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MOLSON COORS BREWING CO IN BEER (WORLD)

October 2013

SCOPE OF THE REPORT

Scope
Disclaimer

Alcoholic Drinks 2012 251 billion litres


Wine 29 billion litres Beer 195 billion litres Spirits 21 billion litres RTDs/HighStrength Premixes 4 billion litres Cider/Perry 2 billion litres

Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies opinions, reader discretion is advised.

The 2012 acquisition of StarBev raised Molson Coors from ninth to seventh in the global beer market and significantly expanded its international coverage. This profile analyses the opportunities deriving from the acquisition and considers ways in which the company can address the remaining weaknesses in its core market operations and its geographic profile.

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PASSPORT 2

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT GEOGRAPHIC AND CATEGORY OPPORTUNITIES BRAND STRATEGY OPERATIONS RECOMMENDATIONS

STRATEGIC EVALUATION

Key company facts


Molson Coors Brewing Co Headquarters: Regional involvement: Category involvement: Montreal, Canada North America, Eastern Europe, Western Europe, Asia Pacific, Latin America Beer, RTDs/high-strength premixes Acquisition drives strong growth Molson Coors rose two places to become the worlds seventh largest brewer in 2012, primarily as a result of its acquisition of StarBev during the year. The deal made Molson Coors the fastest-growing brewer in the global top 50 during 2012, as its sales rose by 24%. The StarBev acquisition transformed Molson Coors presence in Eastern Europe, enabling it to hold a top 10 ranking in 12 markets in 2012, having previously relied entirely on Macedonia for its sales in the region. Eastern Europe thus became Molson Coors second largest regional market, generating 20% of its global beer volumes in 2012. North America remains the companys largest market, accounting for 66% of its total beer sales. While beer dominates Molson Coors operations, accounting for 98% of its alcoholic drinks volumes in 2012, the company is also a globally significant player in every RTD/high-strength premixes category.

Global beer volume 3.2% share 2012: Global beer volume 23.9% growth 2012: Molson Coors: Global Alcoholic Drinks Volumes 2008-2012
7,000 6,000 Million litres 5,000 4,000 3,000 2,000 1,000 0 2008 2009 2010 2011 2012

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STRATEGIC EVALUATION

Geographic expansion drives growth


Molson Coors: Reported Net Sales and Net Income 2011/2012
4,500

4,000

3,500

US$ million

3,000

Molson Coors recorded an 11% increase in net sales in 2012, primarily as a result of the acquisition of StarBev, positive pricing in Canada and higher volumes for its Molson Coors International segment, which includes Asia, continental Europe (outside Central Europe), Mexico, Latin America and the Caribbean. The positive impact of these factors was partially offset by declining volumes in Canada and the UK. Net income declined in 2012 mainly as a result of financing related to Molson Coors Central Europe and costs pertaining to the deconsolidation of Molson Coors Si'hai, the companys joint venture in China, restructuring charges incurred by each of its segments, and unfavourable foreign currency movements.

2,500

2,000

1,500

1,000

500

0 2011 Net Sales Net Income 2012

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PASSPORT 5

STRATEGIC EVALUATION

Acquisition underlies growth in 2013


Molson Coors reported a 20% increase in worldwide beer volume and an 18% rise in net sales in the second quarter of 2013, compared with the same period in the previous year, attributable to the acquisition of its Central European operations (previously StarBev) in June 2012. The acquisition also had a marked positive impact on profits, with net income increasing by 165% in the second quarter of 2013. A lower effective tax rate (primarily resulting from changes in Canadian tax legislation during the quarter) and improved financial performance in the companys Europe and International businesses also contributed to growth in net income, as did a US$172 million reduction in special and other non-core expenses primarily related to the Central European acquisition in 2012. Molson Coors: Financial Performance Q2 2012-Q2 2013
1,400 1,200 US$ million 1,000 800 600 400 200 0

Q2 2012
Net Sales Net Income

Q2 2013
Operating Income

Molson Coors: Financial Performance H1 2012-H1 2013


2,500
2,000 US$ million 1,500 1,000 500 0 H1 2012 Net Sales Net Income H1 2013 Operating Income

According to Molson Coors, brand and packaging innovations and the strength of its abovepremium brands, an area in which it is working to improve its portfolio, made significant contributions to its positive results.

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STRATEGIC EVALUATION

SWOT: Molson Coors Brewing Co


STRENGTHS WEAKNESSES

Core market strength

Ownership structure

Molson Coors ranks With the Molson and among the top three Coors families players in each of its controlling voting rights, three largest markets, the company is in a the US, Canada and the relatively strong position UK - all important, highto develop coherent margin markets for beer long-term strategies and companies. has some protection against hostile takeover attempts. OPPORTUNITIES Expansion in emerging Craft beer and cider/perry markets growth Molson Coors is While overall beer developing its presence volume growth is in several emerging expected to remain markets, particularly in sluggish at best in its Asia Pacific, which is core markets, craft beer predicted to drive global and cider/perry offer volume growth over significant potential for 2012-2017. expansion.

Reliance on mature Limited presence in key markets growth markets Despite the 2012 Despite its international acquisition of StarBev expansion efforts, expanding its presence Molson Coors still lacks in Eastern Europe, a major presence in key Molson Coors remains Latin American markets, heavily reliant on mature and has not yet markets in North established itself Asia America and Western Pacific. Europe.
THREATS

Premiumisation in the US Raw material prices While the Volatile raw material premiumisation trend in prices place a growing the US presents notable onus on Molson Coors opportunities, Molson efforts to increase Coors needs to address operational efficiency, the weakness of its offer develop local production in categories such as and build a higherpremium lager. margin offer.

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STRATEGIC EVALUATION

Key strategic objectives and challenges


Build higher-margin offer in mature markets With its key US, Canadian and UK markets offering limited potential for volume growth, Molson Coors faces the challenge of developing a more premium-orientated offer capable of generating value in a mature environment. To this end, it has invested in the acquisition of craft beer brands in all three markets, and is also looking to strengthen its premium offer in lager through innovation and increased investment in marketing. Expand consumer base through diversification Beers travails in key markets derive in part from the shift of younger consumers towards alternative drinks. In this context, Molson Coors is looking to target consumers who have turned away from beer or are not traditional beer drinkers through the diversification of its offer. In the UK, Carling Zest aims to expand the definition of beer and attract consumers who have been shifted to cider and wine, including women. Meanwhile, the company has also entered cider in both the UK and the US. Geographic expansion Molson Coors aims to reduce its reliance on mature developed markets in North America and Western Europe through geographic expansion. The 2012 acquisition of StarBev significantly enhanced its operations in Eastern Europe, though it has so far only made minor inroads into fastgrowing emerging markets in Asia Pacific and Latin America.

Develop through partnerships Strategic alliances play a key role in Molson Coors operations, both in terms of building its position in core markets and expanding its geographic profile. In its largest market, the US, the company operates through a joint venture with the worlds second largest brewer, SABMiller. The company has also looked to expand its international presence through partnerships with local players, including Moscow Brewing Co in Russia and Viet Thai in Vietnam. However, it decided to liquidate its underperforming Chinese joint venture in 2012.
PASSPORT 8

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT GEOGRAPHIC AND CATEGORY OPPORTUNITIES BRAND STRATEGY OPERATIONS RECOMMENDATIONS

COMPETITIVE POSITIONING

Acquisition drives growth as key markets struggle


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 in North America, Molson Coors outpaced the overall global beer market in terms of volume growth during the year, 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 it saw a marked decline in sales in India and China at the same time as stagnation in the UK, the US and Canada. While Molson Coors registered significant declines in volume in the UK, Canada, India and China in 2012, it recorded an improved performance in the US. However, the acquisition of StarBev was the driving factor in the companys growth accelerating ahead of the overall global market. Molson Coors vs Global Beer Volume Growth 2007-2012
25 % y-o-y growth 20 15

10
5 0 -5

2007-08

2008-09
World

2009-10
Molson Coors

2010-11

2011-12

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PASSPORT 10

COMPETITIVE POSITIONING

Molson records strongest share growth


Beer: Top 10 Global Companies by Volume Share 2011-2012 Company Anheuser-Busch InBev 2011 18.0 2012 17.8 Molson Coors recorded the highest volume share growth among the worlds leading brewers in 2012, rising from ninth to seventh in the global rankings, as a result of its acquisition of StarBev, which operates nine breweries in Central and Eastern Europe. The acquisition of Grupo Modelo, ranked ninth globally in 2012, is set to strengthen A-B InBevs global standing in 2013, despite the world leader having to relinquish the companys US operations. The deal will give A-B InBev the lead in Mexico and 20% of global volumes (based on 2012 volumes), more than twice that of its main rivals. Third-placed Heineken narrowed the gap on SABMiller to less than one percentage point during 2012. Expansion in emerging Asian markets, including China, played an important part in Heinekens ongoing share growth, with the company acquiring Singapore-based, Asia Pacific Breweries. The expansion of the Chinese market also drove continued strong performances from the leading domestic players. The three Chinese brewers in the global top 10 - China Resources, Tsingtao and Beijing Yanjing - all saw share growth on the back of the dynamism of their domestic market.
PASSPORT 11

SABMiller
Heineken Carlsberg China Resources Enterprise Tsingtao Brewery Molson Coors Beijing Yanjing Brewery Grupo Modelo Kirin Holdings

9.9
8.8 5.7 5.3 3.7 2.7 2.9 2.8 2.6

9.7
9.2 5.7 5.6 4.1 3.2 3.0 2.8 2.5

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COMPETITIVE POSITIONING

Lack of M&A opportunities to slow down consolidation


The global beer market underwent a period of considerable consolidation between 2003 and 2012. By the end of that period, the worlds top 10 brewers accounted for 64% of global beer volumes. M&A activity was central to this process, with the two leading players, A-B InBev and SABMiller, both being formed as a result of large-scale mergers. These companies have continued to enhance their standing through acquisitions, with SABMiller purchasing Fosters in 2011 and A-B InBev acquiring Grupo Modelo in 2013. The Modelo acquisition will add more than two percentage points to the leading players combined share (on 2012 volumes). Other major players, including Carlsberg and Heineken, have also utilised M&A activity to strengthen their global positions. Molson Coors itself rose two places in the global rankings following the 2012 purchase of StarBev. Apart from M&A, organic growth, particularly that of the Chinese brewers, also contributed to the growing consolidation in the industry.
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 in the forecast period, with major players focusing on organic growth by leveraging their wide geographic coverage. Acquisitive activity is likely to focus on smaller third- or fourth-tier players, as major brewers look to enter consolidated markets or enhance distribution. Beer: Growing Consolidation 2003/2007/2012

Top 5 Brewers Next 5 Brewers Rest

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COMPETITIVE POSITIONING

Acquisition ticks strategic boxes


Expanding the premium portfolio June 2012 saw Molson Coors complete the acquisition of StarBev (subsequently renamed Molson Coors Central Europe) for some US$3.4 billion. While the acquisition offers few opportunities for synergies due to a 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 in eight Central/Eastern European markets. Premiumisation is a key trend in several beer markets around the world, including Molson Coors largest market, the US. A focus on higher-margin products offers brewers an opportunity to generate value in markets in which volumes are stagnant or contracting, especially as many consumers are opting to trade up as they consume less in volume. Before the acquisition, StarBev made profit margins of 30% at the level of earnings 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 growth markets 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 markets are relatively mature, the company deems them to be attractive because of their strong historical trends and their potential, believing Central Europe to be returning to pre-economic crisis growth rates.

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT GEOGRAPHIC AND CATEGORY OPPORTUNITIES BRAND STRATEGY OPERATIONS RECOMMENDATIONS

MARKET ASSESSMENT

Expanding beyond struggling core markets


In 2007, Molson Coors was almost entirely reliant on major developed markets for its beer sales, with North America and Western Europe jointly accounting for almost 100% of its global volumes. With markets such as the US and the UK afflicted by maturity and younger consumers shifting away from beer, Molson Coors looked to diversify its geographic profile over 20072012. Asia Pacific was a key initial focus of expansion, with the company acquiring a 51% share in Hebei Sihai Beer Co in China in 2010 and a controlling stake in Cobra India in 2011. However, the development of Molson Coors presence in both markets faltered towards the end of the review period, and it began liquidating its underperforming Molson Coors Si'hai joint venture in China in 2012. The most significant change to the companys geographic profile came in 2012 with the acquisition of StarBev, including the Czech brand, Staropramen. As a result, Molson Coors became the sixth largest brewer in Eastern Europe, and a major player in markets with significant growth potential. This includes leading sales in Serbia and Croatia, forecast to be among the regions most dynamic markets over 2012-2017. Molson Coors: Volume Share by Region 2007/2012
100% Middle East and Africa

80%

Australasia

Volume share

Asia Pacific 60% Latin America

40%

North America

Eastern Europe 20%

Western Europe 0% 2007 2012

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MARKET ASSESSMENT

Targeting growth beyond North America and Western Europe


Molson Coors acquisition of StarBev transformed its geographic profile, as the company looked to expand beyond 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 see sales contract by a 2% CAGR. While Eastern Europe is forecast to outperform both North America and Western Europe over 2012-2017, it is still expected to see regional volumes post a CAGR of less than 1%. Generally, the region is set to see maturity, consumers switching to alternative alcoholic drinks and a health-driven reduction in overall alcohol consumption constrain growth over 2012-2017. However, the StarBev acquisition has given Molson Coors a strong position in a number of the regions more dynamic markets, including Croatia, Serbia and Romania. Recent years have also seen the company work to develop its presence in Asia Pacific with acquisitions in China and India. Asia Pacific is forecast to be the strongest performing region over 2012-2017 with an 18.7 billion litre rise in sales on the back of a 5% CAGR. However, the company is struggling to establish itself in both China and India. Beer Volumes 2012 and Growth Prospects 2012-2017 by Region
% CAGR 2012-2017 7 5 Asia Pacific North America Eastern Europe Western Europe 10,000 20,000 30,000 40,000 50,000 Market size 2012 (million litres) 60,000 70,000 80,000

3
1 -1 -3

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

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PASSPORT 16

MARKET ASSESSMENT

Standard lager bias at odds with premiumisation trend


Molson Coors has established a globally significant presence in every beer category except stout. Standard lager, 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 and Canadian 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 beer market during the year). However, Molson Coors strength in dark beer, which represented 6% of its total beer volumes (compared with 4% of the global market), bodes well for its expansion both in the US and its new Eastern European markets. Dark beer is forecast to post a 2% CAGR in the US over 2012-2017 and is set to see strong growth 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 significant presence, rising levels of health-consciousness and tighter restrictions on alcohol retailing and drink-driving are expected to spur growth in many markets around the world. The category is expected to lead growth in Canada, the UK and Serbia. Beer Volumes 2012 and Growth Prospects 2012-2017 by Category
% CAGR 2012-2017 6 5 4 3 2 1 0 Low/Non- Alcohol Beer Premium Lager Economy Lager Dark Beer 10,000 20,000 30,000 40,000 50,000 60,000 Market size 2012 (million litres) 70,000 80,000 90,000 100,000

Standard Lager

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

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PASSPORT 17

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT GEOGRAPHIC AND CATEGORY OPPORTUNITIES BRAND STRATEGY OPERATIONS RECOMMENDATIONS

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Out of sync with premiumisation trend


The US is Molson Coors largest national market, generating 53% of company beer volumes in 2012. The company operates in the US through MillerCoors, its joint venture with SABMiller, which is aimed at improving efficiency in a mature and intensely competitive market. Molson Coors takes 42% of MillerCoors profit, and SABMiller 58%, while voting rights are split 50-50. MillerCoors ranks second in the US behind AB InBev in NBO terms, though its position was eroded towards the end of the 2007-2012 period as its offer proved to be out of sync with evolving market trends. The company suffered from its weakness in the fastgrowing premium lager category and over-exposure to the contracting economy lager and stagnant standard 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 the US is its strong lead in the rapidly expanding dark beer category, in which it held a 26% share in 2012. The company is well placed to tap into the growing demand for craft beer through its Tenth and Blake craft and imports division. The division registered strong value growth in 2012 led by the Blue Moon and Leinenkugel's brands, both of which saw their ranges extended in 2013. 2013 also saw the division launch the above-premium Redd's Apple Ale and Third Shift. US: MillerCoors vs Total Beer % Y-o-Y Volume Growth 2009-2012
% y-o-y growth 2 1 0 -1 -2 -3 2009 2010 2011 2012 Beer MillerCoors

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GEOGRAPHY AND CATEGORY OPPORTUNITIES

Onus on developing premium offer in the US


US: Beer Historic and Forecast Volume by Category 2007/2012/2017
25,000

The problems that beset MillerCoors in the US towards the end of the review period are likely to persist over 20122017, as US lager drinkers increasingly switch to premium options. MillerCoors needs to develop its premium lager offer, which lacked a brand in the top 15 in 2012. Developing MillerCoors presence in premium light lager by strengthening the positioning of Coors Light, Miller Lite and Miller 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 of MillerCoors Tenth and Blake division, performed well during 2012. SABMiller has shown in other markets, such as the UK, that the brand has the potential to tap into demand among brand-conscious premium lager consumers, especially when supported by draught expansion. Moreover, Molson Coors newly acquired Staropramen brand could be developed along similar lines.

20,000

Million litres

15,000

10,000

5,000

0 2007 Stout Economy Lager Premium Lager 2012 2017 Low/Non-Alcohol Beer Standard Lager Dark Beer

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

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GEOGRAPHY AND CATEGORY OPPORTUNITIES

Responding to rise of craft brewers in Canada


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 the year. While the company suffered in part from its relatively weak presence in the expanding premium lager category, it notably lost share across all the categories in which it was involved in 2012. This was largely due to increasing competition from smaller players, reflecting the ongoing increase in craft brewers and microbreweries in the market. Canada: Leading Beer Companies by Volume In response to this trend, Molson Coors Share 2009-2012 created the Six Pints stand-alone brewery 50 division in 2011, largely based on the 2009 previously acquired craft beer makers, 2010 Creemore Springs and Granville Island 40 Brewing. The decision to create a stand2011 alone division responsible for its own 2012 product development, pricing and 30 distribution follows a similar line to that taken with MillerCoors Tenth and Blake 20 division in the US and represents an attempt to overcome the often negative perceptions associated with craft breweries and brands 10 being operated by large corporations. While Molson Coors generally struggled in 2012, the success of its Granville Island brand in 0 Ontario has notably encouraged the A-B InBev Molson Sapporo Heineken Grupo SABMiller Brick Coors Holdings Modelo Brewing company to transfer its craft beers to new Co regions in 2013.
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GEOGRAPHY AND CATEGORY OPPORTUNITIES

Potential in premiumisation and low/non- alcohol beer


The Canadian beer market is expected to stagnate over 2012-2017, with per capita consumption declining as consumers continue to switch from beer to drinks such as wine. Those consumers that stick with beer are 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 premium portfolio. Stepping up investment in its Six Pints craft beer division should be a priority Molson Coors should also work to consolidate its strong but shrinking lead in low/non- alcohol beer, predominantly marketed as low calorie rather than low alcohol, as a growing number of players look to take advantage of the demand generated by rising consumer healthconsciousness. The category is forecast to lead market growth over 2012-2017 with a 5% CAGR. With standard lager volumes set to stagnate, Molson Coors is working at developing its core brands through innovation and stronger marketing support. During 2013, the company is expecting its Coors Light and Molson Canadian brands to benefit from a renewed drive behind its innovative aluminium pint bottle and its new Molson Canadian advertising that went viral before being launched on TV. Canada: Beer Volumes 2012 and Growth Prospects 2012-2017 by Category
1,400 1,200 Million litres 6 % CAGR 2012-2017 5

1,000
800 600 400 200 0 Dark Beer Premium Standard Economy Low/NonLager Lager Lager Alcohol Beer Stout

4
3 2 1 0 -1

Molson Coors' Volume 2012

Other Players' Volume 2012

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PASSPORT 22

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Targeting growth opportunities in mature UK market


Growing competition in low/non- alcohol beer While Western Europe is Molson Coors third largest regional market, its presence in the region is heavily biased 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 the volume share of the fourth-placed player from that of the leader. Molson Coors ranks second behind A-B InBev. Moreover, competition is intensifying as a result of the markets ongoing contraction. Over 20122017, 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 share eroded annually between 2009 and 2012 as a growing number of players looked to exploit the categorys growing 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-alcoholic beer 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 also looking to develop its presence in other growth areas. While dark beer saw volumes fall by 3% in the UK in 2012, premium ale volumes rose by 1%, and this pattern is set to continue over 2012-2017, as the UK, in common 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 the Campaign for Real Ale (CAMRA), Molson Coors has displayed a notable commitment to investing in Sharps Brewery while allowing it to maintain its independence. In this way, the company aims to build Doom Bar and other brands without eroding their image of heritage and authenticity, a sensitive challenge for major brewers looking to benefit from the craft beer trend.

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PASSPORT 23

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Beer for non-beer drinkers in the UK


2012 saw Molson Coors extend its low alcohol offer with the launch of Carling Zest, a 2.8% ABV flavoured beer. In order to raise awareness and keep the new brand extension fresh, Carling Zest was initially available in seasonal varieties, with the Hint of Citrus summer flavour followed by Hint of Spiced Orange in winter and, in 2013, a new summer variant, Hint of Ginger. However, 2013 also saw Carling Zest with a Hint 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, Carling Zests 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 could then 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 products that 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 traditional beer, particularly women.

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PASSPORT 24

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Limited UK growth prospects


UK: Beer Growth Prospects by Category 2012-2017
3 2 1 0 -1 -2 -3 -4 -5 Premium Ale Standard Ale Weissbier/ Weizen/ Wheat Beer Premium Lager Standard Lager Economy Lager Low Alcohol Beer NonAlcoholic Beer Stout % CAGR 2012-2017

Million litres

Absolute Volume Growth (million litres) 2012-2017

% CAGR 2012-2017

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PASSPORT 25

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Moving into cider


In the UK and the US, Molson Coors is one of a number of brewers looking to tap into the expansion of cider to counter the poor performance of beer and attract consumers who are shifting away from beer. In 2012, 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 Groups Magners 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 see a 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 cider and premium ice cider brands, and Molson Coors could acquire/develop such a brand within its Six Pints craft beer division. US: Cider vs Beer Y-o-Y Volume Growth 2012-2017
60 % y-o-y growth 50 40 30 20 10 0 -10 2012 2013 2014 2015 2016 2017 Cider Beer

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PASSPORT 26

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Need to develop a more premium-orientated UK cider offer


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 successful launch of Stella Artois Cidre in the UK in 2011, Molson Coors looked to build on the equity of a prominent beer brand. The company notably looked to differentiate its product from Stella Artois Cidre, which uses the tagline C'est cidre, not cider, through its emphasis on its British heritage. While UK beer volumes are set to 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-B InBev brand leading sales in premium lager, while Carling holds the top spot in standard lager. With UK cider 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 UK cider, Rekorderlig, Stella Artois and Kopparberg all have a premium-orientated positioning. Indeed, the company needs to consider diversifying its cider offer and potentially taking a similar approach to the one it has 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. UK: Cider vs Beer Y-o-Y Volume Growth 2012-2017
6 % y-o-y growth 4 2 0 -2 -4 -6 2012 2013 2014 2015 2016 2017 Cider Beer

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ALCOHOLIC DRINKS BEER: MOLSON COORS BREWING CO

PASSPORT 27

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Strength in Eastern European growth markets


Eastern Europe became a key focus of Molson Coors development plans with the 2012 acquisition of Czech brewer, StarBev. From having only a negligible share in the region, the deal gave Molson Coors a 5% share of regional volume sales, making it the sixth largest brewer in Eastern Europe. Moreover, the company 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, which are 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 Serbian operations of its former joint venture with Efes Breweries International. Eastern Europe: Leading Beer Companies by Volume Share 2009-2012
30 % volume share 25 2009 2010

20
15 10 5 0 Carlsberg Heineken SABMiller A-B InBev Anadolu Group Molson Coors

2011 2012

Obolon ZAT

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GEOGRAPHY AND CATEGORY OPPORTUNITIES

Potential to diversify Eastern European portfolio


Molson Coors is planning to use StarBev both as a platform for growth in its own right and to sell its existing 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 of markets, including Bosnia-Herzegovina and Ukraine. In terms of Coors Light and Carlings potential expansion in the region, Romania and Serbia are set to see strong growth in imported lager in both the premium and standard segments. Moreover, the company now has 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 to establish itself. In addition, the growing popularity of flavoured beers and beer mixes in the region presents an opportunity for the introduction of Carling Zest. Several brewers are working to generate growth through the development 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 to health-conscious consumers with their lower alcohol content, are set to see volumes rise strongly even in markets in which traditional beer witnesses sluggish growth or decline over 2012-2017. Carling Zest has the potential to benefit from the same demand trends. Eastern Europe: Beer Volumes 2012 and Growth Prospects 2012-2017 by Market
3,000 Million litres 2,000 1,000 0 BosniaHerzegovina Bulgaria Croatia Czech Rep Hungary Romania Serbia Slovakia Slovenia Ukraine 4 3 2 1 0 -1 -2 % CAGR 2012-2017

Molson Coors' Volume 2012

Other Players' Volume 2012

% CAGR 2012-2017

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ALCOHOLIC DRINKS BEER: MOLSON COORS BREWING CO

PASSPORT 29

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Restructuring Chinese business


China is forecast to be a key driver of global beer growth over 20122017, 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 company acquired 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 began its liquidation towards the end of 2012. This does not represent a withdrawal from the market, however, as Molson Coors also set about 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 take advantage of the considerable potential offered by the premium lager segment, which is forecast to register a CAGR of 17% leading to absolute growth of 2 billion litres over 2012-2017. China: Lager Volume Share by Segment 2007/2012/2017
100%

80%

Volume share

60%

40%

20%

As well as consumers trading up, the market is expected to see Western beer culture significantly deepen its penetration, driving increasing on-trade consumption among younger consumers in particular. Molson Coors should consider acquiring a local producer or distributor, though its capacity to do so has been constrained by the StarBev acquisition.
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0% 2007 Premium Lager Economy Lager 2012 2017

Standard Lager

PASSPORT 30

GEOGRAPHY AND CATEGORY OPPORTUNITIES

India offers opportunities and challenges


Foothold in expanding market Molson Coors acquired a controlling stake in Cobra India (renamed Molson Coors Cobra India) in 2011 in a deal that included land, a 175,000hl brewery in Bihar state, with potential to expand to 500,000hl, and a beer portfolio consisting of Cobra Premium, King Cobra Superior and Iceberg 9000. The move gave the company 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 consumption of 2.5 litres in 2017, compared with 47 litres in China, 53 litres Vietnam and 81 litres in Brazil. The market therefore offers significant potential for long-term development. However, Cobra India had run into capital difficulties and Molson Coors initial priority was to "stabilise the business and establish a business plan going forward". Thus, it has so far struggled to develop its presence in the market, which is already highly consolidated, with UB Group and SABMiller accounting for 80% of beer volumes. Strong competition Molson Coors saw volumes decline towards the end of the review period as it failed to keep pace with major multinational rivals. Carlsberg and A-B InBev were particularly aggressive towards the end of the review period, eating into Molson Coors share of premium lager through product innovation - with both companies launching new strong beers - and expanded distribution. As well as competition from multinational rivals, Molson Coors will face a number of other challenges as it looks to expand its presence in India, including a complex taxation and regulation system, poor infrastructure and the dominance of local brands. The company will particularly need to extend distribution and 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 trying to cover the whole country, Molson Coors plans to focus on building its share in key regions.

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ALCOHOLIC DRINKS BEER: MOLSON COORS BREWING CO

PASSPORT 31

GEOGRAPHY AND CATEGORY OPPORTUNITIES

Further expansion potential in Latin America


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 its presence in emerging markets, the region has once again become a focus for Molson Coors expansion plans. In 2012, the only markets in which the company held a more than negligible volume share were Mexico and Costa Rica. However, with premium imported lager becoming increasingly popular in many markets in the region, the company is working to expand the presence of Coors Light, introducing it in Trinidad 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 seriously consider re-entering the market. However, in Brazil, as in many other markets in the region, the company faces 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 Grupo Modelo (owned by A-B InBev since 2013) and Cuauhtemoc Moctezuma (owned by Heineken) have consolidated 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 whom Molson Coors has a close relationship in the US, is a potential partner, dominating several of the regions most dynamic markets, with at least 90% of volumes in Colombia, Ecuador and Peru.
3,000 Million litres 2,000 5 1,000 0 Brazil Colombia Costa Rica Dominican Republic Ecuador Guatemala Mexico Paraguay Peru Venezuela 0 10 % CAGR 2012-2017

Latin America: Beer Growth Prospects by Market 2012-2017

Absolute Volume Growth (million litres) 2012-2017

% CAGR 2012-2017

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GEOGRAPHY AND CATEGORY OPPORTUNITIES

Opportunity for light category development in Brazil


The large and fast-growing Brazilian beer market provides opportunities for Molson Coors to build a presence, despite its already high level of consolidation. During 2012-2017, Brazils hosting of the 2014 FIFA World Cup and 2016 Summer Olympics is expected to provide a significant boost to imported premium lager, which Molson Coors could exploit to gain momentum for the development of its Coors Light brand. Light beer has yet to take off in Brazil, though there are signs that it may be on the point of emergence. Late in 2012, Brazils third largest brewer, Cervejaria Petrpolis, launched Itaipava Light, an extension of the markets fifth largest beer brand. Itaipava Light has been supported by a strong marketing campaign, including TV advertisements, but its distribution remains limited to a few supermarkets and hypermarkets. Given the high levels of body-consciousness among Brazilian consumers, there is significant potential for the development of beer with a lower calorie content.
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Moreover, imported premium lager is expected to see a 10% CAGR in Brazil over 2012-2017, though it will remain a small category even at the end of the forecast period. Molson Coors could utilise partnerships to develop its presence in Brazil. Japanese player, Kirin, which has been looking to establish itself in the market since its 2011 acquisition of Schincariol, is a possible partner, though neither Kirin nor Molson Coors have much experience of the Brazilian market. Joining forces with a Brazilian company, such as Cervejaria Petrpolis, could bring Molson Coors the benefit of local market knowledge. Brazil: % Volume Share of Main Players in Beer 2012
A-B InBev Kirin Cervejaria Petrpolis Heineken Others

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT GEOGRAPHIC AND CATEGORY OPPORTUNITIES BRAND STRATEGY OPERATIONS RECOMMENDATIONS

BRAND STRATEGY

Adapting brand strategy to changing environment


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 volume in 2012, and is by far the largest brand in the companys portfolio, leading its sales both in the US and Canada, as well as spearheading its international expansion. While the international expansion of Coors Light is largely focused on the premium segment, the brand is positioned in standard lager in its core markets, where it contributes to the companys overall heavy bias towards 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 and prestige 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 the development of craft brands, including Blue Moon, Granville Island and the Doom Bar brand acquired in 2011. Meeting demographic challenges Molson Coors is also looking to adapt its brand offer to the changing demographic environment that is proving 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 nontraditional beer drinkers, particularly women. To this end, Molson Coors is working both to expand its portfolio, introducing products such as Carling Zest, and transforming its approach to marketing, a process involving both a shift from the male-focused emphasis of advertising for brands such as Carling and greater use of digital technologies. Notably, the company withdrew the female-friendly beer, Anime, in 2012, a year after its launch, stating that brands such as Coors Light, Carling Zest, and Corona (which it distributes in the UK) are attracting a high proportion of female drinkers.

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ALCOHOLIC DRINKS BEER: MOLSON COORS BREWING CO

PASSPORT 35

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT GEOGRAPHIC AND CATEGORY OPPORTUNITIES BRAND STRATEGY OPERATIONS RECOMMENDATIONS

OPERATIONS

Production and partnerships


Expanding infrastructure The geographic profile of Molson Coors production infrastructure was transformed by the acquisition of StarBev, which brought the company nine Eastern European breweries in 2012. StarBev, renamed Molson Coors Central Europe (MCCE), operates breweries in the Czech Republic, Serbia, Croatia, Romania, Bulgaria, Hungary and Montenegro. Previously, the companys production had been primarily focused on the US, where it has nine breweries, Canada (seven), and the UK (four since the 2011 addition of the Doom Bar producer, Sharps Brewery). In its efforts to develop its presence in emerging markets, Molson Coors 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 companies production 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 and markets SABMillers Grolsch, and in 2011 the company took over the distribution of Grupo Modelos Corona Extra in the country. Molson Coors has similar partnerships with Modelo to market the brand in Canada 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 presence through licensing, and has developed relationships with local brewers capable of providing established local production and distribution infrastructures. The company introduced Coors Light in Russia through a partnership with Moscow Brewing Company, and expanded the brands geographic coverage through distribution agreements in Spain with Mahou San Miguel and with Viet Thai in Vietnam. In 2011, the company extended its list of partners with Obolon, which will market the Carling brand in Ukraine.
Euromonitor International ALCOHOLIC DRINKS BEER: MOLSON COORS BREWING CO PASSPORT 37

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT GEOGRAPHIC AND CATEGORY OPPORTUNITIES BRAND STRATEGY OPERATIONS RECOMMENDATIONS

RECOMMENDATIONS

Build on strengths and address weaknesses


Build premium offer in the US MillerCoors, the Molson Coors/SABMiller joint venture, lacks strength in premium lager in the US, a market that is undergoing a notable premiumisation trend. The company needs to address this by looking at the positioning of key brands, such as Coors Light, and developing European brands, such as SABMillers Peroni Nastro Azzuro and Molson Coors newly acquired Staropramen, in the market. Emerging market expansion The acquisition of StarBev went a considerable way to reducing Molson Coors reliance on North America and Western Europe. However, the company needs to work harder to establish itself in key emerging markets in Asia Pacific and Latin America. It should look to acquire or develop partnerships with players that have local knowledge and established distribution networks in markets such as China and Brazil.

Step up craft beer investment Craft beer is seeing significant growth in many markets, including Molson Coors otherwise struggling core markets of the US, Canada and the UK. Maintaining investment in the development of its craft beer offer should be a key strategic priority for the company. At the same time, however, the company should work to maintain the relative independence of its craft beer operations in order to preserve the image of authenticity associated with its brands.
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Expand in cider/perry Molson Coors should work not to be left behind in major brewers rush to develop a presence in the expanding cider/perry category. Including The Crispin Cider Company in MillerCoors craft beer division in the US is a sensible move, given the trend towards artisanal-style cider, and the company should consider a similar path in Canada. Meanwhile, the premiumisation of cider in the UK may require the company to diversify its offer to include a more upmarket brand than Carling.
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ALCOHOLIC DRINKS BEER: MOLSON COORS BREWING CO

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ALCOHOLIC DRINKS BEER: MOLSON COORS BREWING CO