chile’s largest brewer
Distribution partnerships: Labatt & Kirin (Japan)
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Executives
•
•
•
•
•
•
•
August A Busch III Chairman of the Board (29 Years)
Patrick T. Stokes President & CEO (20 Years)
W. Randolph Baker CFO & Vice President (8 Years)
John E Jacob Director of Global Communications (14 Years)
Carlos F Gonzales Director “Grupo Modello”(8 Years)
James J Forese Director (26 Years) Americas Most Powerful People
Charles F Knight Director (21 Years) Americas Most Powerful People
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Financials-2003 Annual Report
•
•
•
•
•
•
•
Symbol
Price (Nov 12-04)
Outstanding Shares
P/E
EPS
Dividends Paid
ROE
BUD
$51.06
$837 Million
20.59
2.48
$685.4 Million
70%
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Financials Cont.
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Balance Sheet Analysis
• Invested $200 Million in Bonds & Loans
with Tsingtao Brewery in China
• Net Increase to Debt $682.2 Million with
US Dollar Notes and Commercial Paper
• Current Ratio .88
• 11% Decrease in Shareholders Equity
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Debt Analysis
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Income Statement Analysis
• 9% Increase in
Revenues
• 18% Increase in
Operating Income
• 22% Increase in Net
Income
$ Millions
• 7% Increase in
COGS
Anheuser Busch Income Growth
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Revenue
COGS
Operating Income
Net Income
2001
2002
2003
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Income Statement Cont
• Advertising and promotional activities are
a key component of A-B’s Strategy
• Advertising Costs were $806.7 Million
• Promotional Costs were $511.8 Million
• A-B is able to gain a competitive
advantage through their advertising
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Cash Flow Statement Analysis
•
•
•
•
•
•
1.82 Billion in Free Cash Flow
Acquired almost $2 Billion in Treasury Stock
Paid $652 Million in Debt
However, increased Debt by $1.4 Billion
Issued $685.4 Million in Dividends
Continue to acquire businesses and invest in
packaging and related operations
• Future Cash may be directed towards China
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Cash Flow Statement Cont
•
•
•
•
Reached 5 year agreement with Union
Pension Increases of 14%
$7.5 Million signing bonus
100 Million executive stock options yet to
be exercised
• Price equal to price on option issue date
• Employee Stock Ownership Plan (ESOP)
deferred 45.4 million shares for purchase
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Impact of Stock Options on
N.I.
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Derivatives
• Derivatives used to mitigate the company’s exposure to volatility in
commodity prices, interest rates and foreign currency.
• Hedges only with derivatives that have high correlation with the
underlying transaction pricing
• Company policy is not to speculate in the derivatives market
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Employee Pension Plans
• Defined contribution plans
• Pension plans cover substantially all
regular employees
• Based on negotiated labour contracts
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Financial Statement Analysis Cont.
VALUATION MEASURES- Nov 12
Market Cap
40.34B
Enterprise Value (12-Nov-04)
48.14B
Trailing P/E
18.86
Forward P/E
17.19
PEG Ratio (5 yr expected)
1.85
Price/Sales
2.71
Price/Book
14.49
Enterprise Value/Revenue
3.26
Enterprise Value/EBITDA
11.3
Profitability- Nov 12-04
Profit Margin (ttm):
Operating Margin (ttm):
0.1235
0.226
Management Effectiveness
Return on Assets (ttm):
0.1205
Return on Equity (ttm):
0.8121
Dividend Yield
0.02
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Technical Analysis
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Dividend Discount Model
• Good for stable companies w/ growing
dividends.
• 2001= 614.1 2002= 649.5 2003= 685.4
• Stock Price = Ex (Div/Share)
(k – g)
g= 6% Div/ Share= .82 k= .075
Ex Stock Price= $54.67
Actual Price= $51.06
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Recommendation
Hold
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