Analysis - China to remain "bruising slugfest" for Big Four brewers
Brewers are battling it out in untapped beer markets around the world
The 'Big Four' global brewers are expected to be engaged in a “bruising slugfest” in China for some years as margins remain low, analysts have predicted.
In a 107-page report issued to clients this week, Bernstein Research said that there is “little doubt” about the growth potential in China, branded as the “last frontier” for brewers. But, pricing and margins are still “very low” due to market fragmentation in the country.
“This is likely to continue for the foreseeable future, as the four large brewers - Anheuser-Busch InBev, SABMiller, Heineken and Carlsberg - engage in a bruising slugfest,” the 'Global Beer Guide' report says.
On India, Bernstein flagged the potential for the country to also be a key driver for volume growth, as per capita consumption is only 1.5 litres. But the report adds: “The fragmented regulatory environment and difficult operating conditions make it very hard to achieve economies of scale.” Other factors that are likely to hold back brewers' progress in India are "religious taboos” around alcohol, and an “entrenched spirits culture”, the report notes.
Turning to Africa, the report says it is “probably the most attractive region for long-term profit growth for the global brewers”. “The African beer market is split into a series of local oligopolies, creating a very favourable pricing environment, beneficial to margins,” the report says.
Countries such as Nigeria, the Democratic Republic of Congo and Ethiopia have very large populations and low per capita consumption which will allow the beer category to grow in Africa, the report says.
SABMiller, Castel, Heineken and Diageo are the major brewers in the continent, but the report notes that Anheuser-Busch InBev and Carlsberg have “almost no exposure to the region”. Africa accounts for around 6% of global beer volumes on 2011 figures.
Central and South America are the “most profitable” regions for brewers as many of its markets are organised as virtual monopolies or duopolies, meaning margins are “very high”.
Bernstein estimates that globally the top four brewers account for 46% of volume, 50% of revenue and 60% of profits. A-B InBev has 18% of volume and 32% of EBIT; SABMiller is 12% of volume and 13% of EBIT; Heineken is 9% of volume and 10% of EBIT; and Carlsberg is 6% of volume and 5% of EBIT, the report states.
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