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KEY NOTE Market Report Breweries & the Beer Market UK : July 2004

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This report covers:breweries, the beer market, lager, dark beer,steady volume decline,erosion of 'brewery tie' system,lager on draught, packaged lager, dark beers on draught, stout,

Companies covered include:Anheuser-Busch Europe, Carlsberg UK, Coors Brewers, Diageo, Greene King, Heineken UK, Interbrew UK, Scottish & Newcastle, The Wolverhampton & Dudley Breweries,regional breweries, own label supply,

EXECUTIVE SUMMARY

Beer is the most popular alcoholic drink in the UK, accounting for 48% of total spending on alcoholic drinks in 2003. The UK beer market was worth £18.85bn in 2003, having benefited from both a hot summer and generally favourable economic conditions.

Despite media impressions of a binge-drinking culture, the UK's per capita consumption of beer is not unduly high, and the total volume of consumption is fairly stable over the long term. However, the trend away from standard-strength beers towards the more expensive premium lagers has continued, helping the market to grow in value.

Pricing competition has intensified in the take-home channel for beer, whereas public houses (commonly known as `pubs') and nightclubs have been able to increase prices regularly. At one time, the majority of pubs were owned by brewers, but government restrictions on this 'tie' produced a situation where, by the end of 2003, none of the national brewers was a significant pub owner.

Scottish & Newcastle PLC, the last brewer to sell its tied pub estate (in 2003), was the market leader by value. It is followed by three foreign owners — Interbrew of Belgium, Coors of the US and Carlsberg of Denmark — and these four companies account for 80% of the UK beer market between them. Concentration is increasing not only by brewer but also by brand, with giant brands such as Stella Artois (Interbrew) and Carling (Coors) gaining market share at the expense of less well-known brands.

Despite globalisation trends in both directions — the UK's Scottish & Newcastle is now a major multinational — the smaller regional brewers remain important as guardians of traditional brewing heritage. Most young people start by drinking lager but their tastes often mature towards the dark beers such as stout (led by Guinness) and cask ales such as London Pride and Marston's Pedigree.

The maturity of the market means that future changes are unlikely to be dramatic, although a new licensing regime for retailing alcohol — due to begin in 2005 — could influence drinking patterns significantly. On the supply side, governments are unlikely to allow further mergers to take place between the major players.

TABLE OF CONTENTS

Executive Summary

1. Market Definition

REPORT COVERAGE

MARKET SECTORS

By Type of Beer

Lager

Dark Beer

By Distribution Channel

By Packaging for the Retail Market

MARKET TRENDS

Steady Volume Decline

Shift from Dark Beers to Lager Continues

On-Trade Still Crucial

Erosion of the 'Brewery Tie' System

ECONOMIC TRENDS

Population

Table 1: UK Resident Population Estimates by Sex (000), Mid-Years 1999-2003

Gross Domestic Product

Table 2: UK Gross Domestic Product at Current and Annual Prices (£m), 1999-2003

Inflation

Table 3: UK Rate of Inflation (%), 1999-2003

Unemployment

Table 4: Actual Number of Unemployed Persons (million), 1999-2003

Household Disposable Income

Table 5: Household Disposable Income (£), 1998-2002

MARKET POSITION

The UK

Table 6: The Total UK Alcoholic Drinks Market by Type of Drink by Value (£m and %), 2003

Overseas

2. Market Size

THE TOTAL MARKET

Table 7: The UK Beer Market by Value and Volume (£m at rsp, million litres and £), 1999-2003

BY MARKET SECTOR

Lager Versus Dark Beers

Table 8: The UK Beer Market by Sector by Value (£bn at rsp and %), 1999-2003

Lager On Draught

Packaged Lager

Dark Beers On Draught

Stout

Other Varieties of Beer

OVERSEAS TRADE

Imports

Table 9: UK Imports of Beer by Country of Origin (% of total volume), 1997, 2000 and 2003

Exports

Table 10: UK Exports of Beer by Country of Destination (% of total volume), 1997, 2000 and 2003

3. Industry Background

Recent History

Industry Synopsis

Table 11: Industry Synopsis for UK Brewers (£000 and %), 2003

Number of Companies

Table 12: Number of UK VAT-Based Enterprises Engaged in Brewing, 1999-2003

Table 13: Number of UK VAT-Based Enterprises Engaged in Brewing by Turnover Sizeband (£000 and number), 2003

Employment

Table 14: Number of UK VAT-Based Local Units Engaged in Brewing by Employment Sizeband (number of employees), 2003

REGIONAL VARIATIONS IN THE MARKETPLACE

DISTRIBUTION

Table 15: UK Retail Distribution Channels for Beer by Value (£m and %), 1999, 2001 and 2003

HOW ROBUST IS THE MARKET?

LEGISLATION

Laws on Distribution (Licensing Acts)

EU Legislation and Excise Duty Rates

KEY TRADE ASSOCIATIONS

British Beer & Pubs Association

Independent Family Brewers of Britain

Society of Independent Brewers

4. Competitor Analysis

THE MARKETPLACE

MARKET LEADERS

Table 16: The Leading Brewers in the UK by Market Share by Value (%), 2003

Anheuser-Busch Europe Ltd

Company Structure