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Molson Coors Brewing Company (TAP)Stock (Food & Beverage Industry, Beverages - Brewers Industry, Brewers Industry, Consumer Products Industry)
 This article should cite more sources.  Formed by the merger of the Coors Brewing Company and the Molson Company in 2005, the Molson Coors Brewing Company is the world’s fifth largest brewer by volume (42.1 million barrels sold in 2006[1]), with significant market share in the United States, Canada and Western Europe. They brew and sell 40 different beer products, in addition to selling beer via partnerships with companies like Heineken and Corona. In 2007, Molson Coors generated gross sales of $8.3 billion or $6.1 billion after excise taxes, a 6% increase over 2006. Molson Coors thrives particularly in Canada, where it commands over 41% of the market, largely through its sales of flagship brands Coors, Coors Light, and Molson. These products, though, are premium beers, which are sold in a worldwide market characterized largely by its maturity and slow growth. In October, 2007, Molson and SABMiller announced that they would combine their US operations. The new venture, MillerCoors, will produce approximately 70 million US barrels, making it a formidable competitor to U.S. market leader Anheuser-Busch. The company also competes in the alcoholic beverage market at large, in which consumers consider beer, wine, and spirits largely substitutes. As the company does not have any significant presence in the wine and spirits segment, a faster growing portion of the industry, Molson Coors must seek growth in different markets and possibly via acquisition. While the company is a large player in the beer industry and commands significant market share in its core markets, it has also been characterized by low returns on its invested capital and low operating and net profit margins relative to its peers in the last several years. The company, though, is beginning to realize synergies and cost-savings from its two-year-old merger, and intends to initiate share buybacks and dividends to return much of its free cash to shareholders.
[edit] HistoryMolson Coors was created when the Coors Brewing Company of America merged with Molson Canada on February 9, 2005. The Adolph Coors Company, whose principle subsidiary, Coors Brewery Company, was founded by Adolph Coors in 1873. During its first hundred years in existence, Coors remained a regional beer. In the 1990s, Coors expanded nationally and within ten years became the third largest brewer in the United States. Molson, founded in 1786, is North America’s oldest brewing company. [edit] Business Drivers[edit] Consumer Preferences[edit] Brand Preference Molson Coors sells 40 different brands of beer worldwide (14 in the U.S.). But the majority of their sales volume is concentrated in 3 different products across 3 countries: Coors Light in the U.S.; Carling in the U.K.; and Molson in Canada. In 2006, sales of Coors Light accounted for 45% of overall revenue and Carling for 19%. Therefore, consumer preferences for these three products alone have a significant impact on the success of the company. Beer drinkers do not exhibit a high level of brand loyalty, so the success of a marketing campaign can sway beer drinkers from one brand to another. [edit] Quality PreferencesBeer products can be broken down into three key designations:
All three of Molson Coors’s most popular brands fall into the category of premium beers. In recent years, sales of super-premium and value beers have increased at the expense of premium products as consumption trends towards paying up for higher-quality alcoholic beverages and buying for quantity. [edit] Market Maturity and Dynamics The world beer market has grown consistently in the past decades, as has the number of competitors. The market is mature domestically and beginning to mature overseas as growth has slowed to low-single digit range. Furthermore, the market for beer tends to vary noticeably by country and region due to different cultures, acquired tastes, and willingness to pay for quality or quantity. Because the company generally focuses on a few flagship and important brands, appealing to such a wide-ranging, fickle market may prove challenging and more risky than competitors with great diversity of product line. The company operates three major segments--the U.S., Europe, and Canada--all of which generate sales in very mature beer-drinking markets. All have experienced and may likely continue to experience flat to slow growth. Molson Coors has limited exposure to more rapidly growing emerging markets.
[edit] Alternatives to BeerRecently, sales of wine and spirits have increased at a faster rate than that of beer, demonstrating the influence of customer preferences not only between different beer products, but also between different types of alcohol. Beer brewers target a fickle and wide-ranging market which largely considers many alcoholic beverages to be substitutes. As such, Molson Coors typically competes with wine and spirit companies along with other beer brewers. Molson Coors may experiences periods of stagnation if the trend away from beer continues and consumers move towards other drink alternatives. In 2005, for instance, beer shipments in the U.S. fell 1.2% while wine grew 4.8% and spirits 2.9%. Super-premium and import beers, however, did grow unlike the overall beer market, indicating consumer substitution and preference shift toward wine, spirits, and high-end beer. TAP's largest brands are categorized as premium, a segment that has had relatively flat to negative growth. [edit] Consolidation[edit] Industry ConsolidationThe brewing industry tends to be categorized by a few large, dominant-players, along with many smaller, specialty and niche companies (e.g., micro-breweries). Consolidation of smaller outfits with larger ones has been common among players like Molson Coors, Anheuser-Busch, InBev, and SABMiller, all of whom have sought growth through acquisition. A major, recent development on this front occurred in October, 2007, when Molson Coors Brewing Company (TAP) and SABMiller plc (SBMRY) announced that they would combine their US operations. The new venture, MillerCoors, will produce approximately 70 million US barrels and will have revenues of over $6.5B. The companies expect to produce $500 million is savings which will allow them to boost advertising spending and trim prices to capture market share from US leader Anheuser-Busch Companies (BUD). [edit] The Distribution EnvironmentMolson Coors sells all of its products to wholesalers, who then distribute their products to the retailers that eventually sell the alcohol to consumers. In recent years, wholesalers that distribute Molson Coors' beer products have also trended towards consolidated. One significant ramification of this trend is wholesalers' increasing leverage to obtain lower prices from breweries, including Molson Coors. [edit] Raw Material and Commodity PricesThe company utilizes a variety of agricultural and commodity products in brewing and bottling its beverages. For beer, the most important inputs are hops and barley. Barley typically constitutes 8% of the brewing costs of beer, and a significant price increase in barley, for instance, would increase the cost of the company's goods sold and put pressure on margins. Barley prices have increased 85% because of a dwindling supply. Farmers are increasingly attracted to farming crops such as corn and soybeans instead of barley because of the burgeoning biofuel industry. Molson Coors also engages in the packaging of its products, and the recent 50%+ increase in aluminum prices places addition strain on margins, since aluminum is the key input in the canning of brewed products. [edit] Excise TaxesAs an alcoholic beverage producer, Anheuser-Busch is subject to changes in the legal environment regulating its business. One significant regulation in the U.S. is the excise tax on alcohol, which are collected at the state and federal levels. U.S. excise taxes comprised about $17 per barrel on average in 2006. In the U.K., one of the company's largest markets, excise taxes totaled $104.58 per barrel, or nearly half of revenue per barrel. Changes in excise taxes levied on alcohol can, therefore, result in material changes in operating results. [edit] Comparison to Competitors
 Molson Coors Brewing Company2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] Domestic Market ShareMolson Coors’s domestic arm, Coors Brewing Company, is the third largest brewer by volume in the U.S., accounting for 11% of the market. The company trails their two largest competitors,Anheuser Busch (48%) and Miller (23%). Molson Coors' share includes sales of Coors Light outside of the United States and the sale of Canadian-brewed Molson products in the United States. [edit] International Market Share[edit] Canada Molson is the largest brewer by volume in Canada with 41% of the market share by volume, although the Labatt brand (owned by the world’s largest brewer, InBev NV), is only a few percentage points behind. Coors Light has 11% of the market share and Molson Canadian has 8%. Canada is a mature market that is characterized by heavy competition among large-scale producers, regional breweries and microbreweries. In 2006, overall beer sales in Canada increased by 2%, though nationally, premium beers such as Molson lost ground to super-premium and low-cost products, as well as wine and spirit makers, whose growth rate eclipsed the growth of beer. [edit] United KingdomCoors Breweries Limited is Molson Coors’s arm in Western Europe and owns 21% of the British market, Europe’s second largest market. Anheuser-Busch comprises 3% of the market. [edit] Market Share
Source: Company data. [edit] Operating MetricsSeveral key operating metrics are provided below for TAP and several of its largest competitors. The companies typically gauge the effects of volume and pricing by looking at the quantity of barrels of beer sold and the revenue per barrel sold (or hectoliter for non-US companies). Efficiencies may be measured by the gross profit per barrel (Rev/Barrel - Cost/Barrel) and the quantity of barrels sold per employee hired. Revenue per barrel and cost per barrel are stated net of excise taxes, which typically run significantly higher in Canada. TAP appears to be less efficiently run along the lines of employee-related costs, perhaps due to higher employee costs in Canada. Furthermore, this seems compounded by the fact that the company produces fewer barrels per employee than its competitors, which places strain on SG&A related costs as a measured against revenue. Both of these factors account for TAP's relatively lower operating but not gross profit margin.
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