HALFWAY HOME; HARDER FROM HERE? · Craft Brewers Conference – April, 9, 2014- Denver, CO ♦6...

HALFWAY HOME;

HARDER FROM HERE?

BEER MARKETER’S INSIGHTS

Benj Steinman

Craft Brewers Conference

April, 16, 2015

Portland, OR

BIG GROWTH, MANY DEALS, ???

♦ Craft’s phenomenal growth still turning the industry upside down

♦ Big brewers and big money see this and want in; Over a dozen deals in the last 15 months; More big ones coming

♦ Who will be the big winners and who will be left behind?

♦ Who will stay independent and who sells to big beer or big money for big bucks?

♦ What is the meaning of craft? To whom does it matter?

Craft Brewers Conference – April, 16, 2015-Portland, OR

US BEER UP 0.7% IN 2014 ♦ US beer shipments up 0.7% in

2014. Down slightly for 5 yrs.

♦ Taxpaids down 1.1 mil bbls, 0.6% Imports up 1.9 mil bbls, 6.9%; Craft up 3 mil bbls, 18%.

♦ Big Difference: US beer biz up 2 of last 3 yrs, before down 4 of 5.

♦ With improving economy, things are lookin’ up

202,000

204,000

206,000

208,000

210,000

212,000

214,000

216,000

05 06 07 08 09 10 11 12 13 14

US Shipments 2004-2014

Taxpaids + No Alcohol + Imports


CRAFT DOUBLED IN 5 YRS

Up about 9.7 mil bbls for 5 yrs, before redefinition

BA-defined craft 10 share in 2014; 3500 brewers, 2000 in planning

Fifth straight yr of double-digit gains; Going for 6 in 2015

Some portion of growth not even visible in official stats


9000

11000

13000

15000

17000

19000

21000

2009 2010 2011 2012 2013 2014

Craft 2009-2014

Bb

ls-0

00

US BEER LESS CONCENTRATED

Top 2 Down 1.9 Share to 70.7

At 78 in 2008; Under 70 in 2015?

Constellation and Boston are the Big Share Gainers

Craft Up 4.6 Share in 5 Yrs; Gained 1.4 Share Last Yr

Split Between 3500 Players


AB (44.7)

MC

(26.0)

STZ

(6.7)

Pabst

(2.5)

HUSA

(3.9)

Others

(16.1)

AB/MC DOWN; CRAFT, STZ, SAM UP


Bbls (000) Chg

2014 2013 bbls %

AB 96,000 74,180 -1,350 -1.4

MillerCoors 55,780 44,055 -1,420 -2.5

Constellation 14,415 10,190 1,385 10.6

HUSA 8,425 6,470 125 1.5

Pabst 5,330 4,430 -150 -2.7

Boston 4,093 3,403 690 20.3

Yuengling 2,920 2,725 195 7.2

NAB 2,450 2,590 -140 -5.4

Diageo/Guiness USA 2,275 2,375 -100 -4.2

Mike’s Hard 1,600 1,510 90 6.0

Others 21,488 19,066 2,422 12.7

Total 214,776 213,029 1,747 0.8

♦ AB and MC down 2.8 mil bbls last yr

♦ 5 of top 10 down

♦ Constellation and Boston Up 2.1 mil bbls

♦ Craft up about 3 mil bbls

AB AND MC VOLUME LOST 20

MIL BBLS IN 6 YRS

♦ Lost 19.7 mil bbls, 11% in 6 yrs, 2008-20014

♦ Making $3 Bil more; Part of global game

♦ Further earnings growth more difficult; Invest more to arrest decline

♦ Same pattern continues in early 2015; MC STRs down 2.7% in Q1


2014 2008 Bbls

Loss

(All in millions of bbls)

AB 96.00 107.025 11.0

MC 55.8 64.5 8.7

Total 151.8 171.5 19.7

TOP 10 CRAFT BREWERS

♦ Robust health; all did well, yet top 5 lost 2.4 share of craft segment

♦ Lagunitas Fastest Gainer; Up the most bbls since 2010; Sierra over 1 mil bbls; NBB’s strong 2014, up near 20%

♦ Many sizable enterprizes attract attention

Bbls (000) %

Chg

Craft Share

Boston 2,550 9.7 13.3

Sierra Nevada 1,067 8.4 5.6

New Belgium 945 19.3 4.9

Craft Brew Alliance 791 9.0 4.1

Spoetzl(Shiner) 600 5.6 3.1

Lagunitas 599 49.8 3.1

Deschutes 335 17.1 1.7

Bell’s 319 28.6 1.7

Stone 287 34.7 1.5

Brooklyn 252 16.7 1.3

Source: BMI


32 craft brewers over 100,000 bbls

14 craft brewers over 200,000 bbls

NEXT WAVE #11-30

(Bbls-000)

2014 2009 Chg

Founders 193 17 176

Firestone Walker 208 59 149

Dogfish Head 228 97 131

Sweetwater 193 62 131

Oskar Blues 149 29 120

Ballast Point 123 11 112

Craft Brewers Conference – April, 9, 2014- Denver, CO

♦ 6 craft brewers from #11-30 grew 110,000 bbls+ last 5 yrs

♦ 4 of 8 sold part/most of their co

(Bbls-000)

2014 2009 Chg

Ninkasi 96 17.5 78.5

Southern Tier 99 15 84

AND THE NEXT

DEALS TRANSFORM LANDSCAPE Over a dozen deals in 15 mos

AB bought 3; out shopping

Private Equity Did 6; Ditto

9 of top 50 sold at least stake

Some of hottest in recent yrs; Founders, Sweetwater, Oskar Blues, Southern Tier

More Big Ones Coming


DEALS, DEALS, DEALS


Date Seller Buyer Stake

4/2015 Abita

Friedman, Fleisher & Lowe, Rich

Doyle

Enjoy Beer bought; unknown

stakes

3/2015 Oskar Blues Fireman's Group Majority

3/2015 Perrin Fireman's/Oskar/Klopcic 100%

3/2015 Full Sail (ESOP) Encore Consumer Capital 100%

1/2015 Elysian Brewing ABI 100%

12/2014 Founders Brewing San Miguel 30% stake

11/2014 Alpine Green Flash

100% already did contract

brewing for Alpine

11/2014 10 Barrel ABI 100%

9/2014 SweetWater TSG Minority stake

9/2014 Southern Tier Ulysses Group majority stake

9/2014 Uinta Riverside Company minority stake

7/2014 Rich Doyle Harpoon Brewery ESOP

Employee own 48% of biz, rest

remains with Dan Kenary

1/2014 Blue Point ABI 100%

BIG $$$ JOCKEYING

FOR POSITION

Bankers bumping into each other at the CBC- Craft Bankers Conf?

As more deals happen, changes meaning of the movement

Is the “Soul of Craft” Slipping Away? Hopefully not.


INSIDE THE MIND OF PRIVATE

EQUITY

Many craft brewers starting to make real $$$

Can project future earnings streams

Roll them up

Potentially go PUBLIC

Craft is cool; prospect of outsized returns; limited time frame


INSIDE THE MIND OF ABI

# 1 Brewer with $47 bil in revs, $18.5 bil in EBITDA

Have to compete in space; deals are a “rounding error” to ABI

If you can’t beat ‘em buy em: BP, 10-Barrel, Elysian

Muddy waters of perception

Or drop the price; $60 off

Disruptive force


CRAFT FLYING SO FAR IN 2015


♦ Craft $$ up 20%+ in IRI

♦ Top 6 at 46.8 share of segment; down 3.4; 3 of top 6 much slower

♦ Sierra sped up

♦ Lagunitas gained 1+ share of segment

Craft Thru 3/29 in IRI MULC

$$ Mil Chg ($$-mil) Chg (%) Share of Craft

Craft 583.2 99.1 20.5

Boston Beer 75.7 1.6 2.1 12.9

Sierra Nevada 60.6 13.4 28.4 10.4

New Belgium 44.9 3.1 7.3 7.7

Gambrinus 33.9 2.6 8.6 5.7

CBA 29.8 1.1 3.7 5.1

Lagunitas 29.4 10.9 59.0 5.0

Source: IRI MULC YTD Thru Mar 29

IPAs: HALF OF CRAFT GROWTH


♦ IPAs eating up segment; at 27 share of craft $$, up 46%

♦ Gained 5 share of craft $$; half growth

♦ 33 IPAs in top 100 brands; 20 of top 50

♦ IPAs- Half of segment 2x as large?

♦ 20+ mil bbls?

IRI MULC DATA YTD THRU MARCH 23

$$ Mil Chg (%) Chg ($$-mil) Share Chg

IPAs $144.3 45.6 45.2 26.9 4.7

Seasonals $69.0 8.8 5.6 12.9 -1.4

Pale $56.4 12.1 6.1 10.5 -0.8

Craft $536.2 20.4 90.7

4 IN TOP 60 DOUBLING;

6 IN 40 +50%


Doubling in IRI

Rank Chg (%) Share Chg

21 Ballast Point 124 0.6

44 Revolution 120 0.1

52 Hop Valley 265 0.2

60 Alch & Science 553 0.2

50%+ in IRI

Rank Chg (%) Share Chg

6 Lagunitas 59 1.2

18 Firestone 56 0.3

22 Founders 71 0.2

28 Oskar Blues 54.5 0.2

34

Devil’s

Backbone 58 0.1

40 Cigar City 75 0.1

10 in top 100 gained 100%+ 6 gained 2.1 share of craft

Source: IRI MULC YTD Thru Mar 29

HUGE REGIONAL DIFFERENCES ♦ Zero in on 3 markets that tell different stories but craft growth

engine in each

♦ Portland, San Diego, state of Florida

♦ Most developed, perhaps the hottest, and underdeveloped

♦ Vastly different but local strength central to craft in each. Local lesson different in each mkt too

♦ Smaller players taking off in Portland, incredible strength of leading locals in San Diego, and local has lotsa room to run in Florida


A TALE OF TWO CITIES


♦ Portland/ San Diego Parables; Whassup?

♦ Portland Craft at 42 share of $$; Up 3. Cider at 6. Half.

♦ San Diego craft on fire, gaining near 5 share. 30 Share Doesn’t tell whole story

Source: IRI Food

Dollar Sales Dollar Share of

Current $$

(add 000)

Current $$

vs YA (000)

% Chg Current Chg

vs YA

Portland,

OR

Beer 42,082 1,913 4.8

Craft 17,741 1,979 12.6 42.2 2.9

Cider 2,649 521 24.5 6.3 1.0

San Diego,

CA

Beer 35,127 1,533 4.6

Craft 10,604 2,008 23.4 30.2 4.6

Cider 785 204 35.0 2.2 0.5

PORTLAND CRAFT


♦ In last several yrs, Ninkasi, 10 Bbl, now Hop Valley successively took off

♦ Several other smaller Oreg coming up fast behind; beyond scan hyperlocal is hot

♦ Most bigger crafts slowed, including AB’s 10 Bbl

♦ Natl players further down list

Portland, Oregon

$$ Share $$ Trend

CBA 6.3 8.8

Deschutes 6.0 3.0

Ninkasi 3.3 4.7

Full Sail 2.4 14.2

NAB 2.2 2.8

Gambrinus 1.95 -23.1

AB Craft 1.7 5.9

Sierra 1.6 21.2

Lagunitas 1.5 11.6

NBB 0.8 -6.2

STILL SIZZLING IN SAN DIEGO


♦ Top local players getting stronger and stronger; up 2.7 share

♦ Ballast Point #1 with a Bullet; Flew past Stone, tho Stone Up more than 20%

♦ Sculpin #1 Brand; Sculpin Grapefruit #6 brand

♦ Power of Local; 5 of top 10

♦ Boston, NBB Each Down

San Diego, CA

$$ Share $$ Trend

Ballast Point 5.4 69.5

Stone 4.0 24.4

Sierra Nevada 2.7 22.6

CBA 2.4 12.6

Lagunitas 2.2 38.5

New Belgium 1.6 -5.3

Boston Beer 1.4 -21.3

Coronado 1.0 25.1

Karl Strauss 1.0 -3.4

Green Flash 0.8 3.9

Source: IRI Food

FLORIDA CRAFT SHIPMENTS


♦ 3d Biggest State, Craft Less Than 5 Share

♦ Boston Beer and New Belgium Dominate

♦ Cigar City Is Biggest Local at 0.2 Share

♦ In-state Craft Less Than 1 Share

FL Craft Shipments

2013 bbls 2014 bbls Trend

Share of

Craft

Boston Beer 144,000 154,000 6.9 25.2

New Belgium 28,106 54,988 95.6 9.0

Sierra Nevada 39,977 36,826 -7.9 6.0

Cigar City 21,291 30,354 42.6 5.0

SweetWater 24,938 30,108 20.7 4.9

CBA 18,728 18,718 -0.1 3.1

In-State Craft 69,700 100,960 44.8 16.5

Total Craft 484,900 610,600 25.9

Total Shipments 13,096,000 13,295,000 1.5 4.6

Source: 2015 Craft Brew Guide

CRAFT AT 35 SHARE ON-PREMISE


♦ Craft at 34.6 share of $$ on premise in 2014 in GuestMetrics

♦ On premise down 3%, craft up low singles

♦ Craft up 2 share; lights down 1.5; Craft share gains slowing

♦ Tasting rooms, tap rooms, brewpubs, nanos

GuestMetrics Data

2013 2014

Share of Beer $$

Craft 32.4 34.6

Import 21.3 20.5

Premium Light 23.2 21.5

Cider 1.5 2.1

% Chg

2014 Volume 2014 $$

Beer -3.4 0.2

BOSTON BEER 2015: $1 BIL REVS


♦ Boston will likely pass $1 Bil in Revs in 2015; Small Brewer?

♦ Grew 2 mil bbls in 5 yrs; Doubled

♦ 1 Mil bbls of Cider

♦ Expects 8-12% growth in 2015

♦ Benchmarks: $220.08 per bbl, 15% operating margin

Boston Beer

Add 000 to all figures. All figures in $$$ except bbls.

2014 2013

Bbls 4,103 3,416

Net Rev 903,007 739,053

Operating Income 146,567 113,093

Stock Mkt Cap $3.4 Bil

TOP 2 CAN PLAY HERE, BUT


♦ AB and MC more than doubled, up 2.6 mil bbls, but slower

♦ Conundrum: better you play in niches, tuffer on main biz

♦ AB’s 10 Bbl slowed; Promo Opti plans

♦ Blue Moon White IPA; Goose Island IPA $10 Mil

♦ Over 4.5 mil bbls, another 2+ share

Bbls (000)

2014 2009

Blue Moon 2100 1150

Shock Top 1100 >200

Goose Island 375 114

Leinenkugel 975 480

SKUMAGEDDON

♦ Incredible fragmentation; over 10,000 SKUs in 2014; 12,000 in 2015?

♦ Over 20,000 SKUs predicted by T&B’s Tom Cardella at SCOL

♦ Distribs with 2000 SKUs

♦ Rotator Bars; Winification

♦ New Reality


BREWERS ON EVERY CORNER

Local is where it’s at

Hyper local, uber local

In Portland, other cities, increasingly by neighborhood

Different business than capital intensive regional brewer

How many? Sustainable?


CRAFT BREWERS STILL DONT

RULE POLITICS (YET)

♦ Craft brewers are not in charge in federal legislatures, for all their local strength.

♦ Fed tax bill not likely to pass; Difficulty advancing agenda in state legislatures—look at difficulty getting 64 oz growlers in Fla, tho that may finally change

♦ Rome not built in a day; BA struck markedly better tone

♦ Craft brewers and distribs remain natural allies, as in battle against AB branch in KY; good for each other for most part


DUELING TAX BILLS

BA’s Small BREW vs BI’s Fair Beer

Big brewers, wholesalers now actively against BREW; reduces chances

BREW ahead in Senate; Fair Beer has more cosponsors in House

Now the distillers want tax break too

Reduces chances of passage


A PEEK INTO A POSSIBLE 2015

Craft up 15% would be 2.9 mil bbls; a slowdown

Constellation at 7% is 1 mil bbls

Boston Beer sez 8-12%; 300-400,000 bbls; a slowdown

Industry way down in early 2015; If Flat, Rest Would be Down 4+ Mil Bbls


RAPID GROWTH, RAPID CHANGE

Craft well on its way to putting up another yr of strong double growth

Rising tide not lifting all boats. Some large and many local going great

To get to 20 by 2020, craft needs low double digit growth on bigger base

M&A reconfiguring industry at all levels, especially craft now

Meaning of craft may be changing with influx of big $$ and many deals


HALFWAY HOME;

HARDER FROM HERE?

BEER MARKETER’S INSIGHTS

Benj Steinman

Craft Brewers Conference

April, 16, 2015

Portland, OR

HALFWAY HOME; HARDER FROM HERE? · Craft Brewers Conference – April, 9, 2014- Denver, CO ♦6...

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