Molson Coors Brewing Co in Beer (World)

8/12/2019 Molson Coors Brewing Co in Beer (World)

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MOLSON COORS BREWING CO IN BEER (WORLD)

October 2013


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Euromonitor International PASSPORT 2ALCOHOLIC DRINKS BEER: MOLSON COORS BREWING CO

Disclaimer

Much of the information in thisbriefing is of a statistical nature and,while every attempt has been madeto ensure accuracy and reliability,Euromonitor International cannot beheld responsible for omissions orerrors.

Figures in tables and analyses arecalculated from unrounded data andmay not sum. Analyses found in thebriefings may not totally reflect thecompanies opinions, reader

discretion is advised.

The 2012 acquis it ion o f

StarBev raised Molson Co ors

from ninth to seventh in the

global beer market and

signif icant ly expanded its

internat ional coverage. This

prof i le analyses the

oppo rtunit ies deriv ing from the

acquis it ion and considers ways

in which the company canaddress the remaining

weaknesses in its core market

operat ions and its geographic

prof i le.

ScopeSCOPE OF THE REPORT

Alcoholic Drinks 2012251 billion litres

Wine29 billion litres

Beer195 billion litres

Spirits21 billion litres

RTDs/High-Strength Premixes

4 billion litres

Cider/Perry2 billion litres
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Acquisition drives strong growth

Molson Coors rose two places to become theworlds seventh largest brewer in 2012, primarily as

a result of its acquisition of StarBev during the year.The deal made Molson Coors the fastest-growingbrewer in the global top 50 during 2012, as its salesrose by 24%.

The StarBev acquisition transformed Molson Coorspresence in Eastern Europe, enabling it to hold a top

10 ranking in 12 markets in 2012, having previouslyrelied entirely on Macedonia for its sales in theregion.

Eastern Europe thus became Molson Coors second

largest regional market, generating 20% of its globalbeer volumes in 2012. North America remains thecompanys largest market, accounting for 66% of its

total beer sales.

While beer dominates Molson Coors operations,

accounting for 98% of its alcoholic drinks volumes in2012, the company is also a globally significantplayer in every RTD/high-strength premixescategory.0

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Millionlitres

Molson Coors: Global Alcoholic DrinksVolumes 2008-2012

Key company factsSTRATEGIC EVALUATION

Molson Coors Brewing Co

Headquarters: Montreal, Canada

Regionalinvolvement:

North America, EasternEurope, Western Europe, AsiaPacific, Latin America

Categoryinvolvement:

Beer, RTDs/high-strengthpremixes

Global beer volume

share 2012:3.2%

Global beer volumegrowth 2012:

23.9%


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Molson Coors recorded an 11% increase in

net sales in 2012, primarily as a result of theacquisition of StarBev, positive pricing inCanada and higher volumes for its MolsonCoors International segment, which includes

Asia, continental Europe (outside CentralEurope), Mexico, Latin America and theCaribbean. The positive impact of thesefactors was partially offset by declining

volumes in Canada and the UK. Net income declined in 2012 mainly as aresult of financing related to Molson CoorsCentral Europe and costs pertaining to thedeconsolidation of Molson Coors Si'hai, thecompanys joint venture in China,

restructuring charges incurred by each of itssegments, and unfavourable foreign currency

movements.

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Molson Coors: Reported Net Sales and Net

Income 2011/2012

Net Sales Net Income

Geographic expansion drives growthSTRATEGIC EVALUATION


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Molson Coors reported a 20% increase in

worldwide beer volume and an 18% rise in netsales in the second quarter of 2013, compared withthe same period in the previous year, attributableto the acquisition of its Central Europeanoperations (previously StarBev) in June 2012.

The acquisition also had a marked positive impacton profits, with net income increasing by 165% inthe second quarter of 2013. A lower effective tax

rate (primarily resulting from changes in Canadiantax legislation during the quarter) and improvedfinancial performance in the companys Europeand International businesses also contributed togrowth in net income, as did a US$172 millionreduction in special and other non-core expensesprimarily related to the Central Europeanacquisition in 2012.

According to Molson Coors, brand and packaginginnovations and the strength of its above-premium brands, an area in which it is working to

improve its portfolio, made significant contributionsto its positive results.

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Molson Coors: Financial PerformanceH1 2012-H1 2013

Net Sales Net Income Operating Income

Acquisition underlies growth in 2013STRATEGIC EVALUATION

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Molson Coors: Financial Performance Q2

2012-Q2 2013

Net Sales Net Income Operating Income


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STRENGTHS

OPPORTUNITIES

WEAKNESSES

THREATS

With the Molson andCoors familiescontrolling voting rights,the company is in arelatively strong positionto develop coherent

long-term strategies andhas some protectionagainst hostile takeoverattempts.

Ownership structure

Molson Coors ranksamong the top threeplayers in each of itsthree largest markets,the US, Canada and theUK - all important, high-

margin markets for beercompanies.

Core market strength

Despite its internationalexpansion efforts,Molson Coors still lacksa major presence in keyLatin American markets,and has not yet

established itself AsiaPacific.

Limited presence in keygrowth markets Despite the 2012acquisition of StarBevexpanding its presencein Eastern Europe,Molson Coors remainsheavily reliant on mature

markets in NorthAmerica and WesternEurope.

Reliance on maturemarkets

While overall beervolume growth is

expected to remainsluggish at best in itscore markets, craft beerand cider/perry offersignificant potential forexpansion.

Craft beer and cider/perrygrowth

Molson Coors isdeveloping its presence

in several emergingmarkets, particularly in

Asia Pacific, which ispredicted to drive globalvolume growth over2012-2017.

Expansion in emergingmarkets

Volatile raw materialprices place a growing

onus on Molson Coorsefforts to increaseoperational efficiency,develop local productionand build a higher-margin offer.

Raw material prices

While thepremiumisation trend in

the US presents notableopportunities, MolsonCoors needs to addressthe weakness of its offerin categories such aspremium lager.

Premiumisation in the US

SWOT: Molson Coors Brewing CoSTRATEGIC EVALUATION


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Strategic alliances play a key role in Molson Coorsoperations, both in terms of building its position incore markets and expanding its geographic profile.In its largest market, the US, the companyoperates through a joint venture with the worlds

second largest brewer, SABMiller. The companyhas also looked to expand its internationalpresence through partnerships with local players,including Moscow Brewing Co in Russia and VietThai in Vietnam. However, it decided to liquidate itsunderperforming Chinese joint venture in 2012.

Beers travails in key markets derive in part from the

shift of younger consumers towards alternativedrinks. In this context, Molson Coors is looking totarget consumers who have turned away from beeror are not traditional beer drinkers through the

diversification of its offer. In the UK, Carling Zestaims to expand the definition of beer and attractconsumers who have been shifted to cider andwine, including women. Meanwhile, the companyhas also entered cider in both the UK and the US.

With its key US, Canadian and UK marketsoffering limited potential for volume growth, MolsonCoors faces the challenge of developing a morepremium-orientated offer capable of generatingvalue in a mature environment. To this end, it hasinvested in the acquisition of craft beer brands in allthree markets, and is also looking to strengthen itspremium offer in lager through innovation and

increased investment in marketing.

Molson Coors aims to reduce its reliance onmature developed markets in North America andWestern Europe through geographic expansion.The 2012 acquisition of StarBev significantlyenhanced its operations in Eastern Europe, thoughit has so far only made minor inroads into fast-growing emerging markets in Asia Pacific and Latin

America.

Build higher-margin offer in mature markets Geographic expansion

Expand consumer base through diversification Develop through partnerships

Key strategic objectives and challengesSTRATEGIC EVALUATION


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STRATEGIC EVALUATION

COMPETITIVE POSITIONING

MARKET ASSESSMENT

GEOGRAPHIC AND CATEGORYOPPORTUNITIES

BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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%y

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Molson Coors vs Global Beer Volume Growth 2007-2012

World Molson Coors

2008 was an important milestone for Molson Coors, as the company formed a joint venture with SABMiller

(MillerCoors), combining both companies US and Puerto Rican businesses. Thanks to solid growth inNorth America, Molson Coors outpaced the overall global beer market in terms of volume growth during theyear, despite its declines in Western Europe and Latin America.

The company continued to outpace the global market in 2009 and 2010, but lagged behind in 2011 as itsaw a marked decline in sales in India and China at the same time as stagnation in the UK, the US andCanada. While Molson Coors registered significant declines in volume in the UK, Canada, India and Chinain 2012, it recorded an improved performance in the US. However, the acquisition of StarBev was thedriving factor in the companys growth accelerating ahead of the overall global market.

Acquisition drives growth as key markets struggleCOMPETITIVE POSITIONING


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Beer: Top 10 Global Companies by Volume Share

2011-2012

Company 2011 2012

Anheuser-Busch InBev 18.0 17.8

SABMiller 9.9 9.7

Heineken 8.8 9.2

Carlsberg 5.7 5.7

China Resources Enterprise 5.3 5.6

Tsingtao Brewery 3.7 4.1

Molson Coors 2.7 3.2

Beijing Yanjing Brewery 2.9 3.0

Grupo Modelo 2.8 2.8

Kirin Holdings 2.6 2.5

Molson Coors recorded the highest volume sharegrowth among the worlds leading brewers in 2012,rising from ninth to seventh in the global rankings, asa result of its acquisition of StarBev, which operatesnine breweries in Central and Eastern Europe.

The acquisition of Grupo Modelo, ranked ninthglobally in 2012, is set to strengthen A-B InBevsglobal standing in 2013, despite the world leaderhaving to relinquish the companys US operations.The deal will give A-B InBev the lead in Mexico and20% of global volumes (based on 2012 volumes),more than twice that of its main rivals.

Third-placed Heineken narrowed the gap onSABMiller to less than one percentage point during2012. Expansion in emerging Asian markets,including China, played an important part inHeinekens ongoing share growth, with the companyacquiring Singapore-based, Asia Pacific Breweries.

The expansion of the Chinese market also drovecontinued strong performances from the leadingdomestic players. The three Chinese brewers in theglobal top 10 - China Resources, Tsingtao and BeijingYanjing - all saw share growth on the back of thedynamism of their domestic market.

Molson records strongest share growthCOMPETITIVE POSITIONING


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The global beer market underwent a period of

considerable consolidation between 2003 and2012. By the end of that period, the worlds top 10brewers accounted for 64% of global beer volumes.M&A activity was central to this process, with thetwo leading players, A-B InBev and SABMiller, bothbeing formed as a result of large-scale mergers.

These companies have continued to enhance theirstanding through acquisitions, with SABMiller

purchasing Fosters in 2011 and A-B InBevacquiring Grupo Modelo in 2013. The Modeloacquisition will add more than two percentagepoints to the leading players combined share (on

2012 volumes).

Other major players, including Carlsberg andHeineken, have also utilised M&A activity tostrengthen their global positions. Molson Coors

itself rose two places in the global rankingsfollowing the 2012 purchase of StarBev.

Apart from M&A, organic growth, particularly that ofthe Chinese brewers, also contributed to thegrowing consolidation in the industry.

Beer: Growing Consolidation2003/2007/2012

Top 5 Brewers

Next 5 Brewers

Rest

Inner circle: % volume 2003

Middle circle: % volume 2007

Outer circle: % volume 2012

Lack of major acquisition opportunities is set to

lead to a slowdown in the consolidation process inthe forecast period, with major players focusing onorganic growth by leveraging their wide geographiccoverage. Acquisitive activity is likely to focus onsmaller third- or fourth-tier players, as majorbrewers look to enter consolidated markets orenhance distribution.

Lack of M&A opportunities to slow down consolidationCOMPETITIVE POSITIONING


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Expanding the premium portfolio

June 2012 saw Molson Coors complete the acquisition of StarBev (subsequently renamed Molson CoorsCentral Europe) for some US$3.4 billion. While the acquisition offers few opportunities for synergies due toa lack of overlap between StarBev and Molson Coors existing operations, it is in line with Molson Coors

strategy in two key ways.

Firstly, it expands the companys relatively limited premium portfolio, notably through the addition of

Staropramen, the 14th largest premium lager brand in the UK, as well as a top 10 premium lager brand ineight Central/Eastern European markets. Premiumisation is a key trend in several beer markets around theworld, including Molson Coors largest market, the US.

A focus on higher-margin products offers brewers an opportunity to generate value in markets in whichvolumes are stagnant or contracting, especially as many consumers are opting to trade up as theyconsume less in volume. Before the acquisition, StarBev made profit margins of 30% at the level ofearnings before interest, tax, depreciation and amortisation, double the level achieved by Molson Coors.

Building presence in growth markets

Secondly, the company sees the acquisition as fitting its strategy of deepening its presence in growthmarkets around the world - a strategy that suffered a setback with the commencement of the liquidation of

the Molson Coors Si'hai joint venture in China towards the end of 2012. While Central European marketsare relatively mature, the company deems them to be attractive because of their strong historical trendsand their potential, believing Central Europe to be returning to pre-economic crisis growth rates.

Acquisition ticks strategic boxesCOMPETITIVE POSITIONING


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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2007 2012

Volumesh

are

Molson Coors: Volume Share by Region

2007/2012

Middle East andAfrica

Australasia

Asia Pacific

Latin America

North America

Eastern Europe

Western Europe

In 2007, Molson Coors was almost entirely reliant on

major developed markets for its beer sales, with NorthAmerica and Western Europe jointly accounting foralmost 100% of its global volumes. With markets suchas the US and the UK afflicted by maturity and youngerconsumers shifting away from beer, Molson Coorslooked to diversify its geographic profile over 2007-2012.

Asia Pacific was a key initial focus of expansion, withthe company acquiring a 51% share in Hebei SihaiBeer Co in China in 2010 and a controlling stake inCobra India in 2011. However, the development ofMolson Coors presence in both markets falteredtowards the end of the review period, and it beganliquidating its underperforming Molson Coors Si'hai

joint venture in China in 2012.

The most significant change to the companysgeographic profile came in 2012 with the acquisition of

StarBev, including the Czech brand, Staropramen. As aresult, Molson Coors became the sixth largest brewerin Eastern Europe, and a major player in markets withsignificant growth potential. This includes leading salesin Serbia and Croatia, forecast to be among theregions most dynamic markets over 2012-2017.

Expanding beyond struggling core marketsMARKET ASSESSMENT


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Western Europe

North America

Eastern Europe

Asia Pacific

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AGR2012-2017

Market size 2012 (million litres)

Beer Volumes 2012 and Growth Prospects 2012-2017 by Region

Molson Coors acquisition of StarBev transformed its geographic profile, as the company looked to expandbeyond its struggling core markets in North America and Western Europe. Of Molson Coors key markets,the US and Canada are forecast to see volumes stagnate over 2012-2017, while the UK is expected to seesales contract by a 2% CAGR.

While Eastern Europe is forecast to outperform both North America and Western Europe over 2012-2017, itis still expected to see regional volumes post a CAGR of less than 1%. Generally, the region is set to seematurity, consumers switching to alternative alcoholic drinks and a health-driven reduction in overall alcoholconsumption constrain growth over 2012-2017. However, the StarBev acquisition has given Molson Coorsa strong position in a number of the regions more dynamic markets, including Croatia, Serbia andRomania.

Recent years have also seen the company work to develop its presence in Asia Pacific with acquisitions inChina and India. Asia Pacific is forecast to be the strongest performing region over 2012-2017 with an 18.7billion litre rise in sales on the back of a 5% CAGR. However, the company is struggling to establish itself inboth China and India.

Targeting growth beyond North America and Western EuropeMARKET ASSESSMENT

Note: Bubble size indicates company share of region in 2012. Range displayed 0.1-15.9%


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Dark Beer

Premium LagerStandard Lager

Economy Lager

Low/Non- Alcohol Beer

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AGR2012-2017

Market size 2012 (million litres)

Beer Volumes 2012 and Growth Prospects 2012-2017 by Category

Note: Bubble size indicates company share of category in 2012. Range displayed 1.0-5.5%

Molson Coors has established a globally significant presence in every beer category except stout. Standardlager, which accounts for 46% of global beer volumes, generates 72% of Molson Coors total beer volumes.This bias towards standard lager puts Molson Coors out of sync with developments in its core US andCanadian markets, which are seeing notable premiumisation trends. Premium lager accounted for only 5%of the companys total beer volumes in 2012 (the category was responsible for 15% of the global beermarket during the year).

However, Molson Coors strength in dark beer, which represented 6% of its total beer volumes (comparedwith 4% of the global market), bodes well for its expansion both in the US and its new Eastern Europeanmarkets. Dark beer is forecast to post a 2% CAGR in the US over 2012-2017 and is set to see stronggrowth in markets such as Serbia and Romania.

Low/non- alcohol beer is forecast to be the fastest-growing category at the global level over 2012-2017.While this will primarily be driven by the Middle East and Africa, in which Molson Coors is not a significantpresence, rising levels of health-consciousness and tighter restrictions on alcohol retailing and drink-drivingare expected to spur growth in many markets around the world. The category is expected to lead growth inCanada, the UK and Serbia.

Standard lager bias at odds with premiumisation trendMARKET ASSESSMENT


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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The US is Molson Coors largest national market, generating 53% of company beer volumes in 2012. Thecompany operates in the US through MillerCoors, its joint venture with SABMiller, which is aimed atimproving efficiency in a mature and intensely competitive market. Molson Coors takes 42% of MillerCoorsprofit, and SABMiller 58%, while voting rights are split 50-50. MillerCoors ranks second in the US behind A-B InBev in NBO terms, though its position was eroded towards the end of the 2007-2012 period as its offerproved to be out of sync with evolving market trends. The company suffered from its weakness in the fast-growing premium lager category and over-exposure to the contracting economy lager and stagnantstandard lager categories.

MillerCoors ranks only fifth in premium lager, which accounted for 3% of its national beer volumes in 2012.In contrast, MillerCoors ranked second in both economy and standard lager, which generated 28% and

63% of its US beer volumes, respectively, in 2012. However, the bright spot in MillerCoors activity in theUS is its strong lead in the rapidly expanding dark beer category, in which it held a 26% share in 2012. Thecompany is well placed to tap into the growing demand for craft beer through its Tenth and Blake craft andimports division. The division registered strong value growth in 2012 led by the Blue Moon andLeinenkugel's brands, both of which saw their ranges extended in 2013. 2013 also saw the division launchthe above-premium Redd's Apple Ale and Third Shift.

Out of sync with premiumisation trendGEOGRAPHY AND CATEGORY OPPORTUNITIES

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US: MillerCoors vs Total Beer % Y-o-Y Volume Growth 2009-2012

Beer

MillerCoors


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The problems that beset MillerCoors in the US towards theend of the review period are likely to persist over 2012-2017, as US lager drinkers increasingly switch to premiumoptions. MillerCoors needs to develop its premium lageroffer, which lacked a brand in the top 15 in 2012.

Developing MillerCoors presence in premium light lager bystrengthening the positioning of Coors Light, Miller Lite andMiller 64 is a key strategic focus for the company.

Furthermore, while not yet a major brand in the market,

Peroni Nastro Azzurro, which comes under the auspices ofMillerCoors Tenth and Blake division, performed well during

2012. SABMiller has shown in other markets, such as theUK, that the brand has the potential to tap into demandamong brand-conscious premium lager consumers,especially when supported by draught expansion.Moreover, Molson Coors newly acquired Staropramen

brand could be developed along similar lines.

Dark beer continues to offer notable opportunities forMillerCoors to build on its strong category lead. Likepremium lager, dark beer is forecast to post a CAGR of 2%in volume terms over 2012-2017, with growth driven by therising popularity of craft beer.

Onus on developing premium offer in the USGEOGRAPHY AND CATEGORY OPPORTUNITIES

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US: Beer Historic and Forecast

Volume by Category2007/2012/2017

Stout Low/Non-Alcohol Beer

Economy Lager Standard Lager

Premium Lager Dark Beer


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Canada is Molson Coors second largest market, accounting for 13% of its global beer volumes in 2012.The company, which ranks second in the market behind A-B InBev, saw volumes fall by 4% during theyear. While the company suffered in part from its relatively weak presence in the expanding premium lagercategory, it notably lost share across all the categories in which it was involved in 2012. This was largelydue to increasing competition from smaller players, reflecting the ongoing increase in craft brewers andmicrobreweries in the market.

In response to this trend, Molson Coorscreated the Six Pints stand-alone brewerydivision in 2011, largely based on thepreviously acquired craft beer makers,

Creemore Springs and Granville IslandBrewing. The decision to create a stand-alone division responsible for its ownproduct development, pricing anddistribution follows a similar line to thattaken with MillerCoors Tenth and Blakedivision in the US and represents an attemptto overcome the often negative perceptions

associated with craft breweries and brandsbeing operated by large corporations. WhileMolson Coors generally struggled in 2012,the success of its Granville Island brand inOntario has notably encouraged thecompany to transfer its craft beers to newregions in 2013.

Responding to rise of craft brewers in CanadaGEOGRAPHY AND CATEGORY OPPORTUNITIES

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A-B InBev MolsonCoors

SapporoHoldings

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Canada: Leading Beer Companies by VolumeShare 2009-2012

2009

2010

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2012


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The Canadian beer market is expected to stagnate over 2012-2017, with per capita consumption decliningas consumers continue to switch from beer to drinks such as wine. Those consumers that stick with beerare likely to opt for quality over quantity, with premium lager expected to post a 1% CAGR in volume terms,while standard lager sales remain flat and the economy segment witnesses a marked decline. As a result,as in the US, there is growing pressure for Molson Coors to address the weaknesses in its premiumportfolio. Stepping up investment in its Six Pints craft beer division should be a priority

Molson Coors should also work to consolidateits strong but shrinking lead in low/non- alcoholbeer, predominantly marketed as low calorie

rather than low alcohol, as a growing number ofplayers look to take advantage of the demandgenerated by rising consumer health-consciousness. The category is forecast to leadmarket growth over 2012-2017 with a 5%CAGR.

With standard lager volumes set to stagnate,Molson Coors is working at developing its corebrands through innovation and stronger

marketing support. During 2013, the companyis expecting its Coors Light and MolsonCanadian brands to benefit from a reneweddrive behind its innovative aluminium pint bottleand its new Molson Canadian advertising thatwent viral before being launched on TV.

Potential in premiumisation and low/non- alcohol beerGEOGRAPHY AND CATEGORY OPPORTUNITIES

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AGR2012-2017

Millionlitres

Canada: Beer Volumes 2012 and GrowthProspects 2012-2017 by Category

Molson Coors' Volume 2012 Other Players' Volume 2012


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Growing competition in low/non- alcohol beer While Western Europe is Molson Coors third largest regional market, its presence in the region is heavilybiased towards a single market, which accounted for 96% of company regional volumes in 2012.Competition is intense at the top of the UK market, with less than two percentage points separating thevolume share of the fourth-placed player from that of the leader. Molson Coors ranks second behind A-BInBev. Moreover, competition is intensifying as a result of the markets ongoing contraction. Over 2012 -2017, the UK is set to see volumes decline across all categories except low/non- alcohol beer.

With its C2 brand, Molson Coors ranks second in low/non- alcohol beer behind Diageo, but saw its shareeroded annually between 2009 and 2012 as a growing number of players looked to exploit the categorysgrowing popularity. The launch of Carling Zest, which is 2.8% ABV, extended Molson Coors offer in the low

alcohol beer (0.05-3% ABV) segment, which is forecast to continue to significantly outperform non-alcoholicbeer in the UK over 2012-2017.

Establishing presence in UK craft beer While in low alcohol beer, Molson Coors holds a strong position in a thriving category, the company is alsolooking to develop its presence in other growth areas. While dark beer saw volumes fall by 3% in the UK in2012, premium ale volumes rose by 1%, and this pattern is set to continue over 2012-2017, as the UK, incommon with several other markets, sees a trend towards craft beer. Having distributed the premium ale,Doom Bar, around the UK for several years, Molson Coors acquired the brands producer, Sharps

Brewery, in 2011. While the acquisition met with some concern from consumers and consumer organisations, particularly theCampaign for Real Ale (CAMRA), Molson Coors has displayed a notable commitment to investing inSharps Brewery while allowing it to maintain its independence. In this way, the company aims to buildDoom Bar and other brands without eroding their image of heritage and authenticity, a sensitive challengefor major brewers looking to benefit from the craft beer trend.

Targeting growth opportunities in mature UK marketGEOGRAPHY AND CATEGORY OPPORTUNITIES


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2012 saw Molson Coors extend its low alcohol offer with the launch of Carling Zest, a 2.8% ABV flavouredbeer. In order to raise awareness and keep the new brand extension fresh, Carling Zest was initiallyavailable in seasonal varieties, with the Hint of Citrus summer flavour followed by Hint of Spiced Orange inwinter and, in 2013, a new summer variant, Hint of Ginger. However, 2013 also saw Carling Zest with aHint of Citrus return as a permanent part of the portfolio.

Looking to target the younger consumers who are switching to drinks such as cider and wine, CarlingZests marketing support has placed a strong emphasis on digital media and consumer interaction. The

brands initial launch campaign involved blogger outreach, digital seeding, and British music producers DJ

Food, Jaguar Skills and DJ Yoda creating their own tracks for the beer, which were hosted on its YouTube

channel, as well as a mobile app which allowed users to create their own 2-minute track which they couldthen post on Facebook or enter into a competition to win V Festival tickets.

Such activity is becoming increasingly vital important as more brewers look to develop brands and productsthat target specific consumer groups more precisely. In 2012 , Carlsberg launched its new metrosexual

lager brand, Copenhagen, which, like Carling Zest, targets consumers who are turned off by traditionalbeer, particularly women.

Beer for non-beer drinkers in the UKGEOGRAPHY AND CATEGORY OPPORTUNITIES


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Limited UK growth prospectsGEOGRAPHY AND CATEGORY OPPORTUNITIES

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Ale

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Economy

Lager

Low

AlcoholBeer

Non-

AlcoholicBeer

Stout

%CA

GR2012-2017

Millionlitres

UK: Beer Growth Prospects by Category 2012-2017

Absolute Volume Growth (million litres) 2012-2017 % CAGR 2012-2017


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US: Cider vs Beer Y-o-Y Volume Growth 2012-2017

Beer

Cider

In the UK and the US, Molson Coors is one of a number of brewers looking to tap into the expansion ofcider to counter the poor performance of beer and attract consumers who are shifting away from beer. In2012, MillerCoors Tenth and Blake division acquired The Crispin Cider Company. Crispins eponymous

brand continued its dramatic rise up the rankings in the first year of MillerCoors ownership, moving from

sixth to fourth, less than half a percentage point behind the second- and third-placed brands, C&C GroupsMagners Original Vintage Cider and A-B InBevs new Michelob Ultra, respectively. The brand is, therefore,in a good position to benefit from the forecast dynamism of the US cider/perry category, which is set to seea 29% CAGR lead to a 224 million litre rise in sales over 2012-2017.

With a forecast 5% CAGR and absolute growth of 6 million litres forecast for 2012-2017, Canada also

offers potential for expansion in cider. As in beer and wine, Canada is seeing the growth of small craft ciderand premium ice cider brands, and Molson Coors could acquire/develop such a brand within its Six Pintscraft beer division.

Moving into ciderGEOGRAPHY AND CATEGORY OPPORTUNITIES


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In 2013, Molson Coors entered the worlds largest cider/perry market, the UK, with the launch of Carling

British Cider. The UK accounted for 47% of global cider/perry volumes in 2012. Like A-B InBevs successfullaunch of Stella Artois Cidre in the UK in 2011, Molson Coors looked to build on the equity of a prominentbeer brand. The company notably looked to differentiate its product from Stella Artois Cidre, which uses thetagline C'est cidre, not cider, through its emphasis on its British heritage. While UK beer volumes are setto decline over 2012-2017, cider/perry is forecast to grow by 176 million litres on the back of a 4% CAGR.

However, another key distinction between Carling and Stella Artois is their positioning in beer, with the A-BInBev brand leading sales in premium lager, while Carling holds the top spot in standard lager. With UKcider sales heading in a premium direction as consumers become more sophisticated and adventurous, this

could prove to be a significant disadvantage for Molson Coors. The strongest performing brands in UKcider, Rekorderlig, Stella Artois and Kopparberg all have a premium-orientated positioning. Indeed, thecompany needs to consider diversifying its cider offer and potentially taking a similar approach to the one ithas adopted in the US, where its joint ventures newly acquired cider business, The Crispin Cider

Company, is included in the Tenth and Blake division alongside its craft beer operations.

Need to develop a more premium-orientated UK cider offerGEOGRAPHY AND CATEGORY OPPORTUNITIES

-6

-4

-2

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2012 2013 2014 2015 2016 2017

%y

-o-ygro

wth

UK: Cider vs Beer Y-o-Y Volume Growth 2012-2017

Beer

Cider


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Eastern Europe became a key focus of Molson Coors development plans with the 2012 acquisition ofCzech brewer, StarBev. From having only a negligible share in the region, the deal gave Molson Coors a5% share of regional volume sales, making it the sixth largest brewer in Eastern Europe. Moreover, thecompany has gained a strong position in several growth markets.

Molson Coors gained a 51% share in Serbia, the leading position in Croatia and third place in Romania.Serbia and Croatia are set to be among the regions fastest-growing markets with CAGRs of 5% and 3%,respectively, over 2012-2017.

Meanwhile, only Poland is expected to register stronger absolute growth than Romania and Serbia, whichare set to see volumes rise by 140 million litres and 123 million litres, respectively.

Molson Coors will face growing competition from multinational rivals in its Eastern European markets over

the forecast period. At the beginning of 2013, Heineken notably gained full ownership of the Serbianoperations of its former joint venture with Efes Breweries International.

Strength in Eastern European growth marketsGEOGRAPHY AND CATEGORY OPPORTUNITIES

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25

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Carlsberg Heineken SABMiller A-B InBev Anadolu Group Molson Coors Obolon ZAT

%v

olumeshare

Eastern Europe: Leading Beer Companies by Volume Share 2009-2012

2009

2010

2011

2012


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Molson Coors is planning to use StarBev both as a platform for growth in its own right and to sell itsexisting brands, such as Coors Light. StarBevs flagship brand, Staropramen, offers significant potential in

standard lager in Croatia and its native market, the Czech Republic, and in premium lager in a number ofmarkets, including Bosnia-Herzegovina and Ukraine.

In terms of Coors Light and Carlings potential expansion in the region, Romania and Serbia are set to seestrong growth in imported lager in both the premium and standard segments. Moreover, the company nowhas a regional platform from which to support the expansion of its brands in the large Russian market,where Coors Light has been brewed and distributed by Moscow Brewing Co since 2010 but has yet toestablish itself.

In addition, the growing popularity of flavoured beers and beer mixes in the region presents an opportunityfor the introduction of Carling Zest. Several brewers are working to generate growth through thedevelopment of products such as radlers, which combine beer and fruit juice.

Radlers, which tap into consumers growing willingness to experiment with new flavours and appeal tohealth-conscious consumers with their lower alcohol content, are set to see volumes rise strongly even inmarkets in which traditional beer witnesses sluggish growth or decline over 2012-2017. Carling Zest hasthe potential to benefit from the same demand trends.

Potential to diversify Eastern European portfolioGEOGRAPHY AND CATEGORY OPPORTUNITIES

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-1

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12

3

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1,000

2,000

3,000

Bosnia-Herze-govina

Bulgaria Croatia CzechRep

Hungary Romania Serbia Slovakia Slovenia Ukraine%C

AGR2012-2017

Millionlitres

Eastern Europe: Beer Volumes 2012 and Growth Prospects 2012-2017 by Market

Molson Coors' Volume 2012 Other Players' Volume 2012 % CAGR 2012-2017


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China is forecast to be a key driver of global beer growth over 2012-2017, with volumes set to rise by 14 billion litres on the back of a 5%CAGR in the context of a 28 billion litre increase in the world market.The market has been a focus for Molson Coors efforts to diversify its

geographic profile for a number of years, and in 2010 the companyacquired a 51% share in the local company, Hebei Sihai Beer Co,leading to the formation of Molson Coors Sihai.

However, the joint venture underperformed and Molson Coors beganits liquidation towards the end of 2012. This does not represent a

withdrawal from the market, however, as Molson Coors also setabout restructuring its Coors Light business in China.

Coors Light is the key focus of Molson Coors expansion in the

market, where it initially focused on high-end bars in major cities.However, the brand will need to expand its distribution to takeadvantage of the considerable potential offered by the premium lagersegment, which is forecast to register a CAGR of 17% leading toabsolute growth of 2 billion litres over 2012-2017.

As well as consumers trading up, the market is expected to seeWestern beer culture significantly deepen its penetration, drivingincreasing on-trade consumption among younger consumers inparticular. Molson Coors should consider acquiring a local produceror distributor, though its capacity to do so has been constrained bythe StarBev acquisition.

Restructuring Chinese businessGEOGRAPHY AND CATEGORY OPPORTUNITIES

0%

20%

40%

60%

80%

100%

2007 2012 2017

Volumeshare

China: Lager VolumeShare by Segment2007/2012/2017

Premium Lager Standard Lager

Economy Lager


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Foothold in expanding market

Molson Coors acquired a controlling stake in Cobra India (renamed Molson Coors Cobra India) in 2011 in adeal that included land, a 175,000hl brewery in Bihar state, with potential to expand to 500,000hl, and abeer portfolio consisting of Cobra Premium, King Cobra Superior and Iceberg 9000. The move gave thecompany a foothold in a market forecast to see beer volumes post a 10% CAGR over 2012-2017.Moreover, even with this rate of expansion, India is only expected to see an annual per capita consumptionof 2.5 litres in 2017, compared with 47 litres in China, 53 litres Vietnam and 81 litres in Brazil. The markettherefore offers significant potential for long-term development.

However, Cobra India had run into capital difficulties and Molson Coors initial priority was to "stabilise thebusiness and establish a business plan going forward". Thus, it has so far struggled to develop its presencein the market, which is already highly consolidated, with UB Group and SABMiller accounting for 80% ofbeer volumes.

Strong competition

Molson Coors saw volumes decline towards the end of the review period as it failed to keep pace withmajor multinational rivals. Carlsberg and A-B InBev were particularly aggressive towards the end of thereview period, eating into Molson Coors share of premium lager through product innovation - with bothcompanies launching new strong beers - and expanded distribution.

As well as competition from multinational rivals, Molson Coors will face a number of other challenges as itlooks to expand its presence in India, including a complex taxation and regulation system, poorinfrastructure and the dominance of local brands. The company will particularly need to extend distributionand production. Molson Coors Cobra Indias sales are mainly concentrated in North and Northeast India,which are smaller in terms of volume and are not expected to post the strongest growth. Rather than tryingto cover the whole country, Molson Coors plans to focus on building its share in key regions.

India offers opportunities and challengesGEOGRAPHY AND CATEGORY OPPORTUNITIES


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Molson Coors 2006 sale of its controlling stake in the struggling Brazilian beer business, Kaiser,significantly reduced its presence in Latin America. However, with the company looking to develop itspresence in emerging markets, the region has once again become a focus for Molson Coors expansionplans. In 2012, the only markets in which the company held a more than negligible volume share wereMexico and Costa Rica. However, with premium imported lager becoming increasingly popular in manymarkets in the region, the company is working to expand the presence of Coors Light, introducing it inTrinidad and Tobago in 2009 and the Dominican Republic in 2011, and plans to further extend its reach.

With Brazil forecast to see a 2.5 billion litre rise in volumes over 2012-2017, Molson Coors should seriouslyconsider re-entering the market. However, in Brazil, as in many other markets in the region, the companyfaces a highly consolidated environment dominated by major multinationals. A-B InBev accounts for more

than 60% of Brazilian volumes. Similar factors impede Molson Coors expansion in Mexico, where GrupoModelo (owned by A-B InBev since 2013) and Cuauhtemoc Moctezuma (owned by Heineken) haveconsolidated their strength through retail exclusivity agreements (currently being challenged by SABMiller).

Molson Coors would benefit from a partner with established distribution in the region. SABMiller, with whomMolson Coors has a close relationship in the US, is a potential partner, dominating several of the regionsmost dynamic markets, with at least 90% of volumes in Colombia, Ecuador and Peru.

Further expansion potential in Latin AmericaGEOGRAPHY AND CATEGORY OPPORTUNITIES

0

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1,000

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Brazil Colombia CostaRica

DominicanRepublic

Ecuador Guate-mala

Mexico Para-guay

Peru Vene-zuela

%C

AGR2012-2017

Millionlit

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Latin America: Beer Growth Prospects by Market 2012-2017

Absolute Volume Growth (million litres) 2012-2017 % CAGR 2012-2017


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The large and fast-growing Brazilian beer marketprovides opportunities for Molson Coors to build apresence, despite its already high level ofconsolidation.

During 2012-2017, Brazils hosting of the 2014FIFA World Cup and 2016 Summer Olympics isexpected to provide a significant boost to importedpremium lager, which Molson Coors could exploit togain momentum for the development of its Coors

Light brand. Light beer has yet to take off in Brazil, though thereare signs that it may be on the point of emergence.Late in 2012, Brazils third largest brewer,Cervejaria Petrpolis, launched Itaipava Light, anextension of the markets fifth largest beer brand.

Itaipava Light has been supported by a strongmarketing campaign, including TV advertisements,

but its distribution remains limited to a fewsupermarkets and hypermarkets.

Given the high levels of body-consciousnessamong Brazilian consumers, there is significantpotential for the development of beer with a lowercalorie content.

Moreover, imported premium lager is expected tosee a 10% CAGR in Brazil over 2012-2017, thoughit will remain a small category even at the end ofthe forecast period.

Molson Coors could utilise partnerships to developits presence in Brazil. Japanese player, Kirin, whichhas been looking to establish itself in the marketsince its 2011 acquisition of Schincariol, is apossible partner, though neither Kirin nor Molson

Coors have much experience of the Brazilianmarket. Joining forces with a Brazilian company,such as Cervejaria Petrpolis, could bring MolsonCoors the benefit of local market knowledge.

Opportunity for light category development in BrazilGEOGRAPHY AND CATEGORY OPPORTUNITIES

Brazil: % Volume Share of Main Playersin Beer 2012

A-B InBev

Kirin

Cervejaria Petrpolis

Heineken

Others


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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Building premium offer

Molson Coors has a portfolio of more than 65 strategic and partner brands, including its signature brands -Coors Light, Carling and Molson Canadian. Coors Light was the worlds 10th largest beer brand by volumein 2012, and is by far the largest brand in the companys portfolio, leading its sales both in the US andCanada, as well as spearheading its international expansion.

While the international expansion of Coors Light is largely focused on the premium segment, the brand ispositioned in standard lager in its core markets, where it contributes to the companys overall heavy biastowards the category. With standard lager caught in the midst of polarising tendencies in many markets,struggling in the face of pricing pressure from the economy segment and the image of greater quality andprestige offered by premium products, Molson Coors is developing the premium end of its offer. The

company has introduced premium brands, such as Carling Chrome in the UK, and is focusing on thedevelopment of craft brands, including Blue Moon, Granville Island and the Doom Bar brand acquired in2011.

Meeting demographic challenges

Molson Coors is also looking to adapt its brand offer to the changing demographic environment that isproving so challenging for brewers in many key markets. With younger consumers shifting away from beer,there is growing pressure to build brands and products that can appeal to this demographic and attract non-traditional beer drinkers, particularly women.

To this end, Molson Coors is working both to expand its portfolio, introducing products such as CarlingZest, and transforming its approach to marketing, a process involving both a shift from the male-focusedemphasis of advertising for brands such as Carling and greater use of digital technologies. Notably, thecompany withdrew the female-friendly beer, Anime, in 2012, a year after its launch, stating that brandssuch as Coors Light, Carling Zest, and Corona (which it distributes in the UK) are attracting a highproportion of female drinkers.

Adapting brand strategy to changing environmentBRAND STRATEGY


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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Expanding infrastructure

The geographic profile of Molson Coors production infrastructure was transformed by the acquisition ofStarBev, which brought the company nine Eastern European breweries in 2012. StarBev, renamed MolsonCoors Central Europe (MCCE), operates breweries in the Czech Republic, Serbia, Croatia, Romania,Bulgaria, Hungary and Montenegro. Previously, the companys production had been primarily focused onthe US, where it has nine breweries, Canada (seven), and the UK (four since the 2011 addition of theDoom Bar producer, Sharps Brewery). In its efforts to develop its presence in emerging markets, MolsonCoors has also invested in local production in China and India, though in 2012 it began the liquidation of the

joint venture which owned its Sihai Brewery in China.

Besides its own production, the company takes advantage of several partnerships, the most important of

which is its MillerCoors joint venture with SABMiller in the US. This combines the two companiesproduction and distribution in the market, including eight breweries.

Agreements

In addition to its own brands, Molson Coors produces brands for other brewers. In the UK, it produces andmarkets SABMillers Grolsch, and in 2011 the company took over the distribution of Grupo ModelosCorona Extra in the country. Molson Coors has similar partnerships with Modelo to market the brand inCanada and Japan. MCCE, whose own portfolio includes Staropramen, Borsodi, Kamenitza, Bergenbier,Ozujsko, Jelen and Niksicko,also brews and distributes other brands under licence.

In recent years, Molson Coors has made significant efforts to increase its brands international presencethrough licensing, and has developed relationships with local brewers capable of providing established localproduction and distribution infrastructures. The company introduced Coors Light in Russia through apartnership with Moscow Brewing Company, and expanded the brands geographic coverage throughdistribution agreements in Spain with Mahou San Miguel and with Viet Thai in Vietnam. In 2011, thecompany extended its list of partners with Obolon, which will market the Carling brand in Ukraine.

Production and partnershipsOPERATIONS


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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Molson Coors should work not to be left behind inmajor brewers rush to develop a presence in the

expanding cider/perry category. Including The

Crispin Cider Company in MillerCoors craft beerdivision in the US is a sensible move, given thetrend towards artisanal-style cider, and thecompany should consider a similar path in Canada.Meanwhile, the premiumisation of cider in the UKmay require the company to diversify its offer toinclude a more upmarket brand than Carling.

Craft beer is seeing significant growth in manymarkets, including Molson Coors otherwise

struggling core markets of the US, Canada and the

UK. Maintaining investment in the development ofits craft beer offer should be a key strategic priorityfor the company. At the same time, however, thecompany should work to maintain the relativeindependence of its craft beer operations in orderto preserve the image of authenticity associatedwith its brands.

MillerCoors, the Molson Coors/SABMiller jointventure, lacks strength in premium lager in the US,a market that is undergoing a notablepremiumisation trend. The company needs toaddress this by looking at the positioning of keybrands, such as Coors Light, and developingEuropean brands, such as SABMillers Peroni

Nastro Azzuro and Molson Coors newly acquired

Staropramen, in the market.

The acquisition of StarBev went a considerableway to reducing Molson Coors reliance on North

America and Western Europe. However, thecompany needs to work harder to establish itself inkey emerging markets in Asia Pacific and Latin

America. It should look to acquire or developpartnerships with players that have localknowledge and established distribution networks in

markets such as China and Brazil.

Build premium offer in the US Emerging market expansion

Step up craft beer investment Expand in cider/perry

Build on strengths and address weaknessesRECOMMENDATIONS


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