Heineken has enjoyed a makeover in the past year

Heineken has enjoyed a makeover in the past year

Heineken has emerged as a force to be reckoned with on the global beer market over the last year, prompting analysts to reassess the Dutch brewer's potential and leading some to question whether it can better the might of SABMiller.

What a difference a year makes. In 2009, Heineken appeared to be suffering from indigestion following its carve-up of Scottish & Newcastle with Carlsberg, while analysts expressed concern at the brewer's relatively low presence in emerging beer markets.

Considered too debt-laden to weigh in for fresh acquisitions, Heineken's prospects looked slimmer than several of its peers and not a patch on the likes of SABMiller and Anheuser-Busch InBev.

But, the surprise acquisition of FEMSA Cerveza from SABMiller's clutches, a deal with India's United Breweries and the stepping up of beer operations in Africa  have changed the picture for Heineken. 

"With FEMSA Cerveza, the majority of EBITA will be generated in developing markets," said Gerard Rijk, analyst with ING Bank in a note last month. "Combined with improved execution of cost synergies and accelerating premium sales, Heineken is closing the margin gap with the competition," he said.

One analyst told just-drinks earlier this year that the FEMSA deal was "potentially Heineken's last shot" at getting a foothold in Latin America. In the end, Heineken was prepared to yield 20% of its business to the Mexican brewer's parent group, FEMSA, to ensure it got the deal. SABMiller was never willing or obligated to match that kind of offer.

Alongside the FEMSA deal, Heineken has taken a 37.5% stake in United Breweries, the leading brewer in India. It has also opened a brewery with Diageo in South Africa, with a stated aim of achieving a 20% beer market share in what is a direct challenge to SABMiller's dominance in the country.

The Dutch brewer accounts for around 7% of world beer sales by volume, compared to SABMiller's 10%, according to Euromonitor figures. A-B InBev accounts for one in five beers sold globally every year.

Rijk made the case for Heineken overtaking SABMiller as an investment prospect.

He argued out that Heineken has leapfrogged SABMiller in India, is matching the Peroni brewer on profitability in China and has "taken positions in crucial areas" of Latin America, as long as it can work effectively with Coca-Cola Co bottlers there. In Russia, Heineken's market share is around 13% compared to SABMiller's 6.5%, albeit in a market dominated by Carlsberg.

Heineken, Rijk added, also has greater room for cost savings in its business than SABMiller.

Of course, this is the rosy view of Heineken's position and assumes that all of its potential will be realised. SABMiller retains a much higher presence in fast-growth emerging markets than its peers, while there are, naturally, risks to Heineken's investments.

India's beer market, for example, remains small and has been topsy-turvy at best over the last couple of years, while Heineken must build from the bottom in Brazil and South Africa against a dominant player in each market. SABMiller also has a weightier presence in China and, as a group, the Miller Genuine Draft brewer is better-placed financially to make a further acquisition.

Internal cost cutting and synergies were set out by Heineken's CFO as the main agenda items for 2010, highlighting that benefits from FEMSA Cerveza and other deals would not be felt immediately.

That said, even talking about Heineken in these terms would not have been possible 12 months ago. The brewer is, without doubt, the most improved player of the last year.