Name of presentation - California Craft Beer

WHATS NEXT? Benj Steinman Beer Marketers INSIGHTS California Craft Beer Summit September 7, 2017 2017, All Rights Reserved. Please do not duplicate or distribute without written permission. www.beerinsights.com [email protected] CRAFT: WHATS NEXT? Situation Analysis: Major Changes in 2016-17 Craft growth slowed dramatically; many declining, more going kaput M&A Utterly Transformed Landscape; deals keep comin fast4; Big companies coming in Tiny taprooms/tasting rooms grabbed much of growth Brewer Proliferation Continues; 5600 Brewers; 850 in Calif; Local, Local, Local. Lots growing very rapidly Trends all over the map; shelf resets, excess capacity Still up, but 11-12% of a down industry California Craft Beer Summit - September 7, 2017 - Sacramento, CA BEER DOWN 1%+ IN 17; DOWN FOR DECADE Beer biz up slightly each of last 3 yrs, but still down 3% from 2008 peak. Uh oh! For 7 mos, US beer biz down 1.3%, taxpaids and imports. Domestic down 2%. Down 1% in IRI thru Aug 13 Beer Inst estimates flat to -0.5% in 2017. Thats generous! So whats ale-ing beer this yr? Theories abound Per capita consumption down 20% in 35 yrs; #1 issue to solve 216,000 214,000 212,000 210,000 208,000 206,000 204,000 202,000

US Shipments 2007-2016 Taxpaids + No Alcohol + Imports 07 08 09 10111213 14 15 16 California Craft Beer Summit - September 7, 2017 - Sacramento, CA CRAFT UP 4-5% IN 2017; UP 14 MIL BBLS IN 7 YRS Craft Bbls % Chg Share 2009 2010 2011 2012 2013 2014 2015 2016 BA-defined up 5% in 1st half 2017. That followed 6-7% in 2016. Up 3.6% YTD in IRI; actually an improvement; but lotsa big players down. Much growth not visible in public data End of the Go Go Yrs. After 6 yrs of double digits growth, its getting tuffer. But 5% growth is still over 1 mil bbl gain, up a half share Bbls-000

25000 21000 17000 13000 9000 California Craft Beer Summit - September 7, 2017 - Sacramento, CA 9,410 10,640 12,390 14,020 16,210 19,210 21,900 23,400 5.6 13.1 16.4 13.2 15.6 18.5 14.0 6.8 4.5 5.1 6.0 6.7 7.9 9.3 10.6 11.1 4 of TOP 10 CRAFT BREWERS DOWN IN 2016 Bbls (000) Four of top 10 fell between 510% in 2016; Sierra down for first time. Boston, Sierra down again in 17. 3 from Calif % Chg Craft Share

Boston 2,300 -8.4 9.6 Sierra Nevada 1,137 -6.9 4.8 New Belgium 958 4.8 4.0 Troubling trend for indies: biggest gainers last yr did deals, like Lagunitas, Goose; Keeps changin Lagunitas 918 16.3 3.8 Craft Brew Alliance 749 -4.9 3.1 Goose Island

605 24.7 2.5 Spoetzl(Shiner) 550 -9.1 2.3 Deschutes, Ballast Point down this yr; Firestone and Founders could take their place in top 10 Bells 422 13.7 1.8 Deschutes 372 8.1 1.6 Ballast Point 370 33.5 1.5 Top 36 up 1.5%; Long tail most of growth; everyone else up 14%. But that was 25% in 15

Source: BMI California Craft Beer Summit - September 7, 2017 - Sacramento, CA CA CRAFT UP 11%; LAG #1 In state Calif craft jumped another 260,000 bbls, 11%. More than 10% of natl # New #1 as Lagunitas topped Sierra last year Firestone Walker biggest growth. Up 89,000 bbls, 45% Ballast Close to Stone Last Yr With Anchor deal this summer, 4 of top 6 did deals California (Bbls, Add 000)23 2016 2015 Lagunitas Sierra Nevada 370 344 344 388 Firestone Walker Stone Ballast Point 289 197 181 200 188 148 77 68 53 45 44

2,700 23,436 78 67 37 44 49 2,440 23,319 Anchor Bear Republic Golden Road Karl Strauss Lost Coast Total In State Craft California Total California Craft Beer Summit - September 7, 2017 - Sacramento, CA 7 of TOP 10 BRANDS DOWN IN 17 Select Top Craft Thru 8/13 in IRI MULC Redefined craft $$ up 5.5% YTD $$ Mil Chg ($$-mil) Chg (%) Craft 2431.5 125.7 5.5 Yet 7 of Top 10 Down Blue Moon 172.5

6.0 8.0 7.6 Flagship fatigue: Boston Lager -10, Sierra Pale -8, Fat Tire -9 Sierra Pale 70.7 -6.5 -8.4 3.2 Shiner 55.2 -0.8 -1.5 2.5 Lagunitas 51.7 4.5 9.6 2.5 Sam Seasonals Down 37.1%; #9. Torpedo #10 Fat Tire 49.3

-4.9 -9.0 2.5 Sam Lager 44.4 -5.0 -10.0 2.1 Torpedo 31.7 -1.2 -3.8 -1.3 Goose IPA 27.5 7.2 35.6 1.2 Firestone 805 25.8 6.7 34.8 1.1 Founders

27.9 8.6 44.3 1.2 Brands #11-13 All Hot Source: IRI MULC YTD Thru Aug 13 California Craft Beer Summit - September 7, 2017 - Sacramento, CA Share of Craft IPAs: 82% of CRAFT GROWTH IPAs still eating up segment; near one third of segment Gained 2.7 share of segment $$; Vast majority of growth But slower share growth in a segment growing less Seasonals and variety packs down IRI MULC DATA YTD THRU AUG 13 $$ Mil Chg (%) Chg ($$-mil) Share Chg IPAs 768.8 15.4 102.7 31.6 2.7 Seasonals 336.6

-4.5 -15.7 13.8 -1.4 Belgian Wit 241.5 Variety Pack 184.4 2.6 6.0 9.9 -0.3 -3.2 -6.1 7.6 -0.7 Pale Ale 183.7 5.3 9.2 7.6 -0.0 Craft 2431.5 5.5 125.7 5 styles 2/3 of craft California Craft Beer Summit - September 7, 2017 - Sacramento, CA Top 10 IRI Craft Growth Brands MultiOutlet + C Store Geography : Total US - MultiOutlet + Conv

Product 7 of TOP 10 ARE IPAS; 6 NOT BA DEFINED Current CRAFT BLUE MOON BELGIAN WHITE ALE ELYSIAN SPACE DUST IPA FOUNDERS ALL DAY IPA GOOSE ISLAND IPA FIRESTONE WALKER 805 BLONDE ALE LEINENKUGELS SHANDY SEASONAL NEW BELGIUM RANGER IPA NEW BELGIUM RAMPANT IMPERIAL IPA BELLS TWO HEARTED ALE LAGUNITAS INDIA PALE ALE Calendar Year To Date Ending 08-13-17 Dollar Sales Dollar Share Change of Price PerChange Case Change vs YA % Current vs YA Current vs YA $2,431,512,706 $125,723,104 5.5% $172,476,537 $12,822,172 8.0% $16,518,352 $11,900,981 257.7% $27,862,959 $8,558,135 44.3% $27,537,435 $7,223,997 35.6% $25,805,391 $6,657,137 34.8% $82,776,786 $5,967,956 7.8% $20,910,355 $5,767,395 38.1% $12,140,031 $5,256,571 76.4% $22,678,879

$5,050,366 28.6% $51,735,639 $4,522,791 9.6% California Craft Beer Summit - September 7, 2017 - Sacramento, CA 100.00 7.09 0.68 1.15 1.13 1.06 3.40 0.86 0.50 0.93 2.13 0.00 0.17 0.48 0.31 0.25 0.23 0.07 0.20 0.20 0.17 0.08 $36.76 $0.66 $33.09 $0.29 $50.88 $0.16 $28.61 -$0.77 $34.80 $1.72 $33.10 $0.15 $31.24 $0.51 $34.72 $0.30 $36.42 $1.00 $40.93 -$0.03 $35.64 $0.55 18 CRAFT DEALS, 5 MOS; 8 IN CA Date Seller Aug-17 Wormtown co-founder Tim

Locatio Buyer MA Clarke Group (Clarke Dist family) Aug-17 Magnolia Brewing CA Aug-17 Funky Buddha Aug-17 ColdSpring Brewing Aug-17 Anchor Brewing Jul-17 21st Amendment Brewing Jul-17 Funkwerks Brewery Jul-17 Short's Brewing Jul-17 Monkey Paw Brewing Jul-17 Modern Times Brewing Jun-17 Uncle Billy's Jun-17 Tin Man Brewing May-17 Fort Collins Brewing May-17 The Bruery May-17 Arbor Brewing May-17 Lagunitas Brewing May-17 Speakeasy Brewing May-17 Wicked Weed Brewing Apr-17 BrewDog Brewing FL MN CA CA CO MI CA CA TX IN CO CA MI New Belgium/Dick Cantwell/Oud Beersel Constellation Brynwood Partners Sapporo Holdings Ltd

Brooklyn Brewery Brooklyn Brewery Lagunitas US Holdings Coronado Brewing ESOP Bob Leggett Neace Ventures Red Truck Brewing Castanea Partners Farm + Ferment CA Heineken CA Ces Butner/Hunter's Point NC ABI Scotlan TSG California Craft Beer Summit - September 7, 2017 - Sacramento, CA Location NH Stake minority CO/NC 100% (NBB majority) NY/IL CT Japan NY NY CA CA CA TX KY Canada MA MI 100% (not

confirmed) 100% minority minority 19.99% majority 30% 100% remaini Netherlands ng CA 100% NY 100% NY 22% A DIFFERENT LOOK: BIG BREWER CRAFT At 6.5 Mil Bbls; Big Ambitions 2016 AB Acquired Craft 1221 Lagunitas 918 Ballast Point 370 Craft was a threat to AB; Now AB a threat to Craft; Disrupt the disruptors MC Acquired Craft 200 NAB Acquired Craft 175 AB bought 10; bigger than Sierra; big growth

Blue Moon 2125 Leinenkugel 925 Shock Top 600 BA+ Big; Segment over 30 mil bbls; 15 share MC bought majority of 4; looks to double 2884 3650 Lagunitas biggest bbls gainer; up strong in 17 Grand Total Constellation entered big with Ballast; struggling so far in 2017; Bought Funky Buddha California Craft Beer Summit - September 7, 2017 - Sacramento, CA 6534 CRAFT GAINED 7 SHARE; AB &MC -12 Craft Up 7 Share Last 8 Yrs!!! Constellation also up 3 share 2008-2016. Outgaining craft this yr. AB & MC 78.2 Share in 2008 when duopoly formed Top

2 66.7 for 12 mos thru Jun; AB at 42.2, MC at 24.5 AB lost 6.6 share and MC lost 4.9 between 2008-Jun 2017 California Craft Beer Summit - September 7, 2017 - Sacramento, CA 2016 18 2.4 3.9 8.3 24.6 42.7 AB AND MC VOLUME LOST 27.2 MIL BBLS IN 8.5 YRS AB + MC at 144.3 Mil Bbls. Down 27.2 mil bbls in 8.5 yrs. Over 3 mil bbls per year. 12 Mos Thru Jun Top 2 down 1.8 mil bbls in 1st half. Rough 3d Qtr. Down 2.3 mil bbls in 2016. Not fixed. AB up in 2012. MC not ever up for a yr. Lost 15% of volume 2008-2016; 375 Million cases; Those losses bigger than entire craft segment. Down another 25 mil cases in 1st half. 2008 Bbls Loss (All in millions of bbls) AB 91.3 107.0

15.7 MC 52.9 64.5 11.6 Total 144.3 171.5 27.2 Centre cannot hold; But profits up dramatically California Craft Beer Summit - September 7, 2017 - Sacramento, CA US PROFIT POOL HIT NEW HIGH most profitable mkt; almost of global profits 2016 OP $ US US profit pool at $8.9 bil, estimates Bernstein; Up $3.9 bil since ABI & MC Top 4 public cos up $300 mil again last yr. AB OP basically flat last yr, Constellation and MC each way up; Up again this yr. OP/ Bbl OP/ Case

AB 4,868 52.57 3.82 MC 1,283 23.98 1.74 Constellation 1,534 84.63 6.14 Boston 4 Co Total/Avg 138 34.38 2.50 7, 823 46.50 3.37 Source: Co Reports, Bernstein, BMI Constellation new power player: now easily #2 profits and #1 per case; over $6 Makes more than 3x MC, which sells almost 3x the volume and has 2x the revs California Craft Beer Summit - September 7, 2017 - Sacramento, CA DISRUPTION ON THE RISE ABI Chief Disruptive Growth Officer Pedro Earp; Zx Ventures: Picobrew, Homebrew Supplies, Rate Beer, Hiball Energy, Everything not nailed down?

Growing body of 3-tier exceptions Tap rooms and tasting rooms; Big brewers as retailers, self-distributing E-Commerce: Fresh Direct, Drizly; Lib-Dib Amazon California Craft Beer Summit - September 7, 2017 - Sacramento, CA EVERYTHINGS CHANGIN The Whole Order of Things Seems Called Into Question More Are AB and MC advantaged by their size? Lately, tiny taprooms have the advantage. Growth, profit margins, local allegiance. Now retailer pushback in Colo, MD elsewhere Big changes start out gradual, incremental, but pretty soon California Craft Beer Summit - September 7, 2017 - Sacramento, CA AMAZON BUYING WHOLE FOODS Amazon deal to buy Whole Foods could be game changer Your margin is my opportunity, Jeff Bezos Battle Royale: Walmart vs Amazon Disruptive effect of deal on beer more likely to be gradual More disruptive to key customers like Kroger, etc. Is it good for craft? California Craft Beer Summit - September 7, 2017 - Sacramento, CA SEA CHANGE!! NEW ERA: Hi-end will be bigger

than premium beer this year in cases. Already way bigger in $$ Trading up phenom continues unabated; up 26 mil bbls in 5 yrs Imports almost 16 share of volume, craft passed 11 share. Both still growing. Total High end at 39 share of volume Beer Sales by Segment Bbls-000 2016 Chg 11-16 Imports 33,370 Craft 23,400 2011 bbls 27,34 0 6,030 12,39 0 11,010 82,020 56,28 25,740 0 High End BMI estimates Just 5 yrs ago, premium priced beers had 20 share lead on high end. Last yr 0.5 share. Premiums 83 mil bbls California Craft Beer Summit - September 7, 2017 - Sacramento, CA % 22.1 88.9

45.7 SERIOUS SHAPE SHIFTING Above premium $$ up 5.3%; gained 2 share YTD in Nielsen; 2.5 for 4 weeks to 45 share Beer Sales by Segment $$ Share Imports now leading charge; $$ up 8% YTD; Up more share than craft; 1.2 to 0.3 Imports Craft Craft gains slowed and FMBs went into reverse as hard sodas cant cycle FMBs Ciders High End FMBS recently firming with this yrs model, hard seltzers. Still down 0.2. Superpremium 18.6 11.2 7.1 7.7 1.1 45.6 Chg 1.2 0.4 0.6 -0.1 -0.1 2.0 Source: Nielsen All Outlet Above Premium YTD Thru 8/19

Superpremiums, mostly Mich Ultra, gained 0.6. California Craft Beer Summit - September 7, 2017 - Sacramento, CA Trend 7.6 4.0 10.7 -0.9 -3.5 5.5 BIG SHARE SWINGS: CA 2011-2016 AB and MC lost 10 share last 5 yrs; Constellation and Craft gained 12 share California Ground Zero. AB/MC down to 52 share in CA. Peak: 85 in early 90s. AB down 1 mil bbls, 6 share in 5 yrs; MC down 744K bbls, 4 share. Each down 10% 2015-16. Soft again in 2017. Constellation will very likely pass MC in volume in CA in 2017. STZ up 1.5 mil bbls, 55% last yrs; 6 shar; All Others (mostly craft) up 1.3 mil bbls, 6.4 share in 5 yrs Shipments (000) 2011 2016 Chg bbls Mkt Share 2011 2016 Chg 11-16 AB

8,757 7,737 -1020 39.2 33.0 -6.2 MillerCoors 5,246 4,502 -744 23.4 19.2 -4.2 270 305 35 4.1 3.8 -0.3 Constellation 2,794 4,317 1523 12.5 18.4

5.9 HUSA 1,741 1,604 -143 7.8 6.8 -1.0 All Others 3,539 4,971 1332 6.1 12.5 6.4 22,317 23,436 1019 Pabst Total California Craft Beer Summit - September 7, 2017 - Sacramento, CA VOLATILITY IN THE INDUSTRY Craft growth has had destabilizing effect, especially with emergence of tiny taprooms and local, local

AB especially set out to disrupt the disruptors; making for chaotic scene AB and MC duking it out in subpremiums; more craft brewers also focused on multi-packs and price Regulators going after the industry on trade practices far more; more legal and legislative changes California Craft Beer Summit - September 7, 2017 - Sacramento, CA REGULATORS RISING; LEGAL ABC investigations in at least 4 states. Most recently Fla, in conjunction with TTB TTB ruling led to Kroger dropping CatMan plan; TTB got offer in compromise from AB/MC for consignment sales; Settlement from CBG DOJs ABI-SAB consent decree still not finalized Lots more significant lawsuits these days; some important affirmations of state-based system, like Retail Digital California Craft Beer Summit - September 7, 2017 - Sacramento, CA CONFUSION AND THE CONSUMER Consumer Overwhelmed by too much choice, many say Has SKUmageddon peaked? Hit 13,000. Some fall and spring resets were brutal; WalMart, Krogers; others still expand craft Distribs say increased complexity and SKU proliferation are one of biggest concerns. But reconcile with fact that many consumers still crave more flavor, variety, choice? California Craft Beer Summit - September 7, 2017 - Sacramento, CA STILL LOTS OF BRIGHT SPOTS Some brewers are already finding their way through this more challenging landscape Bells, Lagunitas, Firestone Walker, New Glarus, Founders, Stone, Dogfish Head all up double digits so far in 2017 Countless smaller players still putting up

big growth, or at least solid double digits Many contrarian stories yet to be told California Craft Beer Summit - September 7, 2017 - Sacramento, CA THREE GENERATIONS OF BMI Jerry Steinman started Beer Marketers Insights in 1970, at 46. Envisioned as part time Benj never thought hed work at BMI. Even tho he grew up with a postage meter in bedroom joined BMI in 1980 David first worked for BMI in summer 2008; Fall back? Full-time in 2013 California Craft Beer Summit - September 7, 2017 - Sacramento, CA SECOND TIER BREWERS NEARLY DISAPPEARED Market Share 1980 Pabst 8.3 Schlitz 8.3 Heileman 7.3 Stroh 3.4 Oly 3.4 Fal/Gen/Pearl 2.1 Schmidt 2.0 TOTAL 34.8 Market Share 2016 Pabst 2.4 7 Companies which were 35% of the biz in 1980, now down to 1 company thats 2.4%.

California Craft Beer Summit - September 7, 2017 - Sacramento, CA California Craft Beer Summit - September 7, 2017 - Sacramento, CA WHATS NEXT? Changed Landscape; The Way Ahead? Slowing growth Deals Galore Exceptional Volatility Local taproom model is still working well More Cautious Outlook ; Lotsa change over time Necessity is the Mother of Invention California Craft Beer Summit - September 7, 2017 - Sacramento, CA WHATS NEXT Benj Steinman Beer Marketers INSIGHTS California Craft Beer Summit September 7, 2017 2017, All Rights Reserved. Please do not duplicate or distribute without written permission. www.beerinsights.com [email protected]

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