Consolidation fever far from over in global brewing
After last week's shock announcement that Interbrew's Bass deal has been blocked, just-drinks.com reviews Canadean's strategic reports on four of the world's largest brewers: SAB, Carlsberg, Heineken and Guinness.
South African Breweries
In just five years, South African Breweries (SAB) has seen total beer volumes increase by a staggering 50%, an increase that has propelled it to the world's number six position.
SAB's volume base still continues to be dominated by its domestic market, where it has an unassailable share of 98%. But the pace with which it has entered global consolidation, through acquisition overseas, has meant that total volume accounted for by South Africa has fallen from 85% in 1992 to less than 50% in 1999.
The company's strategy differs significantly from most of its main rivals in that it does not depend on one flagship brand such as Budweiser (Anheuser-Busch). Instead SAB describes its strategic thrust as "investment into emerging and developing beverage markets, which offer good growth prospects".
Canadean says: "The company has kept well clear of the developed markets of western Europe and North America that are, in volume terms, static at best and where the degree of competition is high."
Evidence suggests that China and Eastern Europe will remain critical to SAB's future growth ambitions since African markets offer less potential for growth.
And, unlike its rivals, SAB's development has little to do with the world's top ten beer markets, unless of course it returns attention to Bass in the UK. "But the fact that SAB has reduced dependency of its domestic market from 85% to 50% in the space of ten years is an indication of the success of the company's international strategy," concludes Canadean.
Currently the world's seventh largest brewer with an output close to 54 million hectolitres, 85% of Carlsberg's volumes come from Europe and 90% from outside of its home market of Denmark.
The company is currently undergoing restructuring, which has seen it divest non-beverage assets and adapt its relationship with the Carlsberg Foundation so it has more freedom to raise money in the event of an acquisition.
The company has also redefined its home market through the merger with Pripps Ringes, which arguably now means that Scandinavia is its home market. Furthermore merger and acquisition activity has given Carlsberg a major platform in the neighbouring Baltic states and Russia and the Ukraine.
Canadean says: "Carlsberg has the potential to restructure its production set up and become both the market and cost leader in Scandinavia and Baltic region - making it tough for any other brewer to compete in that part of the world."
Its strategy revolves around building its position as one of the world's biggest brewing groups with the Carslberg brand as its flagship. It wants to work with partners in key markets but further acquisitions are also an option.
Canadean anticipates a major restructuring that will have to transform the "Nordic fortress" into a significant cash generator to finance the ambitions of the group. This is most likely to see further efforts in Europe and Asia which, now the PR merger has gone through, could account for 92% of turnover.
But as Canadean points out: "[It] may prove difficult to foster global aspirations while ignoring 40% of the global beer market. Will it be possible to build Carlsberg into a global brand without a presence of some size in the US?"
"Heineken has every right to claim to be the world's most international brand. In fact it is increasing its claim to that title year-on-year as it continues to expand internationally," says Canadean of the Dutch giant.
But the success of its flagship brand is just part of the company's story over the last ten years. In fact, while the Heineken brand has grown 19% to reach 20.4m hl, in the last decade, the volume of non-corporate or local brands has grown in the same period by 55%.
"This is a strategic issue that must be facing Heineken senior management - and the implications are profound," says the report.
Canadean believes it is not easy to get a clear picture of Heineken's corporate strategy. Premium brands and speciality beers are outperforming the total market and Heineken wants to develop this segment, where margins are high, with the help of the Heineken brand. But what of Amstel? This is a brand that is being used in Europe to play a role in the standard segment.
Canadean asks: "Does Heineken have enough power brands or brands with the potential to be power brands to actively develop the premium and speciality segments?"
Further strategic dilemmas also face the company. In Latin America it may well have to make a choice between its two partners, Kaiser and Quilmes who could be on a potential collision course. Likewise in Asia Pacific it operates closely with its partner Fraser & Neave in Asia Pacific Breweries (APB) while at the same time operating independently in a number of markets.
However as the report points out: "Cooperation with APB has improved recently. It would be no surprise if the next serious expansion for Heineken were to be in Asia Pacific." The research company also suggests that a merger between Kaiser and Quilmes would be welcomed by Heineken and create a serious South American competitor to AmBev.
Rumours that Guinness was to be spun off as a separate company from parent Diageo or even sold to the likes of Anheuser Busch or Heineken have been scotched with the announcement that the organisations of Guinness (GBW) and UDV were to merge last year.
And having disposed of Cruzcampo, Guinness is "once more reverting to what it knows and does best - the brewing of stout and the international exploitation of the valuable Guinness brand," according to the research agency.
Total GBW volume has grown slowly from 24.4m hl in 1992 to 25.6m hl in 1999. However it must be remembered that this growth is due principally to organic growth as there has been little in the way of acquisitions.
In addition GBW operates in a number of markets in Africa where trading conditions are highly volatile.
Volumes will fall 6m hl in 2000 due to the disposal of Cruzcampo. But unlike SAB or Interbrew, Guinness is less intent on pursuing volume growth as a primary objective.
Europe accounts for some 60% of GBW's business in 1999, which is no surprise given the company's strong position in Spain and the twin home markets of Ireland and the UK. Africa made up 24%, the Americas 11% and Asia Pacific 5%.
However this is likely to alter significantly with the disposal of Cruzcampo, but Europe will still hold the lion's share with Africa gaining in importance to about a third of volumes.
But Canadean predicts that the US will be a key market in the future and one where the volume base is growing rapidly year-on-year.
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