ibisworld industry report 31212 beer production in...

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IBISWorld Industry Report 31212 Beer Production in the US September2010 AgataKaczanowska Bottoms up: As incomes return, drinkers will trade up to premium beers, including imports 2 AboutthisIndustry 2 Industry Definition 2 Main Activities 2 Similar Industries 2 Additional Resources 3 IndustryataGlance 4 IndustryPerformance 4 Executive Summary 4 Key External Drivers 5 Current Performance 7 Industry Outlook 9 Industry Life Cycle 11 Products&Markets 11 Supply Chain 11 Products & Services 12 Demand Determinants 13 Major Markets 14 International Trade 16 Business Locations 18 CompetitiveLandscape 18 Market Share Concentration 18 Key Success Factors 18 Cost Structure Benchmarks 20 Basis of Competition 21 Barriers to Entry 22 Industry Globalization 23 MajorCompanies 23 Anheuser-Busch InBev 24 MillerCoors LLC 28 OperatingConditions 28 Structural Risk Index 28 Investment Requirements 29 Technology & Systems 30 Industry Volatility 30 Regulation & Policy 31 Industry Assistance 32 Taxation Issues 33 KeyStatistics 33 Industry Data 33 Annual Change 33 Key Ratios 34 Historical Performance 35 Jargon&Glossary www.ibisworld.com|1-800-330-3772 | info @ ibisworld.com

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Page 1: IBISWorld Industry Report 31212 Beer Production in …smo430.wikispaces.com/file/view/31212+Beer+Production+in+the+US... Beer Production in the US September 2010 1 IBISWorld Industry

WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 1

IBISWorld Industry Report 31212Beer Production in the USSeptember�2010� Agata�Kaczanowska

Bottoms up: As incomes return, drinkers will trade up to premium beers, including imports

2� About�this�Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3� Industry�at�a�Glance

4� Industry�Performance4 Executive Summary

4 Key External Drivers

5 Current Performance

7 Industry Outlook

9 Industry Life Cycle

11� Products�&�Markets11 Supply Chain

11 Products & Services

12 Demand Determinants

13 Major Markets

14 International Trade

16 Business Locations

18� Competitive�Landscape18 Market Share Concentration

18 Key Success Factors

18 Cost Structure Benchmarks

20 Basis of Competition

21 Barriers to Entry

22 Industry Globalization

23� Major�Companies23 Anheuser-Busch InBev

24 MillerCoors LLC

28� Operating�Conditions28 Structural Risk Index

28 Investment Requirements

29 Technology & Systems

30 Industry Volatility

30 Regulation & Policy

31 Industry Assistance

32 Taxation Issues

33� Key�Statistics33 Industry Data

33 Annual Change

33 Key Ratios

34 Historical Performance

35� Jargon�&�Glossary

www.ibisworld.com��|��1-800-330-3772��| ��[email protected]

Page 2: IBISWorld Industry Report 31212 Beer Production in …smo430.wikispaces.com/file/view/31212+Beer+Production+in+the+US... Beer Production in the US September 2010 1 IBISWorld Industry

WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 2

The Beer Production industry primarily brews alcoholic beverages using malted barley and hops.

The�primary�activities�of�this�industry�are

Beer production (alcoholic and non-alcoholic)

Ale production

Malt liquor production

31213 Wine�Production�in�the�USWine makers either grow their own grapes or purchase them from vineyards to mix with other ingredients and produce wines and brandies. These are then packaged in bottles or casks and sold.

31214 Liquor�&�Spirits�Production�in�the�USDistillers purchase a variety of ingredients, such as grains and sugar, and manufacture them into spirits (i.e. not beer or wine). These spirits are then bottled and sold.

Industry�Definition

Main�Activities�

Similar�Industries

Additional�Resources

About�this�Industry

For�additional�information�on�this�industry

www.ttb.gov�Alcohol and Tobacco Tax and Trade Bureau

www.brewersassociation.org�Brewers Association

www.beerinstitute.org�The Beer Institute

www.ers.usda.gov�USDA Economic Research Service

The�major�products�and�services�in�this�industry�are

Barrels & kegs of beer & ale

Bottles of beer & ale

Cans of beer & ale – 12 ounces

Cans of beer & ale – not 12 ounces

Other malt beverages & brewing products

�IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com

Page 3: IBISWorld Industry Report 31212 Beer Production in …smo430.wikispaces.com/file/view/31212+Beer+Production+in+the+US... Beer Production in the US September 2010 1 IBISWorld Industry

WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 3

Dol

lars

per

bar

rel

20

15

16

17

18

19

1399 01 03 05 07 09 11Year

Excise tax on beer

SOURCE: WWW.IBISWORLD.COM

% c

hang

e

10

−15

−10

−5

0

5

1602 04 06 08 10 12 14Year

Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2010)

45.8%Cans of beer and ale – 12 ounces

38.3%Bottles of beer and ale

9.1%Cans of beer and

ale – not 12 ounces

5.2%Barrels and kegs of beer and ale

1.6%Other malt beverages and brewing products

SOURCE: WWW.IBISWORLD.COM

Key�Statistics�Snapshot

Industry�at�a�GlanceBeer�Production�in�2010

Industry�Structure Life Cycle Stage Decline

Revenue Volatility Medium

Investment Requirements High

Industry Assistance Low

Concentration Level High

Regulation Level Heavy

Technology Change Low

Barriers to Entry High

Industry Globalization Medium

Competition Level Medium

Revenue

$26.0bnProfit

$1.0bnExports

$2.9bnBusinesses

1,625

Annual�Growth�10-15

1.6%Annual�Growth�05-10

-3.3%

Key�External�DriversExcise�tax�on�beerDownstream�demand�from�beer�wholesalingDownstream�demand�from�bars,�nightclubs�and�drinking�establishmentsDownstream�demand�from�beer,�wine�and�liquor�storesPrice�of�maltKey�attitudinal�changes�toward�alcohol�consumption

Market�ShareAnheuser-Busch InBev 45.5%

MillerCoors LLC 29.1%

p. 23

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33

SOURCE: WWW.IBISWORLD.COM

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 4

Key�External�Drivers Excise tax on beerThe level of excise levied on beer impacts its final price and therefore affects the level of demand.

Downstream demand from beer wholesalingWholesalers are a crucial link in the marketing channel. Therefore, manufacturers need to carefully plan distribution and influence the level of

product promotion within liquor wholesaling outlets in order to maximize market share.

Downstream demand from bars, nightclubs and drinking establishmentsBecause the final consumption of beer often occurs at bars, this industry is a crucial link in the marketing channel. Therefore, beer manufacturers can benefit from carefully planned

Executive�Summary

Supply and demand shifts, induced by volatile ingredient prices and changing consumer preferences, are brewing a storm for the Beer Production industry. The industry faces increasing competition from other beverages, namely wines and spirits, and as consumers expand their tastes for such alternatives, demand for beer is dropping. Over the five years to 2010, industry revenue is expected to decline at an average annual rate of 3.3% per year, which includes a 4.6% drop in 2010 alone to $26.01 billion. Profit also

fell over the period to an estimated 3.9% of revenue, or $1 billion. Ingredient price increases due to shortages of hops and grains and the establishment of new specialty breweries, were the chief causes of industry profit margin contraction.

After significant merger activity in 2008, the two largest companies, Anheuser-Busch InBev and MillerCoors, control 74.6% of total market share. These mergers also gave the international companies InBev and SABMiller higher levels of control over breweries that originated domestically. Additionally,

trade heavily influenced industry revenue as imports and exports fell drastically when unemployment worries stalled global consumption after several years of booming trade. Exports as a source of revenue for American brewers have nearly doubled, from 6.8% of revenue in 2005 to an expected 11.3% in 2010; this growth is despite a 16.9% decline in 2009. And while imports have also slipped from their peaks due to declines in consumption, their 14.6% share of domestic demand estimated for 2010, worth more than $3.9 billion, is above the 2005 import level of 12.6%. Imports and exports are anticipated to continue increasing as a share of industry revenue, especially as consumer sentiment improves over the five years to 2015.

IBISWorld projects that industry revenue will grow at an annualized rate of 1.6% over the next five years, reaching $28.16 billion in 2015. Much of this increase is likely to occur in the craft and premium beer segments, which is expected to be offset by a contraction in industry sales by volume. These higher-quality beverages will help expand the industry profit margin to about 4.4% of industry revenue, or $1.2 billion, in 2015. Because the market for specialty brews is saturated, slowing entry of new businesses into the industry will also boost the profit margin.

Industry�PerformanceExecutive�Summary�� |�� Key�External�Drivers�� |�� Current�PerformanceIndustry�Outlook�� |�� Life�Cycle�Stage

� Shortages of hops and grains and the emergence of new specialty breweries led to contracting profit margins

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 5

Industry�Performance

Current�Performance

Beer Production industry revenue has been hurt by slowed consumer spending and by substitutions. Increasingly knowledgeable and health-conscious consumers are trading up for higher-quality products. This trend has stimulated growth in the premium and craft beer segments, but to the detriment of high-volume sales of beer. As a result, revenue is anticipated to decline 4.6% in 2010 to total $26.01 billion, representing a five-year annualized decline of 3.3%.

High degrees of competition and rising production costs have led to merger and acquisition activity amongst the largest players in this industry. In fact, nearly 80.0% of the market share is now held by just two companies: Anheuser-Bush InBev and MillerCoors. On the other end of the spectrum, craft breweries, which are smaller and target regional markets, continue to expand in numbers and popularity. However, their hold on market share remains limited.

Key�External�Driverscontinued

distribution and even ownership of such establishments to influence the level of product promotion and availability in order to maximize market share.

Downstream demand from beer, wine and liquor storesBecause packaged beer is often sold through retail outlets, this industry is a crucial link in the marketing channel. Therefore, beer manufacturers need to carefully plan distribution and influence the level of product promotion within liquor outlets in order to maximize market share. This is imperative in the United States, where brand loyalty can vary by state and region.

Price of maltBecause the malt and malt products that are used to make beer account for about 70.0% of the total grains purchased by the industry (by volume), their costs affect the total cost of goods sold and value added for American brewers.

Key attitudinal changes toward alcohol consumptionCultural and attitudinal changes toward alcohol consumption can affect beer sales, either positively or negatively. For example, concerns about drunk driving may benefit light beer sales but have an adverse impact on heavy beers. Likewise, this could reduce all alcohol consumption, thereby reducing total sales.

% c

hang

e

12

−8

−4

0

4

8

1604 06 08 10 12 14Year

Downstream demand beer wholesaling

SOURCE: WWW.IBISWORLD.COM

Dol

lars

per

bar

rel

20

15

16

17

18

19

1399 01 03 05 07 09 11Year

Excise tax on beer

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Industry�Performance

Consumer�shift Lower demand for standard beer brands drained revenue out of the Beer Production industry. Bulk beverage sales declined as a result of health-conscious individuals trading up to high-quality products in smaller quantities. Beer is increasingly perceived as less healthy and exotic than its alcoholic beverage competitors: wine and spirits. Substitution for these other beverages slowed industry sales, even as these same consumers showed a significant interest in craft and premium beer.

Although the market for craft, import and some premium beers expanded, the

industry as a whole suffered. The single worst year for the industry in over a decade was 2008, which coincided with the recession when consumers cut back by drinking less and opting for packaged beer consumption in the home. But even prior to 2008, revenue growth teetered between anemic and nonexistent as beer prices and consumption fell flat.

Consolidation�and�globalization

Through 2002, the Beer Production industry was mostly a domestic affair. The three major players within the industry, Anheuser-Bush, Coors Brewing Company and Miller Brewing Company, which together earned about three-fourths of industry revenue, were all domestically owned. Since the summer of 2002, however, a number of mergers have increased foreign ownership. First, international giant South African Breweries (SAB) acquired Miller Brewing Company to form SABMiller, and then Molson Canada acquired Coors Brewing Company in 2005 to form Molson Coors. Three years later, these companies launched MillerCoors, a joint venture of their operations within the United States. This move brought their combined market share to 29.0%, allowing them to challenge the overwhelmingly dominant Anheuser-Busch, which also merged with foreign-owned InBev in 2008 to become the world’s largest beer producer. In addition to broadening selection of offerings, the mergers helped each company reduce its distribution costs by

pooling resources and realizing economies of scale in bargaining with suppliers. However, both major players face the challenge of avoiding cannibalization as many of its offerings compete directly with each other, such as Keystone with Milwaukee’s Best and Boddingtons with Michelob Pale Ale.

In addition to an increasing share of global ownership, the industry is also exposed to global trends through a heightened volume of trade. Even with a weakening US dollar and trading down by consumers, imports are projected to hover at 14.6% in 2010, totaling $3.94 billion. However, the weakening dollar and improved international distribution channels have driven export growth, with some setbacks caused by slowed trade when consumer spending fell during the recession. Exports in 2010 are expected to account for 11.3% of total industry revenue or $2.94 billion, driven almost entirely by rampant growth in Canada, Mexico and China. In 2005 imports comprised 12.6% of domestic demand while exports’ share of revenue was only 6.8%.

� Consumers’ shift toward wine and spirits has slowed industry sales

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 7

Industry�Performance

Profitability Growth and volatility in input prices is expected to ease over the next five years after an especially turbulent five years. Limited price competition between the major players, especially between easily substitutable brands, will result in some improvement in profitability. Profit levels are expected to grow to 4.4% of industry revenue over the period, with an anticipated profit of

$1.23 billion in 2015. As craft brewers create some competition, there will be fewer companies entering the industry than over the past five years; annualized growth is projected at 2.7% to 1,689 enterprises in 2015. The smaller number of new entrants will decrease the level of industry expenditure, boosting the aggregate profit margin.

Industry�Outlook

Over the five years to 2015, beer is expected to attract a larger share of demand for alcoholic beverages as some consumers continue to switch to high-quality yet reasonably priced beers, over spirits and wine. However, competition from substitute beverages is still expected to result in slow

revenue increases despite robust growth in the craft and premium beer segments. Including strong initial growth of 3.6% in 2011, Beer Production industry revenue is forecast to be $28.16 billion in 2015, which represents an average increase of 1.6% per year.

Craft�drives�growth The segment of this industry that continues to grow is craft brewing. There was a rapid increase in the number of these smaller operations in the 1990s, and although this growth has slowed, they are still responsible for the 3.1% annual rise in industry establishments over the five years to 2010. There are an estimated 1,625

breweries in operation in 2010. Data from the Beer Institute’s most recent “Brewers Almanac” suggests that more than 95.0% of the breweries in the United States qualify as specialty brewers. Although they dominate the market in terms of business numbers, craft brewers are responsible for only about 5.9% of industry revenue.

Profit�margin�contraction

Small brewers are not able to take advantage of mass production and the ability to negotiate larger supply contracts that come with economies of scale, and so they must charge higher prices in order to stay in business. Also, craft brewers are disproportionately exposed to fluctuations in the supply of inputs, which drastically cut profit margins over the five years to 2010. This was further aggravated by a

shortage of hops and unpredictable, high grain prices. Industry profit margins have suffered as a result of the expansion of the craft- and microbrewery segment as well as the price volatility of key brewing ingredients. Profit declined over the past five years at an annualized rate of 11.4% to $1.01 billion or 3.9% of industry revenue in 2010, compared to 6.0% in 2005.

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 8

Industry�Performance

Big�brands�and�craft IBISWorld expects that development of brand names over the period will be critical to players’ success, both in competition between brewers and competition against substitutes like wine and spirits. This move will be an advantage to larger players that run more cost-effective promotional campaigns. However, the younger beer drinkers (aged 21 to 24) will increasingly experiment with and promote unusual flavors as part of their drinking experience, which will provide opportunities for craft and

microbreweries to expand their market reach.

Employment will be driven by the growth of existing craft and microbreweries, balanced out by the two major players as they continue to lay off workers and streamline their business models. The number of industry workers is anticipated to increase at an average annual rate of 2.2% to about 37,850 employees in 2015. The average wage is also expected to grow due to the retention of more highly skilled and paid staff, such as those in marketing and management.

International�trade The value of beer exports from the United States is forecast to increase at a much slower rate of 2.2% per year over the next five years as the US dollar begins to appreciate and the most accessible reservoirs of growth are tapped. Since the Anheuser-Busch merger with InBev, Anheuser-Busch products are expected to compete less aggressively in export markets; however, there will be some growth in export volumes of these varieties as the merged entity seeks to gain maximum value from the Anheuser-Busch brand.

The appreciation of the US dollar will be the main influence on not only

the demand for industry exports but also the ability for imports to compete with local brewers. Imports are forecast to resume growth, and will increase at an annualized rate of 9.8% over the five years to 2015. Such fast growth is anticipated as consumers continue to shift to what they perceive as high-end beer, including more expensive foreign imports. However, this rapid influx of imports is also likely a reflection of some facilities moving to Canada and Mexico, which are already two of the main importers of beer because of their close proximity to the United States.

Ratio

36

20

24

28

32

1602 04 06 08 10 12 14Year

Employees per establishment

SOURCE: WWW.IBISWORLD.COM

% c

hang

e

30

−30

−20

−10

0

10

20

1602 04 06 08 10 12 14Year

Profit Wages

Profit vs. wages

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 9

Industry�PerformanceThe industry consistently grows at a slower rate than the overall economy

Per capita consumption of beer is declining as preferences shift to higher-grade drinks

Growth has occurred in the craft brewing segment, but this represents no more than 5% of total sales

Little technological change

Life�Cycle�Stage

SOURCE: WWW.IBISWORLD.COM

30

25

20

15

10

5

0

–5

–10–10 100 20–5 155 25 30

%�G

row

th�o

f�pro

fi�t/G

DP

%�Growth�of�establishments

DeclineCrash or Grow?

Potential�Hidden�GemsFuture Industries

Quality�GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

Time�WastersHobby Industries

MaturityCompany consolidation;level of economic importance stable

Shake-out

Shake-out

Quantity�GrowthMany new companies; minor growth in economic importance; substantial technology change

Key�Features�of�a�Decline�Industry

Revenue grows slower than economyFalling company numbers; large fi rms dominateLittle technology & process changeDeclining per capita consumption of goodStable & clearly segmented products & brands

Wine�Production

Beer�Wholesaling

Grain�Farming

Liquor�&�Spirits�Production

Flour�Milling

Beer�Production

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 10

Industry�Performance

Industry�Life�Cycle Beer production has been around for the past few centuries and is likely to be around for the next few. Yet, over the five years to 2010, industry revenue declined at an average annual rate of 3.3%. And it is forecast to grow at a sluggish annualized rate of 1.6% over the next five years, much slower than GDP growth during this time. Revenue has been declining due to lower consumer spending during periods of low disposable income and a shift in consumer preference toward premium products and substitute beverages like wine or adult soda. During the recession, consumers bought more premium beer to drink at home instead of drinking at establishments that charge more for regular beer, cocktails and wine. The growth of craft and premium beer, however, has been

dragged down by the declining demand for mainstream industry products.

The number of companies and their locations increased at an annualized rate of 3.1% and 2.8%, respectively, over the five years to 2010. Employment declined at an annualized rate of 1.5% because of layoffs induced by two major mergers in 2008. Following the mergers, the Beer Production industry’s market share consolidated into just two companies: MillerCoors and AB InBev. These companies were formed through the mergers of existing beer giants SABMiller and Molson Coors Brewing Company and Anheuser-Busch and international beverage behemoth InBev. The resulting companies dominate the industry and are responsible for about 74.6% of all beer production within the United States.

�This industry is Declining

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 11

Products�&�Services

Canned beer is most often sold through retail outlets as a cheaper alternative to bottles, while bottles are sold both in

retail outlets and at drinking establishments. Barrels and kegs, on the other hand, are sold almost exclusively

�Products�&�MarketsSupply�Chain�� |�� Products�&�Services�� |�� Demand�DeterminantsMajor�Markets�� |�� International�Trade�� |�� Business�Locations

KEY�BUYING�INDUSTRIES

42281� Beer�Wholesaling�in�the�US�Distributors are an essential link in the market channel for beer producers. Because of the three tiered regulatory system in place for alcoholic beverages in most states, beer manufacturers are not permitted to sell beer directly to retailers nor consumers.

KEY�SELLING�INDUSTRIES

11119� Grain�Farming�in�the�US�Malt, a key ingredient in beer production, is made from grains like barley and hops.

31121� Flour�Milling�in�the�US�Brewers purchase malt from this industry. Malt comes from barley or other grains that have been germinated by soaking them in water and then kiln-drying them.

31131� Sugar�Processing�in�the�US�Sugar is a key component in making beer.

32192� Wood�Pallets�&�Skids�Production�in�the�US�Wooden pallets are used to transport the final product to end users, such as retailers, bars and clubs.

32221� Cardboard�Box�&�Container�Manufacturing�in�the�US�Paperboard containers are used to package bottles and cans of beer for the purpose of transportation.

32311� Printing�in�the�US�Brewers require printing for labels on beer products, a key success factor in marketing.

32721� Glass�Product�Manufacturing�in�the�US�Glass is required for packaging bottled beer.

42251� Corn,�Wheat�&�Soybean�Wholesaling�in�the�US�Barley and hops are purchased from grain wholesalers for making malt beverages.

Supply�Chain

Products and services segmentation (2010)

Total $26.0bn

45.8%Cans of beer and ale – 12 ounces

38.3%Bottles of

beer and ale

9.1%Cans of beer and

ale – not 12 ounces

5.2%Barrels and kegs of beer and ale

1.6%Other malt beverages and brewing products

SOURCE: WWW.IBISWORLD.COM

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 12

Products�&�Markets

DemandDeterminants

The major demand determinant for the Beer Production industry is quality relative to substitutes, which include other brands of beer, other alcoholic beverages and some nonalcoholic beverages; changing preferences can influence the demand for these substitutes. Consumers often substitute between alcoholic beverage categories, with wine and spirit consumption increasing moderately in recent years. As consumers educate themselves about various beverages and explore the variety of beers available to them, the industry is forecast to benefit from growth in demand for niche and premium products.

Demand for beer is also influenced by marketing activities, including the level of advertising and sales promotion. New product introductions can also help increase demand for beer. Beer companies engage in these marketing activities to drive demand for their products.

Government intervention plays a role in demand via regulations, which include a minimum age for alcohol buyers, set trading hours for retailers and penalties for driving drunk. These regulations have not changed drastically over the five years to 2010 and are not anticipated to alter the demand for industry products in coming years.

Prices are influenced substantially by excise and other taxes. While many consumers take price into account, they typically compare products within a certain price point, depending on the quality they desire. For instance, imported beers can be considered a substitute for domestically produced beers. The price of these imports can be affected by exchange rates, which have been particularly volatile due to uncertainties in the global economy.

Demand for alcoholic beverages, including beer, is higher among households that have higher disposable income. IBISWorld estimates that households earning the top 20.0% of income currently spend about 60.0% more on beer from retailers than the average household and 80.0% more on beer at licensed drinking establishments. Even so, general growth in income and rising living standards have contributed to a decline in per capita consumption of beer as people opt for wine and spirits. This trend was partly undone by the recession, but it was not enough to counter the drop in spending by most households.

The age profile of the population is another determinant of demand. Per capita consumption of beer is higher among the 21-to-35 age group than other

Products�&�Servicescontinued

to bars for on-tap service. Due to its price point, canned beer has increased as a share of industry revenue over the five years to 2010. Meanwhile, barrel and keg share declined because consumers spent less time drinking in establishments and saved money by purchasing beer to drink at home. The bottled beer segment did not change significantly because, although it is more expensive then canned beer, bottles can be bought at retail outlets for a fraction of the on-premise price. Additionally,

consumers perceive bottled beer as a higher-quality product than its canned counterpart. As consumer spending picks up over the five years to 2015, barrels and kegs are anticipated to increase as a share of revenue, while canned products decline.

A small proportion of production, about 1.6%, is comprised of malt and other beverages, such as malted milk. Demand from this product segment is usually steady and has little impact on producers within this industry.

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 13

Products�&�Markets

Major�Markets

As a share of the US population, younger people are a lot more likely to drink beer than those older than 50. The largest growth segment for beer over the five years to 2010 has been the youngest portion of the population of drinking age – those aged 21 to 34. While all consumers cut down spending, the college students and young professionals that make up this group likely saved by switching to beer from wine or spirits. This group is also most likely to purchase beer for minors and, thus, may be consuming an average amount of beer once such purchases are taken into account. At the same time, however, this group (including minors) is most likely to explore a variety of premium and craft beers. Consumers aged 35 to 54 also switched somewhat to drinking beer, but were much more likely to tighten their

budgets altogether due to financial strain throughout the recession. Over the five years to 2015, the younger demographic will continue to be the Beer Production industry’s main growth segment, with older consumers spending their money on other kinds of beverages.

Although there are slightly more women than men in the makeup of the US population, about 58.0% of beer drinkers are men compared to 42.0% women. The share of women beer drinkers has increased gradually over the five years to 2010 and is anticipated to continue over the five years to 2015. This shift has been spurred by the increased marketing and availability of certain beers, such as Blue Moon, and flavored malt beverages, such as Smirnoff Ice, which appeal to the female demographic.

DemandDeterminantscontinued

age groups (see Major Markets section). The proportion of the population within this age range and its increasing

disposable income will have a positive effect on demand for beer over the five years to 2015.

Major market segmentation (2010)

Total $26.0bn

23.2%Age 35 to 44

9.5%Age 21 to 24

22.8%Age 25 to 34

21.8%Age 45 to 54

13%Age 55 to 64

9.7%Age over 65

SOURCE: WWW.IBISWORLD.COM

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 14

Products�&�Markets

International�Trade In 2010, the Beer Production industry is expected to export $2.9 billion worth of beer, and consumers are anticipated to purchase $3.9 billion of imports. This level of exports represents 11.3% of revenue, while imports make up 14.6% of the domestic demand for beer.

Beer exports from the United States represent a small fraction of production, but they have grown at an annualized rate of 6.9% over the five years to 2010. Rapid growth has occurred in each of the three largest export markets for American brewers: Canada, Mexico and China. Exports increased significantly during the period from 2006 to 2008, by about 20.0% per year, which is partially attributable to the weakened US dollar and the increased popularity of premium beers abroad as domestic companies focused on marketing in developing countries with high growth potential. The low proportion of exports to revenue can be attributed to the large domestic market that consumes most beer

produced in the United States. In addition, the products and their packaging are heavy, so it is not economical to distribute them long distances given the prices that would be paid for US beer overseas. Because beer is so heavy, many companies are producing beer abroad instead of exporting it.

Imports From...

Total $3.9bn

37%China

28%Canada

22%Mexico

12%Japan

Exports To...

Total $2.9bn

31%Canada

29%Other

19%Mexico

12%China

9%Japan

Year: 2010SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC

$ m

illio

ns

6000

−8000

−6000

−4000

−2000

0

2000

4000

1602 04 06 08 10 12 14Year

Exports Imports Balance

Industry trade balance

SOURCE: WWW.IBISWORLD.COM

Level�&�Trend��Exports in the industry are Medium and Increasing

�Imports in the industry are Medium and Increasing

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 15

Products�&�Markets

International�Tradecontinued

Most imports are from China, Canada and Mexico, countries where other foreign brewers have outsourced production. These imports have grown considerably due to aggressive marketing by foreign brewers, such as the prominent Dos Equis TV commercials

featuring “the most interesting man in the world.” Along with the increasing consumer preference for exotic beers, these marketing campaigns have stimulated spending on imported beers and are anticipated to continue to do so, especially as consumer income rises.

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 16

�Products�&�Markets

Business�Locations�2010

MO1.6

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

Great Lakes

VT1.6

MA3.1

RI0.3

NJ0.5

DE0.3

NH1.0

CT0.8

MD1.0

DC0.3

1

5

3

7

2

6

4

8 9

Additional�States�(as marked on map)

AZ1.3

CA13.4

NV0.8

OR4.7

WA6.0

MT5.0

NE0.5

MN1.0

IA0.5

OH2.1 VA

1.6

FL2.4

KS0.3

CO4.2

UT1.0

ID1.1

TX2.9

OK0.5

NC1.8

AK2.1

WY0.3

TN0.8

KY0.5

GA1.9

IL1.3

ME2.4

ND0.0

WI6.0 MI

5.5 PA5.5

WV0.3

SD0.0

NM1.0

AR0.5

MS0.3

AL0.0

SC0.5

LA1.6

HI1.1

IN1.0

NY5.8 5

67

8

321

4

9

SOURCE: WWW.IBISWORLD.COM

Mid- Atlantic

Industry�establishments�(%)

� Less�than�3%� 3%�to�less�than�10%� 10%�to�less�than�20%� 20%�or�more

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 17

�Products�&�Markets

Business�Locations The geographic spread of this industry is characterized by the volume of production and the number of breweries in a particular state. In general, volumes produced in particular states correlate with the population of the state. This is likely the result of producers locating their production facilities closer to major centers of the population to minimize costs of transportation. Another influence on the geographic spread is the climate of the region. Warm climates are more conducive to the consumption of beer, so there is likely to be greater demand for beer in regions along the southern coasts or the Mexican border. Other factors that affect geographic spread include access to raw materials, ease of access to export markets and taxes levied at the state level.

IBISWorld estimates that the Southeast accounts for the greatest proportion of production at 25.1%. This is attributable to the area being a large population center. The region accounts for only 12.0% of the aggregate number of breweries, however, due to the presence of an Anheuser-Busch brewery in Virginia and Georgia. MillerCoors also has a large brewery in Georgia.

The Great Lakes region accounts for the second highest amount of beer produced at 16.6%. Production is greatest in Ohio, where Anheuser-Busch InBev and MillerCoors each have a brewery. Furthermore, many small breweries and brewpubs have established themselves in Cleveland to serve the local market.

The West is notable for 29.0% of breweries, while accounting for only 13.5% of production. Most breweries are concentrated in California, which has the largest number of breweries of any state in the country (304), the majority of

which are brewpubs or microbreweries. The region is a popular area for beer drinking due to its concentration of live entertainment events, such as awards shows and music festivals, and hence, why many manufacturing establishments have opened there in recent years.

The Rocky Mountains account for an estimated 12.4% of beer production, while only containing 3.4% of the US population. A MillerCoors brewery in Golden, Colorado, contributes to the high level of production from this state, placing it second behind California.

The hot, dry climate of the Southwest is conducive to beer consumption, but despite this, the proportion of beer produced here is roughly in line with the population. Production in the Plains is also roughly in line with the population of the region. The Mid-Atlantic and New England regions have low levels of production relative to their population, possibly due to their cooler climates.

Perc

enta

ge

30

0

10

20

Sout

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t

Wes

t

Gre

at L

akes

Mid

-Atla

ntic

New

Eng

land

Plai

ns

Rock

y M

ount

ains

Sout

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t

EstablishmentsPopulation

Distribution of establishments vs. population

SOURCE: WWW.IBISWORLD.COM

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 18

Cost�Structure�Benchmarks

The industry profit margin shrank over the five years to 2010 from 6.0% to 3.9%. This decline was the result of decreased demand as consumer spending fell and the price of barley and hops increased. Meanwhile, the profit of Anheuser-Busch InBev fell an estimated 30.0%, and MillerCoors’ profit margin declined to an estimated 9.2% of company

revenue. These high profit margins, however, are contrary to variable and often negative margins of smaller breweries. Such differentiation between player profits is the result of high variable costs and the bargaining power that these two major players have with suppliers and distributors. As consumer sentiment improves and ingredient

Key�Success�Factors Market research and understandingFirms must be able to identify the geographic areas where it would be appropriate and profitable to sell their products.

Financial structure of the companyDebt levels and the way in which debts are financed play an important role in the success of a company.

Establishment of brand namesSuccessful branding through sales promotion and advertising is critical to success in a brand-competitive market.

Optimum capacity utilizationEffectively utilizing capacity can minimize a producer’s cost of production.

Unused capacity is costly, but it may give the producer some strategic advantage.

Control of distribution arrangementsMarket power in the industry’s distribution networks is very high, so any potential entrant must have access to them to survive.

Economies of scopeBrewers that produce a wide range of brands can achieve a cost advantage in distribution and advertising over smaller competitors.

Economies of scaleThe size of the operation will determine unit prices, which is a key variable with respect to competitiveness.

Market�Share�Concentration

Beer Production industry concentration is high, with about 81.8% of revenue generated by the largest four corporations. This is annualized increase of about 5.0% over the five years to 2010 as a result of two mergers in 2008. MillerCoors and Anheuser-Busch InBev were formed that year in the mergers of SABMiller with Molson Coors and Anheuser-Busch with InBev, respectively. The resulting companies dominate the industry and are responsible for 74.6% of all beer production within the United States.

In addition to these two giants, there are hundreds of other producers, but

almost all of these are craft breweries, which account for less than 10.0% of industry revenue. While they remain a small proportion of the industry, craft brewers are growing at a faster rate as a segment than the industry as a whole. About 10.0% of the beer market is supplied by medium-size breweries. Their prominence within the industry declined during the late 1990s due to difficult trading conditions and financial mismanagement, making them prime candidates for acquisition; the big two have grown in the past by doing just that.

Competitive�LandscapeMarket�Share�Concentration�� |�� Key�Success�Factors�� |�� Cost�Structure�BenchmarksBasis�of�Competition�� |�� Barriers�to�Entry�� |�� Industry�Globalization

Level��Concentration in this industry is High

�IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 19

Competitive�Landscape

Cost�Structure�Benchmarkscontinued

prices drop, profit is forecast to increase over next five years to 4.4% of industry revenue in 2015.

The largest costs to breweries are purchases of raw materials, which IBISWorld estimates will account for 58.3% of industry revenue in 2010. These raw materials include packaging, principally glass, aluminum and corrugated cardboard. Packaging costs have increased significantly over the past five years, particularly aluminum cans, due to commodity prices rising. Other raw materials include barley, sugar, malt, corn, rice, wheat, hops and preservatives, which are the critical ingredients required for brewing. The price of hops in particular was at a record high in 2008, but it steadied in 2010 and is estimated to account for 10.0% of revenue. The price of grains has increased in 2010 as a

result of Russia’s export ban. Over the five years to 2015, prices of raw ingredients are projected to decline as farmers compensate for the shortages that occurred over the past five years.

Taxes make up an estimated 11.3% of industry revenue in 2010. For the most part, the tax rate is $18 per barrel, with several exceptions for smaller companies. Over the five years to 2015, the proportion of tax revenue is anticipated to decline as industry revenue grows and also because Congress is likely to pass a proposal to lower taxes even further for small breweries.

Labor is the next largest cost to this industry, accounting for about 7.2% of industry revenue. The ratio of wages to revenue remained steady during the five years to 2010; although recent mergers resulted in layoffs and decreased

Industry�Costs�and�Average�Sector�Costs■�Profi�t■�Rent■�Utilities■�Depreciation■�Other■�Wages■�Purchases

Industry�Costs�(2010)

Average�Costs�of�all�Industries�in�sector�(2010)

3.9Profit

58.37.224.22.6

1.5

7.7Profit

58.112.814.75.0

INDUSTRY�CODE�AND�TITLE� 2005-2010� 2011-2015

11119� Grain�Farming� •� •31121� Flour�Milling� •� •31131� Sugar�Processing� •� •32192� Wood�Pallets�&�Skids�Production� −� •32221� Cardboard�Box�&�Container�Manufacturing� •� •Costs for operators in the Beer Production industry are affected by the price of goods and services from supplier industries. IBISWorld has estimated the trends of key input prices over the previous fi ve years and for the coming fi ve years. − is good news for this industry as IBISWorld expects the price of key inputs to fall; • shows where this industry is negatively affected as IBISWorld expects the price of key inputs to rise; - means price changes will not be a key issue for the industry.

SOURCE: WWW.IBISWORLD.COM

SOURCE: WWW.IBISWORLD.COM

0 100%2.3

1.0

0.8

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 20

Competitive�Landscape

Basis�of�Competition Competition is increasing within the Beer Production industry because the major industry players have a stronghold over the market, enabling them to dominate distribution activities and raw materials access. Competition to this industry has also increased from other beverage manufacturing industries and from foreign breweries. Imported brands, such as Heineken, present strong competition to domestic producers.

Internal�competitionFor the brewing industry, price is not the most important factor. Competition is based primarily on brand, quality and packaging. Marketing efforts typically focus on the 21-to-35 age market because it is not only the largest, but also the age range at which consumers are most likely to try new products. Smaller players have also gotten crafty, using marketing techniques like beer tastings and brewery tours.

There is significant loyalty to beer brands across the country, making it difficult to consistently win market share away from these brands in the long term. Competition for brand loyalty has intensified on a regional level, and many regional players have aggressively sought to expand their geographic market reach as a result. Competition has also increased with the rise of the craft-brewing sector in the past five years. Internal competition is anticipated to continue growing over the five years to 2015.

External�competitionCompetition from other beverages and beer imports is escalating; although trade did decrease over the five years to 2010 as a result of the recession, when people cut budgets by switching to domestic beer over more expensive varieties of alcohol. Over the five years to 2015, imports and exports are forecast to grow as consumer spending picks up.

Cost�Structure�Benchmarkscontinued

spending on labor, revenue also declined. Over the five years to 2015 industry expansion, driven by tax decreases and high demand for local beer, will result in the increase of labor costs to about 8.0% of revenue.

Marketing is estimated to be 3.6% of industry revenue in 2010. The top two players have historically spent significantly on prime advertising, such as TV commercials during the Super Bowl and Olympics. Marketing has remained and is expected to remain at this share of revenue because, although advertising spots were cheaper during the recession, the industry has increased its outreach in order to stimulate spending on its products.

In 2010, depreciation is estimated to be 2.6% of revenue. Because beer brewing is a capital-intensive process, depreciation of plants and equipment is

significant. However, it is smaller than in other manufacturing industries because there have not been any major technological breakthroughs and much of the equipment is built extremely durable. Depreciation is not forecast to fluctuate over the five years to 2015 for the same reasons that it has remained minimal since 2005.

Rent makes up about 2.3% of Beer Production industry revenue and utility costs make up about 1.5%. Rent prices declined when the housing bubble burst, and utility prices have fluctuated but are near their 2005 level. Over the next five years rent is projected to increase gradually and utility costs will continue to fluctuate. Other costs for domestic brewers vary and include administration, legal and transportation costs. These have remained steady and are not anticipated to change through 2015.

Level�&�Trend��Competition in this industry is Medium and the trend is Increasing

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 21

Competitive�Landscape

Barriers�to�Entry The barriers to entry into the domestic brewing industry depend on whether a new operator is attempting to enter the small craft-brewing market or large-scale production. Entry into the craft-brewing market is facilitated by the option to purchase turnkey facilities and faces lesser taxes, but starting a large-scale production requires significant cash flow and continuous investment.

Barriers to entry include sunk costs and other high ongoing capital requirements, such as capital costs of manufacturing facilities and branding. Also, existing companies have some control over distribution channels, limiting the exposure available to new players. Some companies, such as Anheuser-Busch InBev, have diversified by importing and producing other beverages, which enhances their overall distribution capability and makes them more attractive to investors looking for a well-balanced portfolio. New entrants can also form distribution joint ventures with other beverage manufacturers.

The significant economies of scale achievable in brewing means that large producers can earn enough revenue to spend significant amounts on branding, advertising and other promotions to attract new customers and maintain customer loyalties. Incumbent producers in the Beer Production industry are known to be some of the largest advertisers in the entire economy. This creates a barrier to entry because it makes it difficult for a new player to capture some of the market.

In addition to the high costs of establishing a distribution network for players that wish to compete in the national market, there are regulatory burdens that create barriers to entry. The distribution of alcohol in the United States is highly regulated and many states do not allow producers to act as wholesalers. Licensed wholesalers have some degree of market power since their numbers are controlled. To make matters worse, it is more cost effective for wholesalers to deal with a limited number of manufacturers because this decreases their transaction costs.

Despite these high barriers to entry, some have declined for smaller brewers. Taxes are lower for such companies, defined as producing fewer than 60,000 barrels of beer a year. Also, the Boston Beer Company, which produces Samuel Adams Boston Lager, represents an example of how craft brewers can avoid some barriers to entry and capital costs. The company focuses on developing recipes as well as marketing,

Basis�of�Competitioncontinued

Other beverage industries are becoming more fragmented, offering drinks that are competing directly with beer. Not only is wine becoming increasingly popular with 21- to 35-year-olds, but there are also new “adult” drinks

aimed at consumers in this age range who are looking to relax. These include low-sugar adult sodas, relaxation drinks and exotic juices that are increasingly sold alongside beer by retailers, restaurants and other establishments.

Barriers�to�Entry�checklist� Level

Competition MediumConcentration HighLife Cycle Stage DeclineInvestment Requirements HighTechnology Change LowRegulation & Policy HeavyIndustry Assistance Low

SOURCE: WWW.IBISWORLD.COM

Level�&�Trend��Barriers to Entry in this industry are High and Steady

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 22

Competitive�Landscape

Industry�Globalization

The industry’s moderate level of globalization has increased over the five years to 2010 and is forecast to continue increasing over the next five years. Nearly all the small to medium-size breweries are domestically owned, with little participation in international markets.

Meanwhile, both major players are foreign owned and heavily involved in the international brewing market. Anheuser-Busch InBev, which controls nearly 50.0% of market share, is headquartered in Belgium; the parent companies of the MillerCoors joint venture are located in South Africa and Canada. Even prior to its purchase by InBev, Anheuser-Busch had a majority stake in Harbin Brewery in China and has purchased other Chinese breweries from Lion Nathan, an alcoholic beverage company with operations in Australia and New Zealand. Furthermore, it had a

35.1% stake in Grupo Modelo, Mexico’s largest brewer, and a 9.9% stake in Tsingtao Brewing Company, the largest brewer in China. Large brewing companies are increasingly looking for exposure to markets with growing beer consumption levels. This move is due to stagnant beer consumption in the United States, which restricts opportunities for growth.

Licensing agreements and international brewing operations have increased over the past five years, resulting in foreign brands being marketed domestically. There are a number of license brewing arrangements for international brands, where beers originating outside the United States are brewed domestically using the original recipes. Other arrangements include exclusive rights to either import or distribute particular international beers.

SOURCE: WWW.IBISWORLD.COM

Trade�Globalization Going�Global:�Beer�Production�1998-2010

Expo

rts/

Reve

nue

Expo

rts/

Reve

nue

200

150

100

50

0

200

150

100

50

0

Imports/Domestic�Demand Imports/Domestic�Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalization.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal

Beer�Production 19982010

Level�&�Trend��Globalization in this industry is Medium and the trend is Increasing

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 23

Player�Performance Anheuser-Busch InBev (AB InBev) is the result of a merger between Anheuser-Busch (AB) and InBev. The combination of these two brewing giants gives the new company a clear leading position in the global brewing industry, with operations spanning all populated continents and valued at $23.7 billion on a pro forma basis. Following resistance by some members of the AB board and a subsequent increase in the offer price, the AB board eventually approved the purchase in July 2008.

AB’s businesses include brewing, packaging, theme parks and real estate. Prior to purchasing the company, InBev had a strong global presence in its own right. AB had already distributed its global brands in the United States, and the company held the position of largest brewer by volume prior to the merger. The combination of these two brewers

establishes a truly global brewing powerhouse. Since the merger, the company has sold its theme park business in order to focus on beers.

InBev has achieved rapid growth over the past decade, mainly through acquisition activity over the past two decades. This trend may finally slow down, however, as the company’s debt levels increase; a further rise may be unsustainable given the weak outlook for this market. The company’s stated goal is to focus on promoting its largest brands, which includes outbidding MillerCoors to be the official sponsor of the NFL starting in the 2010 football season. Its sponsorship of the 2010 World Cup was highly successful, boosting sales of Budweiser for the two quarters following the games.

AB InBev has also established a number of strategic alliances to further

�Major�CompaniesAnheuser-Busch�InBev�� |�� MillerCoors�LLC�� |�� Other�Companies

25.4%Other

Anheuser-Busch�InBev�45.5%

MillerCoors�LLC�29.1%

SOURCE: WWW.IBISWORLD.COM

Major�players(Market share)

Anheuser-Busch�InBev��Market share: 45.5% Industry�Brand�NamesBudweiser Bud Light Beck’s Stella Artois Michelob Natural Light Leffe Hoegaarden O’Doul’s

Anheuser-Busch�InBev�(beer�production�segment)�–�fi�nancial�performance

YearRevenue�

($ million) (% change)Operating�Income�

($ million) (% change)

2005* 11,794 N/C N/A N/C

2006* 11,759 -0.3 N/A N/C

2007* 12,228 4.0 N/A N/C

2008 12,099 -1.1 N/A N/C

2009 11,888 -1.7 246 N/C

2010** 11,824 -0.5 713 189.8

*AB�domestic�beer�production�premerger,�**EstimateSOURCE: ANNUAL REPORT AND IBISWORLD

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 24

Major�Companies

Player�Performancecontinued

its beer sales and its stronghold on the domestic market. One example is an alliance with Redhook Ale Brewery Inc. This brewery’s products are distributed on behalf of many AB InBev wholesalers. A similar alliance exists between AB InBev and the Widmer Brothers Brewing Company. Widmer products are distributed by many AB InBev wholesalers and exclusively by AB InBev wholesalers in all new US markets.

Sales have been slow since their peak in 2007, despite the company’s recent recommitment to heavy advertising. The Stella Artois brand continues to increase its presence, mainly by leveraging AB’s existing distribution channels. The company’s value brands also performed

well as some customers switched to lower price points. Even still, competition from craft, regional and other beverage producers has intensified significantly, hurting company sales.

Despite slowed sales, the company’s profit margin is significantly higher than the industry average, at 32.0% of its revenue. The company lowered its cost of sales by reducing its operating expenses and taking advantage of the merger. The increased profit margin is partially attributable to media deflation, which allowed the company to purchase more advertising at lower costs. An example of this is Super Bowl ads, the cost of which fell from $3 million per 30-second spot in 2009 to $2.7 million in 2010.

Player�Performance MillerCoors has eight breweries within the United States, is headquartered in Chicago and is estimated to employ more than 8,500 people in 2010. The company continues to face the challenge of growing its market share without hurting the performance of brands that occupy similar niches, such as Miller and Coors. Starting in late 2008, SABMiller and Molson Coors agreed to combine their US businesses into a joint venture to better compete with the dominant AB InBev. SABMiller has a 58.0% equity stake in

the company, while Molson Coors accounts for the remaining 42.0%.

The joint venture reduces some costs of production and transportation. By brewing both SABMiller and Molson Coors beers at all sites owned between the two brewers, transport and other costs have been reduced. Employee-related costs were also cut because hundreds of people were laid off when the operations merged. The company reports that the integration of these two businesses is ahead of schedule, and cost

MillerCoors�LLC��Market share: 29.1% Industry�Brand�NamesMiller Coors Blue Moon Mickey’s Pilsner Urquell Foster’s Keystone Milwaukee’s Best Steel Reserve Killian’s SABMiller�(North�American�segment)�–�fi�nancial�performance

YearRevenue�

($ million) (% change)

Operating�Income�

($ million) (% change) Employees

2005 4,892 2.4 487 14.9 5,760

2006 4,912 0.4 454 -6.8 5,887

2007 4,887 -0.5 375 -17.4 5,889

SOURCE: ANNUAL REPORT

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 25

Major�Companies

savings have been realized at a greater rate than anticipated.

Molson Coors Brewing Company was formed in February 2005 with the merging of Molson Canada with Colorado-based Coors Brewing Company to make the world’s fifth largest global brewer. Molson Coors has 15,000 employees worldwide, 18 breweries and a broad portfolio of more than 40 brands.

SABMiller – formerly South African Breweries – entered the US brewing industry upon purchasing Miller Brewing Company from Philip Morris in 2002. By volume, the company is the world’s second largest brewer and employs more than 38,000 people in 111 breweries. It is also the largest global bottler of Coca-Cola products. SABMiller has numerous strong beer brands and a leading market share in many countries.

Much like AB InBev, MillerCoors’ large market share means that the trends it faces are fairly representative of the

industry in general. Aiding this fact is that MillerCoors has a wide array of offerings, including involvement in the craft-brewing segment. In 2009, after the first full year as a new company, MillerCoors focused on realizing the synergies of its merger and reducing marketing and administrative costs.

Sales to both retailers and wholesalers declined by volume by 1.7% in 2009, primarily due to lower consumer spending and destocking. Yet revenue increased 1.2% as a result of stronger sales of premium products. In 2010, revenue is anticipated to drop 0.1% year on year because of poor consumer sentiment. To make matters worse, the company was outbid for its traditional support of the NFL, meaning that it may not experience its usual spike in sales during the football season in the fall of 2010.

Nonetheless, the company expects to unlock $750 million in synergies and

Player�Performancecontinued

MillerCoors�(US�segment)�–�fi�nancial�performance

YearRevenue�

($ million) (% change)Operating�Income�

($ million) (% change)

2008 5,248 N/C 326 N/C

2009 5,311 1.2 520 59.5

2010* 5,306 -0.1 667 28.3

*EstimateSOURCE: ANNUAL REPORT AND IBISWORLD

Molson�Coors�(US�segment)�–�fi�nancial�performance

YearRevenue�

($ million) (% change)

Operating�Income�

($ million) (% change) Employees

2005 2,475.0 N/C 142.0 N/C 10,200

2006 2,619.9 5.9 159.1 12.0 9,550

2007 2,764.9 5.5 285.8 79.6 4,100

SOURCE: ANNUAL REPORT

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 26

Major�Companies

Player�Performancecontinued

cost savings by the end of 2012. An additional boon for the company has been favorable tax benefits to smaller

breweries, which helped it record a profit margin of 9.5% even within the difficult operating climate.

Other�Companies Craft breweriesThe craft-brewing sector is made up of microbreweries, brewpubs, contract brewing companies, regional breweries and regional specialty breweries. According to the Brewers Association, a craft brewer is small, independent and traditional. Small brewers are defined as producing less than 2 million barrels of beer per year. A brewer is considered independent if less than 25.0% of the craft brewery is owned or controlled (or equivalent economic interest) by an alcoholic beverage industry member who is not a craft brewer. Major brewers have been targeting the same demographic as craft brewers in order to capture some of the growth enjoyed by this smaller high-growth segment.

Microbreweries are businesses that produce less than 75,000 barrels a year. In the 1990s, a revival of small regional breweries was initiated in the United States with the passage of a law in 1993 that allowed restaurants and bars to produce and sell their own brews on their premises. Brewpubs became permitted to sell up to 5,000 barrels a year; although they may sell it at their establishments, many may not distribute it through retail outlets (this varies from state to state).

In addition to the companies detailed below, other craft brewers include Sierra Nevada Brewing Co., New Belgium Brewing Co. and Redhook Ale Brewery, among others.

The Boston Beer CompanyEstimated market share: 2.0%This company has benefited from the vibrant craft-brewing scene in its hometown of Boston. Its core brands include Samuel Adams Boston Lager and

Sam Adams Light; however, it produces a large number of other beers as well as cider and flavored malt beverages. The company competes within the craft segment and concentrates on product quality rather than engaging in price competition with larger brewers. Its competitive strengths over other regional brewers include a number of awards for its products, distribution capabilities and scale relative to other smaller brewers. It is expected to earn nearly $526 million in 2010 as it continues to grow after stagnant sales of $453 million in 2009 revenue.

Pabst Brewing CompanyEstimated market share: Less than 1.0%Pabst Brewing Company is an Illinois-based brewer that was established in 1884 and survived as a company through prohibition by producing soft drinks and cheese instead of beer. Following prohibition, the brewer emerged as a medium-size player and benefited from the growth of the industry through the 1940s and 1950s. Today, the company produces Pabst Blue Ribbon and Pabst Blue Ribbon Light. It has won medals in the Great American Beer Festival and remains a second-tier player, despite acquiring the Schiltz brand that was one of the top-selling beers in the 1960s. In 2007, the Brewers Association ranked the company as the No. 4 selling beer by volume.

Yuengling and Son IncorporatedEstimated market share: Less than 1.0%Yuengling is another brewer that survived prohibition, but it was first established as Eagle Brewery. It is reportedly the oldest brewing company in

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WWW.IBISWORLD.COM� Beer�Production�in�the�US September 2010 27

Major�Companies

Other�Companiescontinued

the United States. The company’s products, including lagers and ales, are distributed in eastern states from New York to Florida and are marketed with a

focus on the brewer’s history. The company produces its beers from three breweries and was ranked as the sixth largest brewer by volume in 2007.

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InvestmentRequirements

Like all large-scale manufacturing, beer production requires substantial amounts of capital investment. Stills, filtration systems, bottling lines and other machinery are bought when a plant is first established but require continuous maintenance and repair. Plants must spend an average of $450,000 annually in addition to the initial setup costs, which can be in the multimillions for some facilities. On average, beer producers spend 36 cents on equipment for every dollar spent on labor. However, the specific amount of capital spending varies each year and by the size of the plant.

The majority of the production process is mechanized and little labor is needed,

and because the industry has the most craft breweries and brewpubs, 69.1% of

�Operating�ConditionsStructural�Risk�Index�� |�� Investment�Requirements�� |�� Technology�&�SystemsIndustry�Volatility�� |�� Regulation�&�Policy�� |�� Industry�Assistance�� |�� Taxation�Issues

IBISWorld has scored key elements of industry structure on a scale of 1 to 9 – the higher the figure, the greater the risks to businesses operating in the industry.

Operating conditions in the Beer Production industry are less risky than in

other industries in the Manufacturing division. The industry structural risk index totals 44.4 points compared to 63.5 points for the Manufacturing division as a whole (100 points equates to extremely poor operating conditions).

Beer�Production Manufacturing

Re

venu

e Vola

tility

Barriers to Entry Com

petition Exports

Life Cycle Stage Levels of Assistance Imports

SOURCE: WWW.IBISWORLD.COM

Structural�Risk�Index

Industry�Relax�PointsBarriers�to�EntryExportsRevenue�Volatility

Industry�Pressure�PointsImportsLevels�of�Assistance

63.5Score

Re

venu

e Vola

tility

Barriers to Entry Com

petition Exports

Life Cycle Stage Levels of Assistance Imports

44.4Score

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Beer ProductionManufacturingEconomy

Level��The level of investment required is High

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Operating�Conditions

Technology&�Systems

Traditional beer is generally made the same way as it has been for centuries. However, there have been some recent advancements in technology, such as more efficient boiling systems. Most of the technological developments in brewing now occur at the company level and revolve around refining brewing processes to improve the quality of the product.

Advancements have focused on reducing the energy consumption of

brewing systems. An example of this is Anheuser-Busch’s goal of using renewable energy in its production operations. Another development on the horizon for the industry is the use of solar energy in the brewing process to supplement purchased energy sources.

Technology used for point-of-sale marketing has also been developed over the five years to 2010. Signs using LED streaming technology are often

InvestmentRequirementscontinued

companies have fewer than 20 employees. The largest two, however, have a significant global presence, multiple factories and large corporate offices with executive and marketing

departments. Their sizes drive up their labor costs considerably because they must pay a greater number of workers, such as additional managers, salesmen and marketers.

Tools�of�the�Trade:�Growth�Strategies�for�Success

SOURCE: WWW.IBISWORLD.COM

Labo

r�Int

ensi

veCapital�Intensive

Change�in�Share�of�the�Economy

New�Age�Economy

Recreation,�Personal�Services,�Health�and�Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional�Service�Economy

Wholesale�and�Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old�Economy

Agriculture�and�Manufacturing.�Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment�Economy

Information,�Communications,�Mining,�Finance�and�Real�Estate.�To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Wine�ProductionBeer�Wholesaling

Grain�Farming

Liquor�&�Spirits�Production

Flour�Milling

Beer�Production

Level��The level of Technology Change is Low

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Operating�Conditions

Revenue�Volatility Industry revenue has been particularly volatile over the five years to 2010. Not only did the global recession lead to significant declines in trade and suppress consumer spending, but the increased popularity of wine and other nonalcoholic beverages also resulted in a decline in

demand for beer. These events, however, were partly offset by the increasing popularity of craft and premium beers. The already growing demand for these particular types of beer is anticipated to boost industry revenue as consumer spending picks up over the five years to 2015.

Technology&�Systemscontinued

sent to bars and liquor stores by beer producers (most often by the big two). Other developments in advertising materials are catching on too, such as Nature’s Flash Light, a bioluminescent technology that produces special effects on signs.

Technologies used to distribute, store, package and keep track of beer products

are also changing constantly, giving an indirect boost to the industry by lowering final prices through decreasing middleman costs. From electric and hybrid fleet vehicles adopted by distributors to inventory management software used by warehouses, technology helps the industry provide consumers with lower-cost beer.

Level��The level of Volatility is Medium

SOURCE: WWW.IBISWORLD.COM

Volatility�vs�Growth

Reve

nue�

vola

tility

*�(%

)

1000

100

10

1

0.1

Five�year�annualized�revenue�growth�(%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue�Chip

* Axis is in logarithmic scale

Beer�Production

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Regulation�&�Policy Some laws impacting the US Beer Production industry have been “grandfathered from prohibition,” some are in place for perceived tax revenue generation and others are simply anticompetitive regulations that favor a select few. Many beer producers across the country oppose such laws.

Bureau of Alcohol, Tobacco Firearms and Explosives (ATF)ATF is a law-enforcement agency within the US Department of the Treasury and is responsible for protecting the public, reducing violent crime and collecting revenue. ATF enforces the federal laws and regulations relating to alcohol,

Level�&�Trend��The level of Regulation is Heavy and the trend is Steady

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Operating�Conditions

tobacco products, firearms, explosives and arson. As part of its alcohol responsibilities, the ATF approves labels and monitors advertising; regulates labeling, marking, packaging and branding of all distilled spirits, wine and beer sold in the United States; and regulates US production and the importation of all alcohol beverages, including distilled spirits, malt beverages and wine.

US Alcohol and Tobacco Tax and Trade Bureau (TTB)In 2003, the TTB published proposed regulations on the formulation, labeling and advertising of flavored malt beverages (FMBs). The final ruling was passed in 2005, which allowed for the addition of flavors and other nonbeverage ingredients but limited the alcohol contribution of such flavors to 49.0% of the alcohol content of the product. For instance, beverages with alcohol content exceeding 6.0% alcohol by volume could contain no more than 1.5% of this alcohol from flavors and nonbeverage ingredients.

The TTB sends out publications to remind brewers and importers of limitations to the use of flavors and nonbeverage ingredients containing alcohol in the production of FMBs. When producers do not comply with the regulations, the beverage is classified as a distilled spirit and taxed at the much higher distilled spirits rate.

State regulationsThere are two types of regulatory environments in the United States where alcohol regulations are made on the state level: open and control states. In open states, brewers are allowed to sell beer and ale directly to independent distributors, whereas in most control states, company’s market their spirit products to state liquor control boards through a warehousing system, and from there to state liquor stores. Beer distribution follows open states regulation across the entire United States.

Regulations vary from state to state for direct sales, brewery tours, brewpubs, microbreweries, excise, packaging and franchising and are usually more stringent throughout eastern states than those in the west. Of all the states, Florida and Georgia have the highest level of state excise, at 48 cents per gallon. The lowest state-based excise is in Wyoming, where excise is two cents per gallon. The US average rate is about 19 cents per gallon. In an effort to raise taxes and stimulate small brewery business, some states have relaxed regulations on where beer can be sold and under what conditions, One example of this is South Carolina, which recently started allowing breweries to conduct tours and sell a limited amount of beer directly to customers.

Regulation�&�Policycontinued

Industry�Assistance Protection of the domestic brewing industry is in the form of tariffs on imported products. According to the latest information available from the International Trade Administration in the Department of Commerce, the general rate of import tariff on nonalcoholic beer is two cents per liter. For beer made from malt, there is no import tariff imposed. The

industry is protected, up to a point, from imports by the high cost of transport given the weight of the product and the low value relative to this weight. However, favorable production conditions in Mexico and Canada have led foreign premium brands to set up shop in neighboring countries in order to produce beer for sale in the United States.

Level�&�Trend��The level of Industry Assistance is Low and the trend is Steady

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Operating�Conditions

Other assistance is provided by organizations including:

The Beer InstituteThe US Beer Institute was formed to represent the industry before Congress in 1986. It runs a number of initiatives, such as an advertising code and responsible drinking advocacy. The body also lobbies the government regarding beer taxes and state and federal regulatory issues and collects statistics about the industry that it then distributes to members. Members include representatives from Anheuser-Busch, Coors, Miller, Heineken USA and Grupo Modelo.

Small Brewers CaucusThe House Small Brewers Caucus is composed of members of Congress who have an interest in the issues faced by smaller brewers. The aim of the caucus is to provide members with the opportunity to learn about the business and regulatory and societal issues relating to

small breweries. The establishment of the caucus shows some recognition of the significance of smaller brewers in the industry and may give smaller brewers greater representation in Congress should there be an issue of importance to their industry before the House. It is supported by the Brewer’s Association, which is comprised of small beer production companies.

Institute for Brewing StudiesThe Institute for Brewing Studies offers establishment and marketing assistance to existing and prospective microbrewers across the country.

Industry�Assistancecontinued

Taxation�Issues Excise taxes are levied at the federal and state levels. In addition, some counties and cities also levy malt beverage excise taxes, while others have an additional sales tax on alcoholic beverages.

Some states have different levies for packaged and draught beer or for malt beverages that are above or below specified alcohol content levels. For brewers manufacturing less than 2 million barrels of beer per year, up to and including the first 60,000 barrels, each barrel is taxed by the federal government at $7 per barrel, rather than the usual $18 per barrel. This rate works out to $0.05 of excise on a 12-ounce can from a regular brewery or $0.02 from a brewery producing less than 2 million barrels. A bill has been proposed that would change the definition of a small brewer to a company producing fewer than 6 million

barrels of beer per year and would tax the first 60,000 barrels at only $3.50 per barrel. The passage of this bill would help small brewers significantly by freeing up cash to reinvest in their operations and expand production.

State excise ranges from $0.02 per gallon in Wyoming to $1.07 per gallon in Alaska. Other relatively high excise rates (per gallon) include $0.93 in Hawaii, $0.77 in South Carolina, $0.53 in North Carolina and Alabama, $0.48 in Florida and Georgia and $0.43 in Mississippi. Some states also provide an excise tax differential for small brewers.

A small portion of beer produced domestically is not taxed. Tax-free shipments are designated for the production of cereal beverages and for export, including to Puerto Rico, other US territories and the US military overseas.

Level��The level of Tax Burden is Heavy

Key�tariffsGoods Low�rate High�rate

Non-alcoholic beer (cents per liter)

0 2

SOURCE: USITC

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�Key�StatisticsRevenue�

($m)

Industry�Value�Added�

($m)Establish-

ments Enterprises EmploymentExports�

($m)Imports�

($m)Wages�($m)

Domestic�Demand

($m)Craft�Beer�

(Mil Barrels)2001 29,348.4 9,229.9 1,263 1,200 45,850 2,104.6 3,244.9 2,707.3 30,488.7 N/A2002 29,743.3 8,936.5 1,287 1,198 42,828 1,925.3 3,234.0 2,683.6 31,052.0 N/A2003 31,250.5 8,619.3 1,319 1,217 37,137 1,954.4 3,505.6 2,434.6 32,801.7 5,137.12004 29,446.0 8,125.6 1,349 1,244 36,862 2,178.5 4,106.1 2,296.0 31,373.6 5,555.22005 30,718.3 9,965.9 1,395 1,292 36,569 2,356.2 4,620.2 2,279.8 32,982.3 5,956.12006 31,151.1 10,832.0 1,427 1,330 36,211 2,811.3 4,986.1 2,207.4 33,325.9 7,147.02007 31,060.4 8,818.4 1,485 1,392 35,576 3,282.4 5,083.9 1,800.1 32,861.9 8,123.62008 28,316.7 9,382.9 1,539 1,431 32,442 3,806.0 5,631.2 1,916.4 30,141.9 8,501.72009 27,264.3 7,453.7 1,595 1,456 32,947 3,116.8 4,310.8 1,791.1 28,458.3 9,115.62010 26,005.5 7,090.8 1,625 1,481 33,867 2,940.2 3,939.0 1,872.4 27,004.3 9,562.32011 26,948.6 8,108.5 1,721 1,602 35,898 3,222.9 4,367.0 2,075.0 28,092.7 N/A2012 26,614.6 8,053.8 1,758 1,618 36,292 3,078.2 4,917.2 2,174.7 28,453.6 N/A2013 27,004.5 8,019.2 1,789 1,661 37,188 3,135.3 5,290.3 2,143.0 29,159.5 N/A2014 27,798.1 8,232.4 1,830 1,695 37,986 3,255.7 5,763.4 2,205.9 30,305.8 N/A2015 28,155.0 8,406.3 1,825 1,689 37,846 3,274.3 6,282.1 2,256.4 31,162.8 N/ASector�Rank 54/204 74/204 52/204 49/204 104/204 72/193 77/193 92/204 61/193 N/AEconomy�Rank 263/712 304/712 492/711 458/708 488/712 91/255 87/250 429/710 81/250 N/A

IVA/Revenue�(%)

Imports/�Demand�

(%)Exports/Revenue�

(%)

Revenue�per�Employee�

($’000)Wages/Revenue�

(%)Employees�

per�Est.Average�Wage�

($)

Share�of�the�Economy�

(%)2001 31.45 10.64 7.17 640.10 9.22 36.30 59,046.89 0.082002 30.05 10.41 6.47 694.48 9.02 33.28 62,659.94 0.082003 27.58 10.69 6.25 841.49 7.79 28.16 65,557.26 0.072004 27.59 13.09 7.40 798.82 7.80 27.33 62,286.37 0.072005 32.44 14.01 7.67 840.01 7.42 26.21 62,342.42 0.082006 34.77 14.96 9.02 860.27 7.09 25.38 60,959.38 0.082007 28.39 15.47 10.57 873.07 5.80 23.96 50,598.72 0.072008 33.14 18.68 13.44 872.84 6.77 21.08 59,071.57 0.072009 27.34 15.15 11.43 827.52 6.57 20.66 54,363.07 0.062010 27.27 14.59 11.31 767.87 7.20 20.84 55,286.86 0.052011 30.09 15.54 11.96 750.70 7.70 20.86 57,802.66 0.062012 30.26 17.28 11.57 733.35 8.17 20.64 59,922.30 0.062013 29.70 18.14 11.61 726.16 7.94 20.79 57,626.12 0.052014 29.61 19.02 11.71 731.80 7.94 20.76 58,071.39 0.052015 29.86 20.16 11.63 743.94 8.01 20.74 59,620.57 0.05Sector�Rank 153/204 125/193 121/193 30/204 177/204 171/204 63/204 74/204Economy�Rank 491/712 144/250 151/255 92/712 618/710 270/711 190/710 304/712

Figures are inflation-adjusted 2010 dollars. Rank refers to 2010 data.

Revenue�(%)

Industry�Value�Added�

(%)

Establish-ments�

(%)Enterprises�

(%)Employment�

(%)Exports�

(%)Imports�

(%)Wages�

(%)

Domestic�Demand�

(%)Craft�Beer�

(%)2002 1.3 -3.2 1.9 -0.2 -6.6 -8.5 -0.3 -0.9 1.8 N/A2003 5.1 -3.5 2.5 1.6 -13.3 1.5 8.4 -9.3 5.6 N/A2004 -5.8 -5.7 2.3 2.2 -0.7 11.5 17.1 -5.7 -4.4 8.12005 4.3 22.6 3.4 3.9 -0.8 8.2 12.5 -0.7 5.1 7.22006 1.4 8.7 2.3 2.9 -1.0 19.3 7.9 -3.2 1.0 20.02007 -0.3 -18.6 4.1 4.7 -1.8 16.8 2.0 -18.5 -1.4 13.72008 -8.8 6.4 3.6 2.8 -8.8 16.0 10.8 6.5 -8.3 4.72009 -3.7 -20.6 3.6 1.7 1.6 -18.1 -23.4 -6.5 -5.6 7.22010 -4.6 -4.9 1.9 1.7 2.8 -5.7 -8.6 4.5 -5.1 4.92011 3.6 14.4 5.9 8.2 6.0 9.6 10.9 10.8 4.0 N/A2012 -1.2 -0.7 2.1 1.0 1.1 -4.5 12.6 4.8 1.3 N/A2013 1.5 -0.4 1.8 2.7 2.5 1.9 7.6 -1.5 2.5 N/A2014 2.9 2.7 2.3 2.0 2.1 3.8 8.9 2.9 3.9 N/A2015 1.3 2.1 -0.3 -0.4 -0.4 0.6 9.0 2.3 2.8 N/ASector�Rank 184/204 179/204 11/204 11/204 23/204 173/193 180/193 16/204 175/193 N/AEconomy�Rank 645/711 630/712 76/711 76/708 70/712 227/255 225/250 52/710 225/250 N/A

Annual�Change

Key�Ratios

Industry�Data

SOURCE: WWW.IBISWORLD.COM

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Key�Statistics

HistoricalPerformance

The modern history of brewing in the United States began when prohibition ended in December 1933. Prohibition was the period when the sale, manufacture and transportation of alcohol were illegal. The rise of organized crime in selling alcohol was one factor that led to the eventual repeal of the policy. Fewer than 1,000 brewers existed in the United States following prohibition.

During the late 1970s and early 1980s, the number of brewing companies declined strongly. This period of consolidation led to the emergence of a small number of national brewers; however, an end to a ban on home brewing (in 1978) stimulated growth of the craft-brewing segment. The change resulted in small-scale brewing in almost every state in the nation. Rapid growth of the craft-brewing industry occurred until 1994, with production increasing by 50.0% (obviously off a small base) and the industry’s market share increasing by 40.0% compared to the previous year.

The rising popularity of craft beer also brought a sharp increase in the number of new craft breweries. Throughout 1994, 100 brewpubs and 62 microbreweries opened throughout the country. At the end of 1994, there were 543 craft breweries in the United States.

While the craft-beer industry can claim only a fraction of the national beer market, the specialty brewers’ 1.3% market share at the end of 1994 represented a 40.0% jump compared to its 1993 share. By November 2001, craft brewing reached a maturity phase in its life cycle, with 382 microbreweries, 62 regional specialty breweries and 1,008 brewpubs across the country.

The brewing industry became highly competitive for large and medium-size brewers in 1995 and 1996, with Pabst and Lone Star laying off employees and closing plants and Miller Brewing Company also making job cuts. In a mature industry like brewing, both acquisitions and downsizing have been required to ensure economic viability.

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Jargon�&�Glossary

BARRIERS�TO�ENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.

CAPITAL/LABOR�INTENSITY An indicator of how much capital is used in production as opposed to labor. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3 – $8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.

DOMESTIC�DEMAND The use of goods and services within the US; the sum of imports and domestic production minus exports.

EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.

ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.

ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.

EXPORTS The total sales and transfers of goods produced by an industry that are exported.

IMPORTS The value of goods and services imported with the amount payable to non-residents.

INDUSTRY�CONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.

INDUSTRY�REVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY�VALUE�ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).

INTERNATIONAL�TRADE The level is determined by: Exports/Revenue: Low is 0 –5%; Medium is 5 –20%; High is over 20%. Imports/Domestic Demand: Low is 0 –5%; Medium is 5 –35%; and High is over 35%.

LIFE�CYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.

NON-EMPLOYING�ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.

VOLATILITY The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees of the establishment.

Industry�Jargon

IBISWorld�Glossary

BARREL A container for beer that is equivalent to two kegs, 31 gallons, 1.17 hectoliters or 330 12-ounce servings of beer.

BREWPUB A restaurant-brewery that sells more than 25.0% of its beer on-site.

CRAFT�BREWER A brewery that has annual production of less than 2 million barrels and has fewer than 25.0% of its ownership in the hands of a noncraft brewer. It typically targets local and regional markets.

MALT�BEVERAGE The general name for all products made with malted barley or hops. It must derive the majority of its alcohol content from the fermentation of brewing ingredients.

MALT�LIQUOR A malt beverage with an alcohol content of higher than 6.0% in most states; higher alcohol content usually results from corn, rice or sugar additives.

MICROBREWERY A brewery that produces fewer than 15,000 barrels of beer per year with 75.0% or more of its beer sold off-site.

REGIONAL�BREWERY A brewery with an annual beer production of between 15,000 and 2 million barrels.

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