Deloitte Consulting LLP

TWO BROTHER’S BREWING COMPANY’S SUSTAINED ROAD TO GROWTH

Client Discussion document : Growth plan over the next 3 year

9th November, 2011

Team Resumes

¡  Nationality: Indian

•  Undergrad: St. Stephens School, New Delhi

¡  Nationality: Polish

•  Undergrad: Politecnico di Milano

Karam Malhotra

Michal Laube

¡  Nationality: American

•  Undergrad: Columbia University

¡  Nationality: American

•  Undergrad: NYU Stern School of Business

Edward Krule

Val Misra .

Photo Photo

Photo Photo

- 3 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Opportunity There is an opportunity to maintain sustained growth and expand its business by more than 2-3x in the next 3 years through:

•  Larger distribution reach (geographic and channel)

•  Increased consumption levers

•  Improved product mix

•  Competitive M&A expansion

Two Brothers has the opportunity to more than double its revenue in the next 3 years even in a current diminishing beer category

•  Craft beer is a $7.6 bn in the US and accounts for 5-6% of the total beer category

•  Overall beer industry is declining at 1%, but craft beer has been growing at 13-15%

•  Competition has increased dramatically with an estimated 1790 breweries in the USA, (10% increase YoY)

Industry Trends and size

Consumer Trends

Two Bros distinctive positioning

•  The primary drinking category ages of 24-35 drink more craft beer due to niche taste preferences and premium perception

•  Also, although on-trade accounts for 25% distribution and 50% revenue, the growth in off-trade is outpacing on-trade currently

•  Two Bros is primarily concentrated in the Midwest and is 100% family owned

•  They have low brand proliferation as compared to competitors and focus on artisan and seasonal beers

- 4 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

When compared to the Top Regional Craft Breweries, Two Brothers has potential to increase its production volume, price and distribution network

Sales Volume

Salve Volume (Barrels)

Revenue

Distribution

154149

97

13

TwoBros

+642%

Bell’s Boulevard Summit

3027

18

Summit TwoBros

2

+800%

Bell’s Boulevard

USD million

17

21

17

7

Bell’s Boulevard Summit TwoBros

Number of states

Average Price Estimates

195181186

153

+21%

Bell’s Boulevard Summit TwoBros

USD / barrel

Source: Inc.com, Mintpost.com, medill.edu

- 5 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Potential organic and inorganic initiatives

Can we grow organically?

Can we grow through M&A?

Acquire other breweries

Move into adjacent spaces

Increase pricing

Increase per capita

consumption

How can we grow substantially over the next three years?

Create additional drink occasions

Revamp channel distribution strategy

Expand geographically

Increase pricing of current products

Create an upscale line/brand

Breweries in Chicago area to improve economies of

scale

Breweries in other regions to improve distribution

Increase the number of customers

Modify SKU sizes / packaging type

Target new customer segments

Enter wine / RTD drinks production

- 6 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Four initiatives should be launched immediately Fe

asib

ility

/ Ea

se o

f im

plem

enta

tion

Hig

h Wave 2 Wave 1

Med

ium

Wave 3

Wave 2

Medium High

Mid-term growth potential

Create additional drink occasions

Revamp channel distribution strategy

Expand own distribution to new geographic areas

Increase pricing of current products

Create an upscale line/brand

Breweries in Chicagoland to improve economies of

scale

Breweries in other regions to improve distribution

Modify SKU sizes / packaging type

Target new customer segments

Enter wine / RTD drinks production

1

2

3

4

5

6

7

8

9

10

1

2

3

4

5 6

7

10

8 9

- 7 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Wave 1 Initiatives: TwoBros will need to follow an inorganic growth strategy in the West and a more in-house strategy in the east to cover the key beer states

Impact: •  Acquisition of $1.5mn revenue brewery would allow to double current sales and would break-

even within 3-4 years •  Growth in the Northeast could allow for 3-5% one-time growth of current sales (as

consumption per capita in untapped states is ~20% higher, though volume base is lower)

TwoBros current reach

Top 10 states for craft beer1

Acquisition of a local Westcost craft brewery would allow to tap into the largest markets in the US as well as expand distribution of TwoBros beers

5

9

Organic growth in the Northeast, extending the reach of distribution networks to Vermont, New Hampshire, Delaware

1 State’s favorability was ranked along the following metrics: production, consumption, tax regulation, number of breweries per capita

Source: Craft Brewery Business booming – The Street

- 8 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Grocery supermarkets

¡  Increasingly important channel (untapped)

¡ Crucial to identify and cover key growth segments specific for craft beer, e.g. Whole Foods

Wave 1 Initiatives: Distribution - Two Brothers must ensure that distribution covers the most important as well as the highest growing segments for craft beers

On-trade channels

¡  Traditionally main distribution channel

¡ Often first touchpoint with the brand

¡  Important to maintain relationship with selected local bars to build awareness and loyalty

Convenience stores

¡ Main distribution channel for home consumption

¡ Key growth channel for craft beers. E.g., C stores, liquor stores

Mass merchandizers

¡ Difficult to cover

¡  Low negotiating power

¡  Lack of production capacity to cover potential demand

¡ Still low number of target customers in stores

6

Impact depends on current channel distribution structure. Typical improvement seen in range of 10-20% of revenue

Priority

- 9 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Wave 1 Initiatives: Pricing: There is a large opportunity in increasing pricing to match competitor levels

1 2

Average Price Estimates

USD / barrel

195181186

153

+22%

Bell’s Boulevard Summit TwoBros

1

2

Increase price on current brands

•  Quick win, easy to implement for short term gain

•  Will most probably lead to decreased consumption among current customers

Launch premium, artisanal brands

•  More difficult to implement, potentially requires research and high marketing expenditures

•  Potentially high upside, especially over a longer time horizon

There is a consumer trend to move into premium craft beer segments – willingness to pay is rising

Source: Inc.com, Mintpost.com, medill.edu

- 10 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Description of Wave 2&3 initiatives

¡  Experiment with packaging and communication to increase the number of occasion drinking (beer with a home dinner, cans )

¡  Create artisanal packaging and aim to become a wine substitute ¡  Introduce larger bottle size (22oz, 750 ml) to increase the single

occasion consumption and smaller SKUs to drive frequency

Create new drink occasions

Experiment with SKUs

Acquisition of brewery in

Chicagoland area

Entry into adjacent

segments – wine & RTD

¡  Acquisition of a brewery in Chicagoland would help Two Brothers achieve economies of scale, especially in sourcing (stronger negotiation position against suppliers) and in distribution

¡  Acquiring a Westcoast brewer is a priority to larger potential for upside and lower cannibalization risk

¡  Wine is one of the highest growth categories and is often considered as a substituting beer (especially traditional domestic beers)

¡  TwoBrothers now in the highest growing category within beer – recommend to focus limited immediate resources on ancillary services

Target new customers

¡  Create new tastes catering to new untapped segments: women, the elderly and other

¡  Develop new seasonal tastes (Octoberfest, Christmas) ¡  Experiment with can packaging and target environmentally-aware

customers

3

4

7

8

10

- 11 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

In order to achieve this, Two Brothers will have to strengthen their internal functions

¡  Two Brothers will need to support their increase in demand in both bottling and fermentation facilities.

–  Short term demand - Contract brewing / acquisition of a brewing facility.

–  Long term demand - Expand current production facilities

Production

People

Marketing

Financial prowess

¡  Two Brothers still has less than 70 employees. TwoBros will need to invest in

–  FTEs especially well trained on distribution and sales

–  M&A experts in the Craft brewing industry

¡  Two Brothers will have to review its marketing strategy

–  They will be entering new geographies and extending product lines

–  New speciality brands could also be launched (SKU sizes, cans instead of bottles, low-calorie variants for women / football season)

¡  Due to the busy M&A activity that may arise, TwoBros should

–  Negotiate better interest rates with banks if it plans to take on debt

–  As the TwoBros forecasted IRR is high enough to support VC funding, they could look at this and other sources of cash generation

- 12 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Impact of various initiatives deployed in Wave 1 and Wave 2 along with enablers, could more than double the business in 3 years

285

1,500

380190

Total (yr 3)

4,350

Wave 2&3 Total Wave 1 inititatives

3,970

Channel rationalization

Westcoast Acquisition

Northeast Distribution

95

Pricing improvement

2011

1,900

32%

¡  Pricing improvement of 15% of current revenue, after considering loss in sales

¡  Northeast dsitribution: 3-5% additional sales ¡  Westcoast acquisition: 1.5m in revenue

¡  Channel rationalization : 10% ¡  Wave 2-3 initiatives: ~20% additional

contribution through increase in consumption and product base

Assumptions

Revenue, USD ’000s

- 13 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

BACKUP

- 14 - US

Con

sulti

ng R

epor

t Tem

plat

e_R

1.5V

_041

1.po

t

Backup of NPV analysis assuming $6m investment in yr 0

St line depreciation

35% Tax

13% CoC

1 2 3 4 5

1000000 2000000 18000000 27000000 30000000

13041 96799 149088 153973

153.3625 185.9523 181.1011 194.8394

0 yr 1 yr 2 yr 3 yr 4 yr 5

Rev '000s 2000 2700 3645 4920.75 6643.013 8968.067

PAT 140 189 255.15 344.4525 465.0109 627.7647

FCF with TV -5860 609 675.15 764.4525 885.0109 6975.163

DCF -5860 608.2093 673.398 761.4789 880.4237 6930.001

npv 3993.5

BACKUP