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    Current Environment ............................................................................................ 1   Industry Profile .................................................................................................... 20   Industry Trends ................................................................................................... 27   How the Industry Operates ............................................................................... 40   Key Industry Ratios and Statistics ................................................................... 47   How to Analyze an Alcoholic Beverage or Tobacco Company ................. 49   Industry References ........................................................................................... 53   Comparative Company Analysis ...................................................................... 55 This issue updates the one dated October 4, 2012. The next update of this Survey is scheduled for November 2013. Industry Surveys Alcoholic Beverages & Tobacco  Esther Y. Kwon, CFA, Alcohol & Tobacco Equity Analyst MAY 2013 CONTACTS: INQUIRIES & CLIENT RELATIONS 800.852.1641 clientrelations@ standardandpoors.com SALES 877.219.1247 Wealth@spcapitaliq.com MEDIA Michael Privitera 212.438.6679 michael_privitera@ spcapitaliq.com S&P CAPITAL IQ 55 Water Street New York, NY 10041    Topics Covered by Industry Surveys Aerospace & Defense Airlines Alcoholic Beverages & Tobacco Apparel & Footwear: Retailers & Brands Autos & Auto Parts Banking Biotechnology Broadcasting, Cable & Satellite Chemicals Communications Equipment Computers: Commercial Services Computers: Consumer Services & the Internet Computers: Hardware Computers: Software Computers: Storage & Peripherals Electric Utilities Environmental & WasteManagement Financial Services: Diversified Foods & Nonalcoholic Beverages Healthcare: Facilities Healthcare: Managed Care Healthcare: Products & Supplies Heavy Equipment & Trucks Homebuilding Household Durables Household Nondurables Industrial Machinery Insurance: Life & Health Insurance: Property-Casualty Investment Services Lodging & Gaming Metals: Industrial Movies & Entertainment Natural Gas Distribution Oil & Gas: Equipment & Services Oil & Gas: Production & Marketing Paper & Forest Products Pharmaceuticals Publishing & Advertising Real Estate Investment Trusts Restaurants Retailing: General Retailing: Specialty Semiconductor Equipment Semiconductors Supermarkets & Drugstores Telecommunications: Wireless Telecommunications: Wireline Thrifts & Mortgage Finance Transportation: Commercial Global Industry Surveys Airlines: Asia Autos & Auto Parts: Europe Banking: Europe Food Retail: Europe Foods & Beverages: EuropeMedia: Europe Oil & Gas: Europe Pharmaceuticals: Europe Telecommunications: Asia Telecommunications: Europe S&P Capital IQ Industry Surveys 55 Water Street, New York, NY 10041 E XECUTIVE E DITOR :   E ILEEN M.   B OSSONG -M ARTINES  A SSOCIATE E DITOR :   C HARLES M AC V EIGH S TATISTICIAN :   S ALLY K ATHRYN N UTTALL C LIENT S UPPORT :   1-800-523-4534.   ISSN   0196-4666.   USPS   N O .   517-780. V ISIT THE S&P   C APITAL IQ   W EBSITE :   www.spcapitaliq.com S&P CAPITAL IQ INDUSTRY SURVEYS (ISSN 0196-4666) is published weekly. Reproduction in whole or in part (including inputting into a computer) prohibited except by permission of S&P Capital IQ. To learn more about Industry Surveys   and the S&P Capital IQ product offering, please contact our Product Specialist team at 1-877-219-1247 or visit getmarketscope.com. Executive and Editorial Office: S&P Capital IQ, 55 Water Street, New York, NY 10041. Officers of McGraw Hill Financial: Harold McGraw III, Chairman, President, and CEO; Jack F. Callahan, Executive Vice President and Chief Financial Officer; John Berisford, Executive Vice President, Human Resources; D. Edward Smyth, Executive Vice President, Corporate Affairs; Charles L. Teschner, Jr., Executive Vice President, Global Strategy; and Kenneth M. Vittor, Executive Vice President and General Counsel. Periodicals postage paid at New York, NY 10004 and additional mailing offices. Postmaster: Send address changes to S&P Capital IQ, Industry Surveys, Attn: Mail Prep, 55 Water Street, New York, NY 10041. Information has been obtained by S&P Capital IQ INDUSTRY SURVEYS from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, INDUSTRY SURVEYS, or others, INDUSTRY SURVEYS does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Copyright © 2013 Standard & Poor’s Financial Services LLC, a subsidiary of McGraw Hill Financial.   All rights reserved. STANDARD & POOR’S, S&P, S&P 500, S&P MIDCAP 400, and S&P SMALLCAP 600 are registered trademarks of Standard & Poor’s Financial Services LLC.    INDUSTRY SURVEYS ALCOHOLIC BEVERAGES TOBACCO  / MAY 2013 1   CURRENT ENVIRONMENT Beer consolidation drama froths up Over the last few years, the slowing demand for beer in developed markets such as the US, the UK, and Canada has spurred consolidation in the industry. Most industry players have been seeking inorganic methods for growth amid the decline in shipments. As a result, the industry has witnessed several big-ticket deals in recent years. In 2008, Belgium/Brazil–based InBev SA acquired US-based Anheuser-Busch for $52 billion; the company then changed its name to Anheuser-Busch InBev. In 2011, London-based SABMiller acquired Australia-based Foster’s Group Ltd. for $10 billion. In 2010, Dutch brewer Heineken NV acquired Mexico’s FEMSA Cerveza for $7 billion. Consolidation has also enabled industry players to expand their footprints in emerging markets, thereby reducing their exposure to declining demand in the developed markets. An example of this strategy is the $3.5 billion acquisition of StarBev LP by Denver-based Molson Coors Brewing Co., completed in June 2012. The acquisition of StarBev will provide Molson Coors with access to the emerging markets of Central and Eastern Europe (CEE), where StarBev operates nine breweries and generated $1 billion in sales in 2011. In 2011, approximately 97% of Molson Coors’ sales came from the UK and Canada; in 2012, this percentage declined to 84%. According to Molson Coors, although the CEE region is facing an economic slowdown, the historical trend of that region’s beer market suggests strong upside potential. The company also stated that the acquisition provides a platform on which to grow its key brands Staropramen and Carling and gives it access to StarBev’s portfolio of more than 20 brands. The company expects to generate approximately $50 million in pretax operational synergies by 2015. AB InBev’s proposed acquisition of Modelo hits initial roadblocks In June 2012, Anheuser-Busch InBev (AB InBev) continued to consolidate its position by entering an agreement to acquire the remaining 50% share in Mexico’s Grupo Modelo SA de CV for $20.1 billion (the first 50% interest was obtained through InBev’s acquisition of Anheuser-Busch). With this acquisition, AB InBev would control more than 50% of US beer industry market share (by volume); in 2012, its market share was 46.3% and Modelo had 5.7%, according to Beer Marketer’s Insights , a brewing industry trade publication. The company would also expand its presence in another emerging market of Latin America (Mexico), complementing its strong position in Brazil. According to the company, beer accounts for a 70% share of the alcoholic beverage market (by dollar value) in Mexico, and such share is expected to increase going forward. According to Euromonitor International, a market research firm, volume in the Mexican beer market is expected to grow at a compound annual growth rate (CAGR) of around 3% between 2011 and 2016. Furthermore, AB InBev, which owns brands such as Budweiser, Stella Artois, and Beck’s, will control Modelo’s main brand, Corona Extra, which is exported to more than 180 countries. To assuage antitrust concerns, Modelo has entered into an agreement to sell its 50% joint venture interest in Crown Imports to Constellation Brands Inc., the other joint venture partner, for $1.85 billion (8.5X earnings before interest and taxes), which we see as a very favorable price compared with other transactions in the brewing industry. Crown Imports is responsible for the distribution, marketing, promotion, and pricing of the Modelo brands in the US. With 100% control of this venture, we think prospects for Constellation have improved dramatically from an earnings and cash flow perspective, and we believe its longer-term growth opportunities are bright. The agreement will allow Constellation to add other brands to its distribution portfolio, including the faster-growing categories of imports (albeit only non-Mexican brands) and craft brands. According to a November 2012 article in Reuters, the number of craft brewers in the US had increased to more than 1,600 in 2010 from 537 in 1990 and only eight in 1980. The article noted that craft beers account for around 6% of the US beer market share (by volume), according to data from the Brewers    2 ALCOHOLIC BEVERAGES TOBACCO  / MAY 2013   INDUSTRY SURVEYS   Association, a trade group for small independent brewers. Since brewers are banned from distributing beer directly to retailers in 38 states, they must rely on independent wholesalers to act as intermediaries. According to the article, the craft brewers are concerned that following the acquisition of Modelo, AB InBev’s increased market power could be used to inhibit wholesalers from delivering craft beers to the market. On January 31, 2013, the US Department of Justice (DOJ) filed a lawsuit in US District Court (District of Columbia) to block AB InBev’s acquisition of Modelo, stating that it would hamper competition in the US beer market, which would result in consumers paying more for beer and having fewer choices. To further soften the antitrust concerns over the acquisition, AB InBev offered to sell another $2.9 billion worth of Modelo’s assets to Constellation, bringing the total deal value to $4.75 billion, including the $1.85 billion deal discussed above. AB InBev proposed to sell Modelo’s Piedras Negras brewery in Mexico to Constellation, including licensing rights to Modelo’s five brands. On April 19, 2013, the DOJ announced that it had reached a settlement with AB InBev and Modelo that requires the companies to divest Modelo’s entire US business (including licenses of Modelo brand beers, its Piedras Negras brewery, its interest in Crown Imports, and other assets) to Constellation Brands in order to go forward with their merger. The proposed settlement was filed with the court and, if approved, it would resolve the DOJ’s competitive concerns. BEER SHIPMENTS FINALLY TURN UP IN 2012 After a three-year decline, the beer industry experienced a 1.7% increase in beer shipments in 2012. Such shipments were down 1.4% in 2011, following drops of 1.3% in both 2010 and 2009, according to data from Beer Marketer’s Insights . The increase in 2012 indicated that consumers are recovering from the recession and are spending their money on beer, despite an increase in prices by the breweries. According to an article in the Wall Street Journal   ( WSJ  ; October 2, 2012), the recession affected business across a number of industries, including construction, whose blue-collar male workers in their 20s are the beer industry’s main customers. The article noted that while employment figures still have not regained their pre-recession levels, they appear to be improving. Most top suppliers gain, but megabrands still lose share According to preliminary estimates from Beer Marketer’s Insights , eight of the top 10 suppliers reported shipment gains in 2012 versus only six in 2011. Anheuser-Busch continued to hold the top position, with a 0.6% increase in shipments in 2012 versus a 2.9% decline in 2011. MillerCoors retained second place, reporting a 1.8% decline in shipments in 2012 compared to a 3% decline in 2011. Crown Imports stayed at No. 3, but shipment gains fell to 3.5% in 2012 from 4.5% in 2011. Heineken USA, which remained in fourth place, reported a 5% gain in 2012 versus a 3.9% decline in 2011. Pabst continued to hold the fifth position, with a 4.4% increase in 2012 versus only a 0.4% gain in 2011. However, the market share of the top two suppliers fell during the year: Anheuser-Busch’s market share dropped to 46.3% from 46.8% in 2011, while MillerCoors’ share dropped to 27.4% from 28.3% in 2011. In terms of the top three brands by sales, 2012’s results were similar to 2011. For the second consecutive year after nearly 20 years in the lead, Anheuser-Busch in 2012 did not control the two top-selling brands in the US. Bud Light (owned by B01: US Sales of leading brewers   US SALES OF LEADING BREWERS (Ranked by 2012 sales, in millions of 31-gallon barrels) MARKET ------- SHIPMENTS --------- SHARE (%) --COMPANY20112012% CHG.20112012  Anheuser-Busch98.599.10.646.846.3MillerCoors59.658.6(1.8)28.327.4Crown Imports11.912.33.55.65.7Heineken USA8.18.55.03.84.0Pabst5.76.04.42.72.8D.G. Yuengling2.52.810.61.21.3North American Breweries2.72.71.11.31.3Boston Beer2.52.79.31.21.3Diageo/Guinness USA2.62.6(0.8)1.21.2Mark Anthony (Mike's)1.41.55.40.70.7Others15.017.416.57.18.1Total 210.4214.11.7100.0100.0Source: Beer Marketer's Insights.
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