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4.2 MAIN MARKETS 4.2.1 Canada The Canadian brewing industry is a mature market. It is characterized by aggressive competition for volume and market share from regional brewers, microbrewers and certain foreign brewers, as well as Molson’s main domestic competitor. These competitive pressures require significant annual investment in marketing and selling activities. There are three major beer segments based on pricing: super premium, which includes imports and represents 16% of total sales of the industry and 13% of total sales of the Corporation; premium, which includes the majority of domestic brands and the light subsegment and represents 65% of total sales of the industry and 68% of total sales of the Corporation; and the discount segment which represents 19% of total sales of the industry and 19% of total sales of the Corporation. Total industry volume in Canada is sensitive to factors such as weather, changes in demographics and consumer preferences. Consumption of beer in Canada is also seasonal with approximately 40% of industry sales volume occurring during the four months from May to August. For the year ended March 31, 2004, estimated industry sales volume in Canada, including sales of imported beers, increased by approximately 2% to approximately 21.5 million hectolitres. Imported beer volume in Canada increased by 42% over the past five years, achieving approximately 9% share of total industry volume during the year ended March 31, 2004. During this same timeframe, domestically produced volume remained fairly stable. The domestic brewing industry is comprised principally of two major brewers whose combined market share is approximately 86% of beer sold in Canada. In comparison, the top three brewers in the United States represent approximately 79% of that market. Foreign brands licensed for brewing and sale in Canada play a larger role domestically than have direct imports. The three major US brewers are among the foreign producers which license Canadian brewers, including Molson, to brew, market and distribute their brands in Canada. The Ontario and Quebec markets account for approximately 63% of the total beer market in Canada. The top ten brands in Canada account for approximately 56% of the packaged market in Canada in fiscal 2004, including CANADIAN which remains a leading brand in English Canada with a market share of approximately 11%. 7 The industry in Canada as a whole has taken a number of measures to reduce costs and improve its ability to compete. In order to eliminate excess capacity, Molson has closed a number of breweries since 1989, including the Barrie brewery which closed in September 2000, and the Regina brewery, which closed in July 2002. In Ontario, the distribution and retail system operated by Brewers Retail Inc. (“BRI”) (of which Molson is a shareholder) is pursuing opportunities to modernize the retail business to enhance industry sales, while seeking increased efficiencies in the wholesale operation. Molson and the majority of Canadian brewers make use of a common returnable bottle in Canada, which Molson believes is financially advantageous to all brewers, resulting in environmental benefits and significantly lower distribution, warehousing and sorting costs. 4.2.2 Brazil Brazil with its approximate consumption of 82.2 million hectolitres of beer annually is the world's fourth largest beer market, about four times the size of the Canadian market. The Brazilian beer market is highly concentrated with three major competitors holding over 90% of the market and features a growing young adult market. The per capita consumption of beer in Brazil was approximately 47 litres in 2003. With a volume of approximately 10 million hectolitres of annual beer production in fiscal 2004, Molson is the third largest brewer in Brazil. Approximately 60% of Kaiser's sales are concentrated in Brazil’s southern region and in its southeastern region (São Paulo). Kaiser and the majority of Brazilian brewers make use of a common returnable bottle in Brazil, which Molson believes is financially advantageous to all brewers, resulting in environmental benefits and significantly lower distribution, warehousing and selling costs. 4.2.3 United States In the United States, the Corporation markets its brands in the import segment which represents over 11% of the total US beer market. The import segment in the United States grew approximately 2% in 2003 and is the largest import market in the world. Distributors play an important role in the growth of the Molson brands in individual regions. As a result, in fiscal 2004, Molson continued to align itself selectively with local market distributors committed to and focused on the growth of the Molson brands. 4.3 MARKETING Competing in the beer market involves a wide range of marketing and sales activities. Molson sustains its competitive leadership by striving to clearly position and promote its core brands in the marketplace. 4.3.1 Canada A key element of Molson’s marketing strategy in Canada is to increase the effectiveness of its marketing initiatives by tailoring them to reach key consumers. Molson looks to empirical research and consumer insight to ensure it allocates spending to those mechanisms that influence brand adoption and drive sales. Rigorous testing of advertisements with consumers is done both qualitatively and quantitatively during the development stage. Molson believes that the long-term success of core brands depends on advertising and promotions that present the brands in ways that are relevant and meaningful to targeted consumers through unique brand positioning. The marketing team in Canada is responsible for strategic consumer marketing, including overall strategy, creative development and promotions. It works closely with regional sales personnel to execute the strategy effectively towards leveraging local knowledge and relationships with local licensees, retailers and other marketing channels. The Corporation’s strategic marketing efforts in Canada are focused on a core brand portfolio comprising CANADIAN, CANADIAN LIGHT, MOLSON DRY, EXPORT, EXLIGHT, RICKARD’S, CARLING BLACK LABEL, MOLSON ULTRA, A MARCA BAVARIA, COORS LIGHT, CORONA, MILLER GENUINE DRAFT, HEINEKEN and certain regional brands.

RICKARD’S is a super premium beer for drinkers seeking exceptional flavor. The RICKARD’S family is composed of RICKARD’S RED, RICKARD’S HONEY BROWN and RICKARD’S INDIA PALE ALE. During fiscal 2004, Molson continued its efforts in the super premium segment, the fastest growing in the beer category.

4.8 SUPPLIERS Molson’s goal is to use world class procurement practices,

4.10 GOVERNMENT REGULATION A. General In Canada, provincial governments regulate the production, marketing, distribution, sale and pricing of beer and impose commodity taxes and license fees in relation to the production and sale of beer. In addition, the federal government regulates the advertising, labeling, quality control, and international trade of beer, and also imposes commodity taxes, consumption taxes, excise taxes and in certain instances, custom duties on imported beer.

B. Trade Issues Traditionally, in Canada, provincial regulations generally required Canadian brewers to operate a brewery in a particular province in order to obtain favorable pricing and distribution access in such province and this requirement severely limited the ability of brewers to distribute their products interprovincially. This agreement became effective on July 1, 1995 in most provinces with the exception of certain eastern provinces. This agreement removes the requirement for a brewer to brew its beer in the province in order to obtain access to the local distribution network.

4.11 DISTRIBUTION A. Canada In Canada, provincial governments have historically had a high degree of involvement in the regulation of the beer industry, particularly the regulation of the pricing, sale and distribution of beer and, in some provinces, its advertising.

British Columbia In British Columbia, the government’s Liquor Distribution Branch (the “LDB”) currently controls the distribution of all alcohol products in the province. Consumers can purchase beer at any LDB retail outlet, at any independently owned and licensed wine or beer retail store or at any licensed establishment for on-premise consumption. Brewers Distributor Ltd., which Molson co-owns with a competitor, manages the distribution of Molson’s products throughout British Columbia. The British Columbia government announced in 2002 that the LDB would shift its role from managing distribution and retail operation to regulating these areas. A further announcement postponed this initiative indefinitely.

4.12 ADVERTISING A. Canada In Canada, Advertising Standards Canada (“ASC”) handles pre-clearance approvals for broadcast advertising of alcoholic beverages at the federal level. The Canadian Radio – Television and Telecommunications Commission (“CRTC”) requires, however, that all broadcast advertising of alcoholic beverages comply with the ASC’s Code for Broadcast Advertising. Without approval numbers, broadcaste

4.13 PRICING A. Canada In Canada, the pricing of beer is affected by the imposition of provincial and federal taxes. Commodity and sales taxes make up approximately 51% of the average retail price of beer in Canada (based on a case of 24 bottles). In a number of provinces, beer produced by small brewers is subject to a lower rate 15 of provincial commodity tax. Pricing of beer in Canada is usually done by reference to what is known in the trade as “mainstream” or “premium” brands. Domestic super premium brands are usually sold at a level 10% to 20%, and imports at 20% to 30%, higher than premium beers, while discount beers are sold at prices approximately 10% to 30% below premium brands. Provincial legislation governing the sale and distribution of alcoholic beverages provides, directly or indirectly, that provincial authorities may control the pricing of beer. Some government authorities require retail prices to be uniform throughout a province, and the method of determining prices differs among provinces. In a number of provinces, social-reference pricing has been established, setting the minimum price at which beer can be sold. Small brewers’ ability to establish the growing price gap between premium brands and their value brands is partially the result of government tax policies in some markets that favor small brewers, as well as the increasing prices for premium beers. This development is having a significant impact on Molson's share performance.