Analysis - Beer can still profit as good times run dry
Global beer volumes are expected to rise an average 2% a year
Discounting a slump in 2008 caused by the global economic crash, it has been a profitable decade for global brewers.
According to analysts Nomura, the compound annual growth rate (CAGR) for beer's profit pool from 2004 to 2008 and from 2008 to 2012 stood at about 7%, thanks to above-average volume growth in the first period and significant margin benefit from consolidation in the second.
But, while the good times, according to Nomura's report, are at an end, there is still good money to be made in beer.
Nomura's global beverage outlook for 2015, released on Friday, predicts that 2015 will see a more “normalised” profit pool growth rate of 4% as improving GDP in mature markets becomes less of a driver. Global beer volumes meanwhile are expected to grow by 2% annually until 2019. That's less than the 4.5% volumes growth in 2004 to 2008 but better than 2008to 2012's 1.1% growth.
Of course, the profit gains vary widely from market to market. According to Nomura's figures, China is at one end of the spectrum, giving out a miserly US$3 per hectolitre, while Australia sits at the other with $80 per hectolitre.
So, which of the global brewers is positioned to make the best of the changing market?
Nomura says it will be Anheuser-Busch InBev (forecast EBIT CAGR of 5.3% to 2019), thanks largely to its exposure to the US and Mexico. In comparison, SABMiller will have an estimated 4.8% CAGR and Heineken 4.1%.
Losers are predicted to be Carlsberg and and Anadolu Efes (0.6% and -0.5%, respectively) thanks to their exposure to Eastern Europe, where beer volume declines have been well documented.
But while A-B InBev may capture strong growth, changing trends, especially in the US, could conspire to hamper performance.
According to Nomura, increasing consumption of craft beer in the US has reached the point where it is posing a threat to brewing's larger names. The analyst has outlined its “small is beautiful” theory before, but, in essence, it predicts that companies such as A-B InBev will have to spend more on product innovation as the beer category becomes evermore like the wine sector and “consumers like to drink differently from the next consumer”.
Since Nomura first outlined small is beautiful in 2013, A-B InBev has bought New York's Blue Point and Oregon's Ten Barrel craft brewers - on top of Goose Island, which it acquired in 2011.
But, as Nomura points out in its latest report, while there are signs that brewers are starting to face the challenge of craft beer, “there is a risk that the large, established operators will under-perform market growth, because of their under-exposure to this growth segment of the industry”.
And, with Nomura predicting added profit for the Boston Beer Co precisely because of its extensive craft beer portfolio, the next few years will likely see further attempts by mainstream brewers to capture some craft magic of their own.
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