Heineken and South African Breweries are setting the pace of consolidation in global brewing but Carlsberg is looking to play a more active role in the future.

The world beer market is highly fragmented and ripe for consolidation with the top twenty players accounting for less than half of sales. The global beer industry has also been slow to internationalise. Many of the world's largest brewers (see Table), such as Anheuser Busch and Miller of the US, Brahma of Brazil, and South African Breweries are still heavily reliant on their domestic markets, where growth opportunities are limited, and have consequently been seeking to expand abroad. Anheuser-Busch generates only about 15% of its volume sales outside the US, in contrast to Heineken, Carlsberg and Interbrew which each earn over 85% of their revenue in foreign markets.

Beer consumption in the well establishedmarkets of western Europe and North America is stagnant or in decline, whereas theemerging markets of South America, central and eastern Europe and Asia-Pacific (especiallyChina) offer exciting growth prospects in the longer term, despite the presentdifficulties in the wake of recent economic turmoil. China is expected to overtake the USas the world's largest beer market by 2000, and Brazil is likely to soon overhaulGermany in third place.

Busiest Players

South African Breweries and Heineken havebeen the busiest on the acquisitions front and in increasing their global influence overthe past year. Since moving its primary listing from Johannesburg to the London stockmarket in order to tap into a wider source of capital for funding its internationalexpansion, South African Breweries has jumped from fifth to third place in the globalleague table of brewers following its $629 million (£379 million) acquisition of PilsnerUrquell, the Czech Republic's largest brewer. The deal also makes South AfricanBreweries the largest brewer in central Europe and leaves it ideally placed to leadfurther consolidation in this region.

Enjoying a monopoly in its home market,South African Breweries has been expanding rapidly into the emerging beer markets of theworld since the mid 1990s. It has now established a strong presence in other parts ofAfrica as well as eastern and central Europe and China. South African Breweries is intenton furthering its global brewing ambitions and is currently considering selling off itshotels and gaming interests to focus more closely on its core beer business.

Heineken has been steadily expanding inemerging markets while simultaneously consolidating its position in large but mature beermarkets. Its most recent acquisition involved the purchase of Cruzcampo, Spain'ssecond largest brewer, for £426 million from Guinness (Diageo). The acquisition increasesHeineken's share of the Spanish beer market, which is the third largest in Europe, to37% and also reinforces its position as the largest brewer in Europe. Heineken is the mostglobal brewer in terms of international brand recognition and geographical spread - it has110 breweries in over 50 countries spanning Asia, Africa, Latin America and Europe.

Another major development in global brewingduring the past year is the proposed merger between Brazil's two largest brewers -Brahma and Antarctica - to create AmBev. Although largely confined to Brazil, Argentinaand Venezuela, AmBev would be the world's third largest brewer.

Change at Carlsberg

Having appeared to be falling behind itsmore acquisitive rivals, although it did conclude two acquisitions in Lithuania and SouthKorea last April, Carlsberg has just announced a review of its ownership structure and arefocusing which could well signal a stepping up of its international expansion. Carlsbergis to dispose of non-core assets (a 43% stake in the Tivoli amusement park in Copenhagenand a 61% share of industrial arts concern Royal Scandinavia) and is also restructuringits brewing business into two units - Carlsberg Denmark and Carlsberg International (seePanel). Reform of its ownership structure (the Carlsberg Foundation holds 55%) is expectedto allow the Danish brewer greater flexibility in raising capital to fund more aggressiveglobal development, which its new structure will also better facilitate.

Further Consolidation

While the world's largest brewers willcontinue to acquire smaller operators to further their international ambitions, especiallyin emerging markets, some larger deals may be on the horizon. Food and tobacco giantPhilip Morris could well spin off its Miller brewing business, which is the second largestbeer company in the US, while Danone's current refocusing on its core food activitiessuggests that it would be willing to part with its Kronenbourg brewing subsidiary for theright price. There has also been speculation that Diageo might ultimately demerge Guinnessto sharpen its focus on its global spirits business.

British Brewers

Although Bass and Scottish & Newcastlerank within the world's top twenty brewers, unlike Guinness (which ranks just outsidethe top ten), they have been slow to internationalise their interests beyond the UK. WithUK beer sales in decline, Bass and Scottish & Newcastle face an uphill battle to gaina meaningful international presence and so maintain strong growth from their brewinginterests. Instead, the two groups are likely to concentrate on developing their otheractivities.

The World's Top Ten Brewers, 1998

  Brewer Headquarters Sales
(million hectolitres)
1 Anheuser-Busch US 130.3
2 Heineken Netherlands 79.1
3 Miller Brewing US 55.9
4 Interbrew Belgium 48.3
5 South African Breweries South Africa 47.7
6 Brahma Brazil 42.5
7 Carlsberg Denmark 35.3
8 Grupo Modelo Mexico 32.3
9 Foster's Brewing Australia 29.7
10 Kirin Brewery Japan 29.3