State of the Craft Beer Industry 2013

State of the Craft Beer Industry 2013

Beer Continues to Lose Market Share to Wine and Spirits Supplier $ Share (Billions) Beverage Alcohol Market Share 2005 2011 CAGRs Beer: Spirits: Wine: $49.9 $8.3 2.2% 3.7% 3.4% $52.2 $8.6 $54.9 $56.6 $57.0 $57.6 $59.2 $9.2 $9.4 $9.5 $9.8 $10.2 $16.0 $17.2 $18.2 $18.7 $18.7 $19.2 $19.9 Spirits 29% Wine 16% 2000 2011 Beer 55% Spirits 34% Wine 17% Beer 49% $25.6 $26.3 $27.5 $28.5 $28.8 $28.6 $29.2 2005 2006 2007 2008 2009 2010 2011 Beer Spirits Wine Servings (Billions) (1) Growth in Servings 2011 2015P CAGR: 0.3% 118.2 120.8 123.7 124.5 123.9 123.6 124.6 126.0 17.0 17.6 18.3 18.4 18.5 18.7 19.2 20.3 34.9 36.2 37.5 38.0 38.5 39.1 40.2 42.6 2005 2011 Absolute Growth: Beer: Spirits: Wine: 1.0% 4.0% 3.6% 3.6% 3.8% 1.3% 1.1% 1.4% 0.5% 0.4% 0.7% (1.7%) 15.0% 13.1% 1.7% 1.3% 2.7% 2.5% 6.1% 5.7% 66.2 66.9 67.8 68.2 66.9 65.7 65.1 63.1 (1.8%) (1.8%) (0.9%) Beer Spirits Wine (3.1%) 2005 2006 2007 2008 2009 2010 2011 2015P 2006 2007 2008 2009 2010 2011 2015P Beer Spirits Wine Source: Beer Marketer s Insights, DISCUS, IMPACT Spirits Databank. (1) Serving size: Beer 12 oz; Spirits 1.5 oz; Wine 5 oz. 2

Despite U.S. Beer Industry Declines, Premium Beer Continues Strong Growth (Barrels in millions) U.S. Beer Industry Segmentation U.S. Beer Industry Growth by Segment 214 214 210 209 206 13.9% 12 12 12 9 12 13 12 9 11 11 9 11 11 29 28 12 26 27 27 9.6% 46 47 48 46 44 4.6% 2.8% 109 108 104 101 99 2007 2008 2009 2010 2011 Premium Sub Premium Imports Craft Super Premium Other Decreases in Premium and Sub Premium brands, typically produced by large multi-national brewers, are driving the downward trend in the overall Beer Industry (0.9%) (3.9%) (2.4%) (2.3%) (1.0%) (1.6%) Sub Premium Premium Super Premium Imports Craft 2007 2011 CAGR 2009 2011 CAGR Mirroring consumer changes across the entire Beverage Alcohol landscape, Premium / Luxury priced Beer is regaining favor with the consumer Craft / Import / Super Premium Beer is an affordable luxury Premium Sub Premium Imports Craft Super Premium Source: Beer Marketer s Insights, Brewers Association, Nielsen Company, and Demeter Group estimates. 3

Craft is Premium Beer s Fastest Growing Segment (Barrels in millions) U.S. Beer Industry Components of Craft Beer Growth 214 214 210 209 206 210 Import Beer Prem. Beer 14% 17% 8.5 8.9 9.5 10.7 12.3 13.7 Super Prem. Beer Below Prem. Beer FMB's 3% 5% 6% 2007 2008 2009 2010 2011 2012P U.S. Beer Industry U.S. Craft Beer Industry Current Drinkers Drinking More 30% Whereas Beer as an industry has decreased at a CAGR of (0.3%) from 2007 to 2012P, Craft has grown at 10% annually Wine Spirits 6% 8% 13% Craft growth from 2010 to 2011 and 12% growth projected from 2011 to 2012P After 3 years of industry decline, the overall Beer Industry is expected to increase in 2012P New Craft Drinkers 11% AB InBev (47%) and MillerCoors (28%) together represent 75% of the U.S. Beer Industry Craft Beer is projected to represent nearly 15% of the Beer Industry by 2020 at current growth rates Craft s growth is driven by current beer drinkers drinking more Craft as well as consumers of other beverage alcohol trading into Craft Source: Beer Marketer s Insights, Brewers Association, Nielsen Company, and Demeter Group estimates. 4

5 of 10 Fastest Growing Brands are Craft Commentary Craft Beer, despite thinly resourced marketing and sales departments relative to larger brewers, holds 5 brands in Beer s top 10 fastest growing brands Aggressively hopped Craft Beer (Dale s, Lagunitas IPA, New Belgium Ranger IPA, Sierra Nevada Torpedo Extra IPA, etc.) in high demand Fast growing brewers are investing in expanding their production footprint as well as additional capacity in core market (1) Thousands of 2.25 gallon cases. Source: Beer Marketer s Insights, Brewers Association, Nielsen Company, Technomic, and Demeter Group estimates. 5

Craft Answers Consumer Demand for Extreme Flavor & High-Alcohol Content Originals Exaggerated Revisionists Extremists Traditional mild pale / American lagers at Premium Sub Premium price points Marquee beer giants legacy brands and traditional sub-brands (Bud Light, Miller Light, Coors Light) Premium Super Premium line extensions leveraging legacy brand name while varying type, flavoring, and calorie count Super Premium independent Craft brands / incognito Craft brands (Blue Moon, Shock Top, Leinenkugel) identifying strongly with a sense of place, personality, or specific product Unique, hoppy, seasonal, flavored IPAs, porter, stout, pilsner, black & tan, rye, wheat beer, etc. Super Premium independent Craft brands producing extreme / adventurous / intense Craft Beer Innovative brewing, double portions of hops, barrel fermenting / aging, bottle fermenting, fruit infusing, large format bottles Additional Beer types: imperial stout, double IPA, sour ale, smoked porter etc. Experimentation with Beer Wine hybrids 6

By Definition, Craft Drinkers are Explorers with Non-Linear Taste Preferences Increasing Flavor / Intensity Revisionists Extremists 7

Growth in Number of Craft Breweries Driven by Extremists Overview New Craft Breweries are experimenting with uncommon ingredients and techniques, driving industry innovation Craft breweries have increased 12% in 2011 with strong growth coming from states east of the Mississippi State Over 30% of 2011 growth is from 5 states, 4 of which are east of the Mississippi High Growth States Increase in Breweries % Increase Michigan 17 20% Pennsylvania 16 21% New York 13 22% North Carolina 11 23% Texas 11 23% 268 +23 124 +3 136 3 18 (1) 20 +5 23 +4 34 +4 25 +4 >100 50-100 25-49 10-24 <10 32 +5 12 +0 130 2 34 +4 2 5 18 +3 16 59 1 9 +0 36 +8 24 +2 44 +4 6 +2 8 +0 75 +3 54 +5 2 +0 102 7 43 +8 24 6 +2 10 +2 47 +0 22 5 (1) 16 44 +5 93 6 42 +5 47 1 72 3 24 +3 17 26 +6 9 (2) 20 33 +2 42 +0 6 +2 15 D.C. 5 8 (1) (1) High growth states show an increase of over 10 breweries and a percentage increase over 20%. Source: Brewers Association. 8

Large Craft Brewers Expanding Geographic Footprints Sierra Nevada Building new brewery in Mills River, North Carolina (12 miles south of Asheville) with initial capacity of 300,000 barrels and space for additional growth. 184 acre land parcel will include production facility, restaurant, gift shop, and riverfront / mountain recreation areas. Expected completion in 2014. Currently available in all 50 states. New Belgium Building new 150,000 sq. ft. brewery on 17.5 acres in Ashville, North Carolina. Initial capacity of 400,000 barrels and space for additional growth. Expected completion in Q1 2015. Estimated cost: $100 -$175 million. Currently available in 28 states. Expanding distribution to include Alaska and Louisiana in Q2 2013. Goose Island (AB InBev) - Outsourcing a portion of its brewing operations to an AB plant in Baldwinsville, New York and New Hampshire s Redhook Ale Brewery (part of Craft Brew Alliance, in which AB holds a stake) to achieve national distribution by Q1 2013. Lagunitas Converting a 300,000 sq. ft. steel fabrication plant in Chicago, Illinois into a second brewery with capacity of 600,000 barrels and to be built as exact copy of Petaluma facility. A taproom is also planned for the site. Expected completion in mid- 2013. Estimated cost: $15 $25 million. Currently available in 35 states. D.G. Yuengling & Son Expansion of production facility purchased in 1999 by approximately 40%; further expansion of existing facilities in Pennsylvania. Estimated Capital Expenditure in next 24 months: $100 million. Currently available in 15 states. Source: Press releases and news articles as of January 30, 2013. 9

Big Beer is Brewing Craft-Like Brands Utilizing Back of House Assets / Resources Parent Company Craft Beer Incubator Formed in 2008 with the merger of leading Pacific Northwest craft brewers Widmer Brothers Brewing and Redhook Ale Brewery Merged with Kona Brewing Company in 2011 Sold majority stake in Fulton Street Brewery (Goose Island) to AB-InBev in 2011 AB-InBev owns 32% of company and acts as nationwide distributor >700,000 barrels sold in 2012P Craft and import division of MillerCoors developed in August 2010 Yearly double digit growth since formation Acquired minority interest in Terrapin Beer Company in October 2011 Acquired Crispin Cider Company in February 2012 Acquired Franciscan Well Brewery in January 2013 Select Brands (AB Craft-Like Brand) (AB Craft-Like Brand) 10

Craft is Reshaping the Way Beer is Marketed from Brand to Style like Wine Commentary New Merchandising of Beer by Style Style (instead of brand) is becoming the more important aspect of consumer choice, especially among Millennials The consumer chooses style first (Pale, Ale, IPA, Wheat, etc.) and then chooses brand within style (Sierra Nevada, Lagunitas, Blue Moon, etc.) Pale Ale Craft is enabling producers to dialogue with retailers about maintaining and expanding shelf space to prevent further erosion from Wine and Spirits Retailers are beginning to merchandise beer by style, just as they merchandise wine by varietal IPA Cider and Flavored Malt Beverages (FMBs) are further expanding Beer s retailer shelf space Wheat Beer 11

Optimism for Reaching Craft Drinkers from Multiple Angles Explains M&A in Cider Overview 5.7 million case cider market estimated to rise at an 11% CAGR by volume through 2016 Cider drawing drinkers away from Wine (typically female consumer) vs. eating into Beer sales Leads innovation and creativity into new Beer / Wine / Spirits mixed category (Blue Moon s Impulse Beer / Wine hybrid, and Pernod Ricard s ABSOLUT Tune Vodka / Wine) Established Beer players making inroads with new Cider brands (Boston Beer s Angry Orchard, AB-InBev s Michelob Ultra Light Cider, MillerCoors acquisition of Crispin Cider) Top Players 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% ($ in millions) Cider Market Growth Cider M&A $217 $238 $268 $304 $364 $449 $521 $595 $659 $718 $769 Date Target Buyer Enterprise Value ($ mm) 10/23/2012 Vermont Hard Cider Company C&C Group $305 6/21/2012 Redwood Cellars DB Breweries 6/8/2012 Stasseen Heineken 2/6/2012 Crispin Cider Company MillerCoors 11/8/2011 Hornsby's Pubdrafts C&C Group 28 4/12/2011 M.H. Zeigler & Sons LiDestri Foods 1/26/2010 Fox Barrel Cider Company Crispin Cider Company 11/30/2009 Gaymer Cider Company C&C Group 74 11/5/2009 Devon Cider Company Aston Manor Brewery 2006 2007 2008 2009 2010 2011 2012P 2013P 2014P 2015P 2016P Source: Euromonitor, Impact Databank, press releases & industry research. (1) Vermont Hard Cider Company (Woodchuck brand) acquired by C&C group in 2012. (2) Hornsby s Pubdrafts acquired by C&C Group in 2011. 12

Craft M&A May Be Tempered by Returns Global Brewers Attain in Emerging Markets Commentary Rank Brewer 2011 Barrels (Thousands) 1 AB / In-Bev 300,600 2 SAB Miller 190,310 3 Heineken 182,243 4 Carlsberg 101,132 2012 2016 Projected Compound Annual Growth Rate >4% 3% - 4% 2% - 3% <2% Big Beer s current focus is on high returns in emerging markets; only when global returns cool off will U.S. Craft / Premium Beer brands be interesting acquisition targets (0.6%) 4 2 3 (0.5%) 1 +2.9% +3.8% Current global interest allows current Craft brands to develop beachheads and gain scale / expand geographic distribution while Big Beer is focused overseas At this point, many Craft / Premium brands will be attractive targets for both Big Beer as well as domestic Craft brewers of scale +3.5% +4.6% 0.0% National scalability / brand appeal will factor significantly into which Craft brands are acquired Source: Canadean. 13

Demeter Group Recent Transactions (December 2010 2012) $850 million Completed Transaction Value 15 Completed Transactions 67% Completed Transactions in Beverage Alcohol Private Placement 71% 36% Transactions Marketed to Fewer Than 5 Potential Buyers Transactions Marketed to 1 Buyer Has Acquired Joint Venture With 14

Demeter Group Recent Beverage Alcohol Transactions March 2011 May 2011 December 2010 July 2012 Beam Global Spirits & Wine Crimson Wine Group Fiji Water Constellation Brands September 2012 August 2012 June 2012 June 2012 May 2012 August 2011 E. & J. Gallo Winery E. & J. Gallo Winery Accolade Wines E. & J. Gallo Winery Precept Wines Fiji Water 15

Jeff Menashe Chief Executive Officer menashe@demetergroup.net 220 Halleck Street, Suite 110 San Francisco, CA 94129 (415) 632-4400 www.demetergroup.net