Beer Institute, Research Washington, DC Draft Beer Industry Update, 2011

Lester Jones Chief Economist Beer Institute, Washington, DC

Measuring the Malt Beverage Industry

(brewers/importers -- distributors-- retailers -- consumers) 1. Industry Supply US Total = -2.0% Domestic (-2.6%) + Imports (+1.9%) (100% of Industry volumes) 2. State Shipments US Total = -1.8% NC (+1.1%), FL(+1.0%), TX (+0.5%) (100% of industry volumes) 3. Sales to Retailers US Total= -1.9% On-Prem (-2.2%) + Off-Prem (-1.9%) (90% of industry volumes) 4. Sales to Consumers US Total = -2.1% (Food, Drug, Liquor & Conv)

• • •

Draft Beer Market

In 2010… – – US brewers produced 556.8 million gallons of draft importers brought 68.5 million gallons of draft – total draft industry was 625.3 million gallons From 2009 to 2010… – – Share of draft grew from 9.5% 2009 to 9.7% in 2010 1 out of 10 beers consumed in the US is a draft beer – Total draft volumes grew +1.1% while overall industry declined Flow rate of 1 min/gallon and 625.3 million gallons – 10.4 million hrs. -- 434,268 days -- 1,190 years to flow!

– If all 2010 volumes went through 1 keg, it would flow until the year 3201!

Structure of Industry 1980-2010

# of Brewers Domestic Share Craft Share (BA) Import Share Can Share Bottle Share Refill Bottle Draft Share 1980 48 97% 3% 53% 35% 12% 12% 1990 298 95% < 1% 5% 59% 30% 5% 11% 2000 1,500 90% 3% 10% 51% 40% 2% 9% 2010 1,600+ 87% 5% 13% 52% 38% 0% 9.7% Source: Beer Institute, Brewers Association, Commerce Department, and TTB, 2011

Per Capita Consumption of Malt Beverages

1980 to 2010 (total gallons/total population)

25,0 24,0 23,0 22,0 21,0 20,0 19,0 18,0

1. 24.6 in 1981 20.6 in 2010 2. Demographics (baby boomer-millenniums ) 3. Increased alcohol beverage competition 4. Increased non-alcohol beverage competition 5. Policy Changes (21 LDA and .08) Source: Beer Institute, 2011

Total Industry Supply

(Domestic Tax Paid + Imports) 205,0 200,0 195,0 190,0 185,0 180,0 7-8 million barrels off peak from early 1990s (248 million gallons) Source: Beer Institute, Commerce Department, and TTB, 2011

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Gallup Poll, 1992-2011

Beer faces challenge as the preferred beverage of choice for US consumers . (666 respondents with 5 pts +/- margin of error) 41% v 32% 36% v 35%

Beer Wine Liquor

The 18-34 year old group dropped from 51% in 2010 to 39% in 2011.

For people with incomes less than $30K, 51% are reported beer drinkers.

Source: Gallup Poll, 2011: Do you most often drink beer, wine, or liquor?

2010 Wine, Liquor and Beer Volume Share and Growth Trends By Price Tiers

Tiers High Share 26% Wine Growth 21% Liquor Share 24% Growth 5% Share 17% Beer Growth 7% Middle Low Total 33% 41% 100% 16% -14% 2% 36% 40% 100% 2% 0% 2% 54% 28% 100% -2% -3% -1% Opportunity for beer to continue to grow in high end. Continued growth for crafts, imports and specialties. Industry would need to add 15-20 million barrels into high end to match wine and spirits share distribution.

Source: Beer Institute, 2011 (Beer Marketers Insights, Discus, Beverage Information Group)

Industry Supply Aug YTD 2010 vs. Aug YTD 2011

2010 YTD (1,000s bls) 2011 YTD (1,000s bls) % Change Volume Change Share of Total YTD

Total

142,494 139,661 -2.0% -2,833

Domestic

123,648 120,461 -2.6% -3,187 86.3% Eight months of data show a shift in share to imports with imports growing +1.9% vs. -2.6% for domestics..

Import

18,846 19,201 +1.9% 355 13.7% Source: Beer Institute, Commerce Department and TTB, 2011

Industry Supply – Package Mix Aug YTD 2010 vs. Aug YTD 2011

2010 (1,000s bls) 2011 (1,000s bls) % Change Volume Change Share of Total YTD

Total

142,494 139,661 -2.0% -2,833

Packaged Domestic

113,008

Packaged Import

17,315

Draft Domestic

10,640 109,997 -2.7% -3,012 78.8% 17,544 +1.3% 229 12.6% 10,464 -1.7% -176 7.5%

Draft Import

1,531 1,657 +8.2% 125 1.2% Eight months of data show a shift in share to imports with imports growing +1.9% vs. -2.6% for domestics. This year, draft is fairing much better than packaged (bottles) and is gaining share of market thanks to growing imports.

Source: Beer Institute, Commerce Department and TTB, 2011

10,5% 10,0% 9,5% 9,0% 8,5% 8,0% 7,5% 7,0%

Growing US Draft Share 2002 - 2010

Import draft took off in 2007 to peak at 9 share in 2008.

2002 2003 2004 Imports 2005 2006 Domestic 2007 2008 Total 2009 2010

240 000 220 000 200 000 180 000 160 000 140 000 120 000 100 000

Bubble and Bust - Monthly Draft Import Volumes 12 Mos. Moving Average, Jan 2004 to Aug 2011

May 2007 to June 2008 = +1.4% July 2008 to Dec 2009 = -1.3% Jan 2005 to April 2007 = +0.7% Recession 12/07 to 6/09 Jan 2010 to Aug 2011 = +0.5%

Imported Draft Volumes

YTD 2010 vs. YTD 2011 (gallons)

Volume 2010 YTD 2011 YTD Change Country

BELGIUM IRELAND MEXICO CANADA GERMANY UNITED KINGDOM NETHERLANDS ITALY FRANCE DENMARK JAPAN AUSTRIA OTHERS 9,963,387 9,889,758 3,982,284 8,817,107 4,282,341 5,495,625 3,252,848 828,480 190,585 165,271 12,245 70,863 522,804 12,670,941 9,840,377 7,743,203 7,690,633 4,418,509 3,703,931 3,200,590 934,916 257,842 162,105 124,111 103,809 513,203 2,707,555 -49,381 3,760,918 -1,126,475 136,168 -1,791,695 -52,258 106,437 67,257 -3,165 111,866 32,946 -9,601

Percent Change

27.2% -0.5% 94.4% -12.8% 3.2% -32.6% -1.6% 12.8% 35.3% -1.9% 913.6% 46.5% -1.8% Total 47,473,598 51,364,170 3,890,572 8.2%

2010 Draft Share of by State

10% < share 8%< share < 10% 0%< share<8% US Average 9.7% in 2010 Almost 5 billion 16oz Servings Source: TTB and Beer Institute, 2011

2010 Top 10 Largest Draft States

State

California Pennsylvania Florida Texas New York Illinois Wisconsin Ohio Colorado Michigan

Top 10 States

Others Total US

2010 Draft Volumes (bls)

2,145,473 1,570,750 1,417,917 1,154,047 1,079,482 857,322 725,470 702,812 657,779 646,017

10,957,070

9,028,397

19,985,467 Draft Share

9.7% 17.7% 11.2% 6.0% 10.4% 9.7% 15.0% 8.4% 18.5% 10.3%

10.4%

9.0%

9.7% Change in Draft Volumes

-6.8% -2.1% -2.8% 7.7% 2.3% 1.8% -0.9% -1.7% 7.3% -7.3%

-1.2%

4.0%

1.1%

Top 10 Largest States have 55% of US Volume Source: Beer Institute, 2011

Draft Volume Growth, 2010

Growth 4.0% to 20% Growth -1.0% to +3.9% Growth -1.1 to -15% US Average +1.1% Source: TTB and Beer Institute, 2011

Thank You

Beer Institute Washington, DC [email protected]