ITEM 1. Business
(a) General Development of Business
Since our founding in 1873, we have been committed to producing the highest
quality beers. Our portfolio of brands is designed to appeal to a wide
range of consumer taste, style and price preferences. Historically, our
beverages have been sold throughout the United States and in select
international markets. Unless otherwise noted in this report, any
description of us includes both Adolph Coors Company (ACC) and Coors
Brewing Company (CBC), ACC's wholly owned subsidiary, but does not include
Coors Brewers Limited as it was acquired in February, 2002.
Recent General Business Developments
Carling Brewers: In February 2002, we completed the acquisition of the
Carling business from Interbrew S.A. for 1.2 billion British pounds sterling
(approximately $1.7 billion), plus associated fees and expenses. The purchase
price is subject to adjustment based on the value of certain items, as
defined in the purchase agreement, as of the acquisition date. The Carling
business, (subsequently renamed Coors Brewers Limited) includes the majority
of the assets that previously made up Bass Brewers, including the Carling,
Worthington and Caffrey's brand beers; the United Kingdom (U.K.)
distribution rights to Grolsch (via a joint venture with Grolsch N.V.);
several other beer and flavored-alcohol beverage (FAB) brands; related
brewing and malting facilities in the U.K.; and a 49.9% interest in the
distribution logistics provider Tradeteam. The brand rights for Carling,
which is the largest acquired brand by volume, are mainly for territories
Coors Brewers, with its headquarters in Burton-on-Trent, England, is the
U.K.'s second-largest beer company, with 2001 volume of approximately 9
million barrels (excluding factored brands), or l9%, of the U.K. beer
market, which is Western Europe's second-largest market. The Coors Brewers
business is almost exclusively in England and Wales.
The Coors Brewers brand portfolio consists of 20 U.K. beer brands and four
FAB brands with strong offerings in each of its target segments. Its
mainstream lager, Carling, is currently the number-one beer sold in the
U.K. based on volume. Grolsch is the U.K.'s fastest growing premium lager,
with volume increasing fourfold since 1994. Coors Brewers leading position
in the ale segment is driven by a combination of Worthington, the U.K.'s
number-two mainstream ale brand in the On Trade (on-premise) channel, and
Caffrey's, the U.K.'s leading premium ale by volume. In addition, Coors
Brewers is the only U.K. brewer with a successful range of internally
Like other brewers, Coors Brewers wholesales a range of beers, wines,
spirits and soft drinks (factored products) to enhance service and
profitability by offering a wide range of products to its On Trade
Coors Brewers currently operates four breweries in the U.K. with production
capacity of more than 12 million barrels. The Burton-on-Trent brewery has
the largest capacity and is located in the Midlands, in central England,
which facilitates cost-efficient distribution throughout the U.K. Other
breweries are located in Tadcaster (Yorkshire), Cape Hill (Birmingham) and
Alton (Hampshire). Two of the breweries have can and bottle packaging
facilities, and there is a broad range of brewing and packaging operations
across the four sites. Additionally, the company operates three malting
facilities located in Burton, Shobnall and Alloa.
In March 2002, we announced plans to close our Cape Hill brewery and Alloa
malting facility. A majority of the production at the Cape Hill brewery
relates to brands that were retained by Interbrew. The production at the
Alloa malting facility will be moved to one of the other existing malting
facilities. These closures will remove excess capacity from the Coors
The Coors Brewers distribution operation is run by Tradeteam, a joint
venture with Exel Logistics in which Coors Brewers owns 49.9%. Tradeteam
operates a system of satellite warehouses and the transportation fleet for
deliveries between the Coors Brewers breweries and customers. Additionally,
Tradeteam manages the transportation of certain raw materials such as malt
to the Coors Brewers breweries.
EDS Information Services, LLC (EDS): During the third quarter of 2001, we
finalized our contract with EDS to outsource certain functions of our
information technology infrastructure. We believe this new arrangement will
allow us to focus on our core business while having access to the expertise
and resources of a world-class information technology provider.
Ball Corporation: Effective January 1, 2002, we became an equal member
with Ball Corporation (Ball) in a Colorado limited liability company, Rocky
Mountain Metal Container, LLC (RMMC). Also effective on January 1, 2002, we
entered into a can and end supply agreement with RMMC (the Supply
Agreement). Under that Supply Agreement, RMMC will supply us with
substantially all of the can and end requirements for our Golden brewery.
RMMC will manufacture these cans and ends at our existing manufacturing
facilities, which RMMC is operating under a use and license agreement. We
have the right to purchase Ball's interest in RMMC under certain
conditions. If we do not exercise that right, Ball may have the right to
purchase our interest in RMMC. Our prior joint venture was with American
National Can Company (subsequently acquired by Rexam LLC). In August 2001,
we purchased Rexam's interest in the joint venture.
Molson USA, LLC: In January 2001, we entered into a joint venture
agreement with Molson, Inc. and paid $65 million for a 49.9% interest in
the joint venture. The joint venture, Molson USA, LLC (MUSA), was formed to
import, market and sell Molson's brands of beer in the United States,
including Molson Canadian, Canadian Light, Molson Golden and Molson Ice.
Under the agreement, the joint venture owns the exclusive right to import
Molson brands into the United States. Additionally, any Molson brands that
may be developed in the future for import into the United States are
covered under the agreement. We are responsible for the sales activities in
the United States for the brands and products that are manufactured in
Canada by Molson under the agreement. Decisions related to marketing of the
brands are made both by Molson and us through the joint venture.
Coors Canada: In January 1998, we formed Coors Canada, a partnership
arrangement, with Molson, Inc. in Canada to distribute Coors products in
Canada. We own 50.1% of this partnership through our 100% ownership of
Coors Canada, Inc. In December 2000, we entered into a five year brewing
and packaging arrangement with Molson in which we will have access to some
of Molson's available production capacity in Canada. The Molson capacity
available to us under this arrangement in 2001 was 250,000 barrels, none of
which was used by us. Starting in 2002, available capacity increases to
500,000 barrels. Currently, we pay Molson a fee for holding this capacity
aside for our future use.
Spain: In 2000, we closed our brewery in Zaragoza, Spain, and sales
operation in Madrid, Spain. In 2001, the plant and related fixed assets
Some of the following statements describe our expectations of future
products and business plans, financial results, performance and events.
Actual results may differ materially from these forward-looking statements.
Please see Item 7, Management's Discussion and Analysis - Cautionary
Statement Pursuant to Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995, for factors that may negatively impact our
performance. The following statements are expressly made subject to those
and other risk factors.
(b) Financial Information About Industry Segments
We have one reporting segment, which is focused on the malt beverage
business. See Item 8, Financial Statements and Supplementary Data, for
financial information relating to our operations.
We are still evaluating the impact of acquiring the Coors Brewers business
on our segment reporting for 2002. At this time, we anticipate having two
reportable operating segments: the Americas and Europe.
(c) Narrative Description of Business
As noted above in Item 1(a), General Development of Business, Recent
General Business Developments, we acquired the Carling business portion of
Bass Brewers in February 2002. Except where otherwise noted, the
disclosures in this Item (c) relate to the business of Coors Brewing
Company as it pertains to our one reporting segment that existed as of
December 30, 2001.
Coors Brewing Company - General
We produce, market and sell high-quality malt-based beverages. Our
portfolio of brands is designed to appeal to a wide range of consumer
taste, style and price preferences. Our beverages are sold throughout the
United States and in select international markets. Coors Light has
accounted for more than 70% of our sales volume in each of the last four
years. Premium and above-premium products accounted for more than 85% of
our total sales volume in each of the last four years. Most of our sales
are in U.S. markets; however, we are committed to building profitable sales
in international markets. Our goal is to continue growing our business and
increasing our profitability, both domestically and internationally, by
focusing on the following key strategies:
- producing the highest quality products;
- focusing on high-growth, high-margin segments;
- investing in high-potential markets and brands;
- improving our wholesale distribution network;
- reducing costs and improving productivity;
- building organizational excellence; and,
- pursuing strategic opportunities.
Our sales of malt beverages totaled 22.7 million barrels in 2001, 23.0
million barrels in 2000 and 22.0 million barrels in 1999. The barrel sales
figures for each year do not include barrel sales of a non-consolidated
Canadian partnership. An additional 1.3 million, 1.2 million and 1.0
million barrels were sold by this non-consolidated entity in 2001, 2000 and
1999, respectively. See Item 7, Management's Discussion and Analysis, for
discussion of changes in volume.
Our top-selling brand is Coors Light, a premium beer, and our other
products include an additional 10 brands. Our other premium beers include
Coors Original and Coors Non-Alcoholic. We also offer a selection of
above-premium beers including George Killian's Irish Red Lager and Blue
Moon Belgian White Ale. In addition, we offer Zima and Zima Citrus,
alternative malt-based beverages that are light, refreshing products and
have long competed in the malternative category. We also compete in the
lower-priced segment of the beer market, called the popular-priced segment,
with Extra Gold and our Keystone family of beers - Keystone Premium,
Keystone Light and Keystone Ice.
In 2001, the Coors Dry and Winterfest brands, were phased out because of
greater emphasis and focus on other brands.
We own and operate The SandLot Brewery at Coors Field ballpark in Denver,
Colorado. This brewery, which is open year-round, makes a variety of
specialty beers and has an annual capacity of approximately 4,000 barrels.
Sales and Distribution
By federal law, beer must be distributed in the United States through a
three-tier system consisting of manufacturers, distributors and retailers.
Currently, a national network of 494 distributors delivers our U.S.
manufactured products to U.S. retail markets. Of these, 492 are independent
businesses and the other two are owned and operated by one of our
subsidiaries. Some distributors operate multiple branches, bringing the
total number of U.S. distributor and branch locations to 562 for the year
ended December 30, 2001. As a result of our new Molson USA joint venture,
we have an additional 237 domestic distributors, including branches, that
distribute Molson brands (but not Coors brands) within the United States.
Additional independent distributors deliver our products to some
international markets under licensing and distribution agreements.
In the past three years, consolidation among U.S. wholesalers has
accelerated. As a result of this trend, approximately 45% of our U.S.
distributors (which sell nearly 40% of our volume) now also distribute
Miller Brewing Company products. We view this consolidation trend
positively because it generally improves the economics of the combined
distributorships, which allows them to compete more effectively against the
market leader's distributors.
We establish standards and monitor distributors' methods of handling our
products to ensure the highest product quality and freshness. Monitoring
ensures adherence to proper refrigeration and rotation guidelines for our
products at both wholesale and retail locations. Distributors are required
to remove our products from retailer outlets if they have not sold within a
certain period of time.
Our highest volume states are California, Texas, Pennsylvania, New York and
New Jersey, which together comprised 44% of our total domestic volume in
We have more than 300 full-time salespeople throughout the United States.
Our salespeople work closely with our distributors to assure that they
focus appropriately on our product and to assist them in implementing
industry best practices to improve efficiency and performance. Our sales
function is organized into two regions that manage a total of six
geographic field business areas responsible for overseeing domestic sales.
We believe this structure enables our salespeople to better anticipate
wholesaler and consumer needs and to respond to those needs locally, with
In addition, we have a team of category managers responsible for assisting
leading U.S. retailers, such as large supermarket chains, with managing
their beer offerings. Our category managers work with retailers to enhance
overall beer sales through optimizing space allocation, merchandising
displays, promotional campaigns and product distribution throughout each
retailer's chain. We believe that our success in category management
enhances our competitive position.
Manufacturing, Production and Packaging
Brewing Process and Raw Materials
Our ingredients and brewing process make our beers unlike any other beers
in the world. We also use unique packaging materials developed to
accommodate our cold packaging and shipping.
We use the highest quality ingredients to produce our beers. We adhere to
strict formulation and quality standards in selecting our raw materials. We
believe we have sufficient access to raw materials to meet our quality and
Along with water, barley is the fundamental ingredient in beer. Barley is
so important to the quality and taste of our products that we started
developing our own strains of barley in 1937. We use proprietary strains of
barley, developed by our own barley breeders and agronomists, for most of
our malt beverages. Virtually all of this barley is grown on irrigated
farmland in the western United States under contracts with area growers.
The growers use only our proprietary barley seed developed by us to produce
our malting barley. We are the only major brewer in the United States to
exclusively use two-row barley rather than the six-row barley that is more
commonly used among brewers. Two-row barley allows the seed ample room to
grow and develop, which we believe produces a more consistent, higher-
quality crop and better tasting beer. Our malting facility in Golden
produces approximately 80% of all of our malt requirements for our U.S.
products. We also have our own barley malted by third parties under
contract. We maintain inventory levels in facilities that we own. Our
inventories are sufficient to continue production in the event of any
foreseeable disruption in barley supply and currently exceed a 14-month
We use naturally filtered water from underground aquifers to brew malt
beverages at our Golden facility. Water quality and composition have been
primary factors in all facility site selections. Water from our sources
contains minerals that help brew high-quality malt beverages.
We continually monitor the quality of the water used in our brewing process
for compliance with our own stringent quality standards, which exceed
federal and state water standards. We own water rights that we believe are
more than sufficient to meet all of our present and foreseeable
requirements for both brewing and industrial uses. We acquire water rights,
as appropriate, to provide flexibility for long-term strategic growth needs
and also to sustain brewing operations in case of a prolonged drought.
We take an average of 55 days -- significantly longer than our major
competitors -- to brew, age, finish and package our beers. We believe this
unique process creates a smoother, more drinkable product. We were the
first brewer to introduce a cold-filter process to preserve taste. We keep
the product cold -- from the brewhouse through packaging to retail -- by
using insulated containers for transport and by requiring our distributors
to hold our products in temperature-controlled warehouses.
Brewing and Packaging Facilities
We have three domestic production facilities. We own and operate the
world's largest single-site brewery in Golden, Colorado. In addition, we
own and operate a packaging and brewing facility in Memphis, Tennessee, and
a packaging facility located in the Shenandoah Valley in Virginia.
We brew Coors Light, Coors Original, Extra Gold, Killian's and the Keystone
brands in Golden. Approximately 60% of our beer volume brewed in Golden is
also packaged there. The remainder is shipped in bulk from the Golden
brewery to either our Memphis facility or to our Shenandoah facility for
The Memphis facility packages all products exported from the United States.
It also brews and packages our Zima, Zima Citrus, Coors Non-Alcoholic and
Blue Moon brands for domestic and international distribution. Coors Light
is brewed in Memphis for export only.
Our Shenandoah facility packages Coors Light, Keystone Light and a small
portion of Killian's volume for distribution to eastern U.S. markets.
To continue the brand growth that we have experienced over the past several
years, we increased our 2001 capital expenditures to expand our brewing and
packaging capacity. In particular, we added a third bottle line to our
Shenandoah facility and have added brewing capacity to our Memphis facility
to meet growing demand and to lower our production and distribution costs
to markets in the northeastern United States. We are improving
manufacturing processes in Golden, which will increase brewing and
packaging capacity in our largest facility. We also anticipate that further
increasing brewing and packaging capacity at our Memphis facility will be
an important part of our mid- and long-term capacity plan. Please see Item
7, Management's Discussion and Analysis - Liquidity and Capital Resources,
for more information about our planned capital expenditures.
We purchase electricity and steam for our Golden manufacturing facilities
from Trigen-Nations Energy Corporation, L.L.L.P. (Trigen). Coors Energy
Company, our wholly owned subsidiary, buys coal, which it sells to Trigen
for Trigen's steam generator system, and purchases gas for our Shenandoah
and Golden operations.
Aluminum cans: Approximately 60% of our products were packaged in aluminum
cans in 2001. A substantial portion of those cans were purchased from a
joint venture between Coors and Rexam LLC, which operated at our
manufacturing facilities. In August 2001, we purchased Rexam's interest in
the joint venture.
We own the manufacturing facilities that produced the majority of our
aluminum can, end and tab requirements. In 2001, we purchased all of the
cans, and most of the ends, produced by these facilities which were
operated in 2001 through the joint venture with Rexam. In addition, we
purchased certain specialized cans and some cans for products packaged at
our Memphis and Shenandoah plants directly from Rexam LLC.
In 2001, we replaced our joint venture with Rexam by forming RMMC with
Ball. Effective January 1, 2002, RMMC will operate our existing can and end
facilities in Golden, Colorado, one of the largest aluminum can
manufacturing facilities in the world. RMMC is structured and has an
incentive to reduce manufacturing costs, as well as provide improved
sourcing patterns, particularly to our Shenandoah and Memphis facilities.
In addition to our supply agreement with RMMC, we also have commercial
supply agreements with Ball and Rexam to purchase cans and ends in excess
of those that are supplied through RMMC.
Glass bottles: We used glass bottles for approximately 29% of our products
in 2001. We operate a production joint venture with Owens-Brockway Glass
Container, Inc. (Owens), the Rocky Mountain Bottle Company (RMBC), to
produce glass bottles at our glass manufacturing facility. The initial term
of the joint venture expires in 2005 and can be extended for additional
two-year periods. In 2001, we purchased all of the bottles produced by
RMBC, approximately 1.1 billion bottles, which fulfilled about half of our
bottle requirements. The remaining bottle requirements were met through a
supply contract with Owens.
Other packaging: The remaining 11% of the volume we sold in 2001 was
packaged in quarter- and half-barrel stainless steel kegs purchased from
We purchase most of our paperboard and label packaging from a subsidiary of
Graphic Packaging International Corporation (GPIC). These products include
paperboard, multi-can pack wrappers, bottle labels and other secondary
packaging supplies. We have begun negotiations to renew this contract which
expires in 2002. We expect it to be renewed prior to expiration. William K.
Coors and Peter H. Coors serve as co-trustees of a number of Coors family
trusts that collectively control GPIC. Please read Item 13, Certain
Relationships and Related Transactions, for more information regarding
We ship our products greater distances than most of our competitors. By
packaging more of our products in our Memphis and Shenandoah facilities, we
reduce freight costs to certain markets.
In 2001, approximately 64% of our products were shipped by truck and
intermodal directly to distributors or to our satellite redistribution
centers. Transportation vehicles are refrigerated or properly insulated to
keep our malt beverages cold while in transit. The remaining 36% of the
products packaged at our production facilities were shipped by railcar to
either satellite redistribution centers or directly to distributors
throughout the country. Railcars assigned to us are specially built and
insulated to keep our products cold en route.
At December 30, 2001, we had 11 strategically located satellite
redistribution centers, which we use to receive product from production
facilities and to prepare shipments to distributors. Subsequent to year-
end, we have 10 satellite redistribution centers resulting from the
consolidation of two of our western distribution centers. In 2001,
approximately 50% of packaged products were shipped directly to
distributors and 50% moved through the satellite redistribution centers.
We market our products in select international markets and to U.S. military
See discussion regarding the acquisition of the Carling business in England
and Wales at Item 1(a), General Development of Business, Recent General
Exclusive of the new Coors Brewers business, our efforts in Europe,
relating to our U.S. brands, are focused on marketing Coors Light in the
Republic of Ireland. Additionally, we are testing Coors Light in Scotland
and Northern Ireland, and we will assess the feasibility of expanding the
sale of Coors Light to the balance of the U.K.
During 2000, we closed our brewery and commercial operations in Spain. In
2001, we sold the related land, buildings and equipment. This brewery
produced beer for Spain and other European markets. Beginning in late 2000,
we began sourcing beer for our remaining European markets from our Memphis
plant. The beer is then packaged for distribution under contract in the
U.K. by Thomas Hardy Packaging Limited.
We are developing plans for integrating our current European business with
Coors Canada, our partnership with Molson, manages all marketing activities
for our products in Canada. We own 50.1% of this partnership and Molson
owns the remaining 49.9%. The partnership contracts with a Molson
subsidiary for the brewing, distribution and sale of products. This non-
consolidated entity had sales of 1.3 million, 1.2 million and 1.0 million
barrels in 2001, 2000 and 1999, respectively, and partnership net revenue
per barrel was $22.79 in 2001, $21.99 in 2000 and $20.52 in 1999. Coors
Light currently has a market share of more than 7% and is the number-one
light beer -- and the number-four beer brand overall -- in Canada.
Puerto Rico and the Caribbean
In Puerto Rico, we market and sell Coors Light through an independent local
distributor. A local team of our employees manages marketing and
promotional efforts in this market. Coors Light is the number one brand in
the Puerto Rico market with more than a 55% market share in 2001.
We also sell our products in several other Caribbean markets, including the
U.S. Virgin Islands, through local distributors.
Coors Japan Company, Ltd., our Tokyo-based subsidiary, is the exclusive
importer and marketer of our products in Japan. The Japanese business is
currently focused on Zima and Coors Original. Coors Japan sells our
products to independent distributors in Japan.
In August 2001, we formed a new subsidiary, Coors Beer & Beverages (Suzhou)
Co., Ltd., to market and distribute Coors Original in China. In October
2001, we commenced a brewing agreement with Lion Nathan Beer and Beverages
(Suzhou) Co. Ltd. to supply the China market.
Prior to October 2001, we marketed Coors Original beer under a licensing
arrangement with Carlsberg-Guangdong. This arrangement was mutually
terminated as permitted by its terms in October 2001.
Seasonality of the Business
The beer industry is subject to seasonal sales fluctuation. Our sales
volumes are normally at there lowest in the first and fourth quarters and
highest in the second and third quarters. Our fiscal year is a 52- or 53-
week year that ends on the last Sunday in December. The 2001 and 1999
fiscal years were both 52 weeks, while the 2000 fiscal year was 53 weeks.
Research and Development
Our research and development activities relate primarily to creating and
improving products and packages. These activities are designed to refine
the quality and value of our products and to reduce costs through more
efficient processing and packaging techniques, equipment design and
improved raw materials. We spent approximately $16.5 million, $16.9 million
and $16.5 million for research and development in 2001, 2000 and 1999,
respectively. We expect to spend approximately $16 million on research and
product development in 2002.
To support new product development, we maintain a fully equipped pilot
brewery within the Golden facility. This facility has a 6,500-barrel annual
capacity and enables us to brew small batches of innovative products
without interrupting ongoing operations in the main brewery.
We own trademarks on the majority of the brands we produce and we have
licenses for the remainder. We also hold several patents on innovative
processes related to product formula, can making, can decorating and
certain other technical operations. These patents have expiration dates
ranging from 2002 to 2021. These expirations are not expected to have a
significant impact on our business.
Our business is highly regulated by federal, state and local government
entities. These regulations govern many parts of our operations, including
brewing, marketing and advertising, transportation, distributor
relationships, sales and environmental issues. To operate our facilities,
we must obtain and maintain numerous permits, licenses and approvals from
various governmental agencies, including the U.S. Treasury Department;
Bureau of Alcohol, Tobacco and Firearms; the U.S. Department of
Agriculture; the U.S. Food and Drug Administration; state alcohol
regulatory agencies as well as state and federal environmental agencies.
Internationally, our business is also subject to regulations and
restrictions imposed by the laws of the foreign jurisdictions in which we
sell our products.
Governmental entities also levy taxes and may require bonds to ensure
compliance with applicable laws and regulations. Federal excise taxes on
malt beverages are currently $18 per barrel. State excise taxes also are
levied at rates that ranged in 2001 from a high of $32.65 per barrel in
Alabama to a low of $0.62 per barrel in Wyoming, with an average of $7.91
per barrel. In 2001, we incurred approximately $413 million in federal and
state excise taxes. We realize that from time to time Congress and state
legislatures consider various proposals to increase or decrease excise
taxes on the production and sale of alcohol beverages, including beer. The
last significant increase in federal excise taxes on beer was in 1991, when
these taxes doubled.
We are subject to the requirements of federal, state, local and foreign
environmental and occupational health and safety laws and regulations.
Compliance with these laws and regulations did not materially affect our
2001 capital expenditures, earnings or competitive position, and we do not
anticipate that they will do so in 2002.
We are also required to obtain environmental permits from governmental
authorities for certain of our operations. We cannot provide assurance that
we have been or will be at all times in complete compliance with, or have
obtained, all such permits. These authorities can modify or revoke our
permits and can enforce compliance through fines and injunctions. We are
not in violation of any of our permits and, we believe, we have obtained or
are in the process of obtaining all necessary permits, to the best of our
We continue to promote the efficient use of resources, waste reduction and
pollution prevention. We currently conduct several programs including
recycling bottles and cans and, where practical, increasing the recycled
content of product packaging materials, paper and other supplies.
See also Item 7, Management's Discussion and Analysis - Contingencies, for
additional discussion of our environmental contingencies.
Employees and Employee Relations
We have approximately 5,500 employees, excluding Coors Brewers Limited.
Memphis hourly employees, who constitute about 8% of our total work force,
are represented by the Teamsters union and are the only significant
employee group at any of our three domestic production facilities having
union representation. The Memphis union contract was renegotiated in early
2001. The new contract expires in 2005. We believe our people are
absolutely key to our success and that relations with our employees are
Known trends and competitive conditions: Industry and competitive
information in this section and elsewhere in this report was compiled from
various industry sources, including beverage analyst reports, Beer
Marketer's Insights, Beer Marketer Survey, Impact Databank and The Beer
Institute. While management believes that these sources are reliable, we
cannot guarantee the complete accuracy of these numbers and estimates.
2001 industry overview: The beer industry in the United States is extremely
competitive. Industry volume growth has averaged less than 1% annually
since 1991. Therefore, growing or even maintaining market share requires
substantial and consistent investments in marketing and sales. In a very
competitive year, U.S. beer industry shipments increased less than 1% in
2001, after growing 0.8% in 2000. In recent years, brewers have focused on
marketing, promotions and innovative packaging in an effort to gain market
share with less use of price discounting strategies.
The industry's pricing environment continued to be positive in 2001, with
modest price increases on specific packages in select markets. As a result,
revenue per barrel improved for major U.S. brewers during the year.
However, for the industry in general, many raw material prices increased in
2001, including aluminum, glass and energy. In addition, consumer demand
continued to shift away from short bottles and toward longneck bottles,
which cost significantly more to make and ship than short bottles.
A number of important trends affected the U.S. beer market in 2001. The
first was a continuing sales shift toward lighter, more-refreshing
beverages. Virtually all of the growth in the category was achieved by
American-style light lagers (domestic and imported) and new alternative
malt beverages. More than 80% of our annual unit volume in 2001 was in
light beers. The second trend was toward "trading up," as consumers
continued to move away from lower-priced brands to higher-priced brands,
including imports and alternative malt beverages. Import beer shipments
rose nearly 10% in 2001. Long-term industry sales trends toward lighter,
more-upscale beers generally play to our strengths.
The U.S. brewing industry has experienced significant consolidation in the
past several years, which has removed excess capacity. Several competitors
have exited the beer business, sold brands or closed inefficient, outdated
brewing facilities. In 2001, beer industry consolidation at the wholesaler
level maintained a quick pace. This consolidation generally improves
economics for the combining wholesalers and their suppliers.
U.S. demographics continued to improve for the beer industry, with the
number of consumers reaching legal drinking age continuing to increase in
2001, according to U.S. Census Bureau assessments and projections. These
same projections anticipate that the 21 to 24 age group will continue to
grow for most of this decade. This trend is important to the beer industry
because young adults tend to consume more beer per capita than other
Our competitive position: Our malt beverages compete with numerous above-
premium, premium, low-calorie, popular-priced, non-alcoholic and imported
brands. These competing brands are produced by national, regional, local
and international brewers. In 2001, approximately 80% of U.S. beer
shipments were attributed to the top three domestic brewers: Anheuser-
Busch, Inc.; Philip Morris, Inc., through its subsidiary Miller Brewing
Company; and Coors Brewing Company. We compete most directly with Anheuser
and Miller, the dominant companies in the U.S. industry. According to Beer
Marketer's Insights estimates, we are the nation's third-largest brewer,
selling approximately 11.1% of the total 2001 U.S. brewing industry
shipments of malt beverages (including exports and U.S. shipments of
imports). This compares to Anheuser's 48.6% share and Miller's 19.6% share.
Our beer shipments to wholesalers decreased 1.2% in 2001, primarily because
fiscal 2000 was 53 weeks, while fiscal 2001 was 52 weeks. On a comparable-
calendar basis, our 2001 beer shipments were down 0.1% from a year earlier
because of slower sales of our products other than Coors Light and Keystone
Light. By comparison, Anheuser's domestic shipments increased 1.2% in 2001
and Miller's declined 2.4%. More than 85% of our unit volume was in the
premium and above-premium price categories, the highest proportion among
the major domestic brewers.
We continue to face competitive disadvantages related to economies of
scale. Besides lower transportation costs achieved by competitors with
multiple, geographically dispersed breweries, these larger brewers also
benefit from economies of scale in advertising spending because of their
greater unit sales volumes. To achieve and maintain national advertising
exposure and grow our U.S. market share, we generally spend substantially
more per barrel to market our products than our major competitors.
Although our results are primarily driven by U.S. sales, international
operations have increased in importance in recent years, including in
Canada, where Coors Light is the number-one light beer. We anticipate that
the acquisition of Coors Brewers will substantially increase the
contribution of our international operations to our total results. See Item
1.(a), General Development of Business, Recent general business
developments and Note 17, Subsequent Event, in the Notes to the
Consolidated Financial Statements, for discussion relative to the Carling
(d) Financial Information About Foreign and Domestic Operations and Export
See Item 8, Financial Statements and Supplementary Data, for discussion of
sales, operating income and identifiable assets attributable to our country
of domicile, the United States, and all foreign countries.