International Brewers Strategic Review
Fragmented, dominated by local players and tastes and overshadowed by mature markets that are stagnant in growth, the world's beer industry has traditionally been marked for slow, stable change. But the last three years has blown that theory out the water with a period of unprecedented activity as the world's beer giants, seeking growth, turn their attention from flat domestic markets to the international scene.
In 1997 the world's leading ten brewers accounted for just 40% of the global market between them. Now leading research company Canadean estimates that by the end of 2000 the top ten brewers will have increased combined share to nearly 47%. (This is assuming Interbrew's acquisition of Bass and Carlsberg/Pripps-Ringes merger are completed in their entirety.)
In its latest report on the top brewers in the world, Company Focus - Strategic Company Review, Canadean says: "1998, 1999 and the first half of 2000 have seen a number of very significant mergers and acquisitions that have dramatically altered the competitive landscape."
"There are still opportunities for brewers to acquire and/or develop profitable business in developing markets."
Although there has been consolidation activity throughout the last decade it really became a noticeable feature of the industry in 1998, typified by Interbrew's joint ventures in Russia and South Korea. In 1999 Heineken bought Cruzcampo from Diageo, SAB bought in China as well as buying Pilner Urquell in the Czech Republic and a giant was created in Brazil when AmBev was born from the merger of Antarctica and Brahma.
The pace picked up once again at the beginning of this year as Scottish & Newcastle acquired most of Danone's European operations, including Kronenbourg, and has further hinted at its interest in the Spanish operations of Mahou and San Miguel. Furthermore there was of course Interbrew's double-header in the UK where it snatched Bass and Whitbread from rival bidders. And this is to name but a few of the deals.
This flurry of merger and acquisition activity, Canadean believes, has been caused because companies such as Anheuser-Busch, Carlsberg, Guinness, Heineken, Interbrew and South African Breweries (all covered in the report) "facing mature markets at home, [have] cast their net wide to find profitable growth".
But while the resulting action may appear similar across the industry there is a dichotomy among these brewers between those with a history of international experience and new players on the scene. And further contrasts exist between those focused on developing a global brand and those looking to building strong local and regional brands.
Despite the pace that has been set in the last three years, M&A action looks to be far from over. "The beer market will continue to consolidate although a slowing of the pace is likely as the number of potential targets is diminishing," Canadean says.
"However there are still opportunities for brewers to acquire and/or develop profitable business in developing markets."
As in other developed industries the likelihood is that in the future the beer market will revolve around two or three global players. At the moment it is hard to see any of the biggest interests merging with each other but in the end the companies left standing are almost certain to come from Canadean's big six.
Anheuser Busch (AB)
The giant of the US market and number one brewer in the world has, according to Canadean's report, a well-established three-pronged strategy. Firstly to increase domestic market share in combination with growing per barrel profitability. Secondly, to expand international beer operations profitability by building Budweiser as a global brand and by making investments in leading brewers in growing beer markets. And, lastly to exploit investment in packaging operations and entertainment parks in support of its core beer business.
But AB seems to be leading two lives. The undisputed king of American beers in Canadean's words has in the US market "found the delicate balance between economies of scale and the management of a competitive brand portfolio".
However, on the international stage "the right balance is still being sought".
Indeed the company has suffered a series of international setbacks over the last few years. These have included having to withdraw from its partnership with the Brazilian brewer Antarctica after a ruling by the Brazilian anti-trust authority, a downturn in Asia that hit the company hard, especially in China and Japan, and a serious trademark issue in the Czech Republic with Budejovicky Budvar.
In fact Canadean reports that AB, excluding profit contribution from the shareholding Mexican brewer Modelo, suffered a loss of $20m on international operations in 1999. And, while in the past decade growth from international brands, primarily Budweiser, has been around 13% in the last two years it has been at 1%.
As Canadean concludes: "AB outside of the US is still working out the right balance between building the Budweiser brand and running its business on a scale that can generate a competitive cost price. There may be an inherent conflict between the two goals and a focus on the latter may distract the company from its goal of establishing the Budweiser brand in the long term."
US Anheuser-Busch Total Volume - 000s HL
Interbrew's statistics speak for themselves. Since 1992 Interbrew has undertaken numerous acquisitions including John Labatt in Canada, and major targets in growth markets such as Central and Eastern Europe as well as in China and South Korea. Indeed, Interbrew has made some 20 acquisitions in 15 markets at a spend of close to $9bn.
But Canadean believes it was the purchase of Bass and Whitbread earlier this year in the UK for $4bn that demonstrated "Interbrew's commitment to become one of the world's biggest brewers". And, it was these acquisitions that firmly placed the brewer as the number two in the world.
The company describes its strategy as focusing on the two key areas of consolidating and developing its key markets, such as the Netherlands, Belgium, France and North America, and expansion through acquisition in Central Europe, Asia and South America.
Canadean figures show that this strategy has increased volumes from 15m hectolitres in 1992 to 72.4m hl in 1999. Canadean says that in 2000, if the deals go through, this figure could reach 95m hl.
At present the company's volume base is spread with the Americas taking 49.5% of sales, Europe 43% and Asia Pacific 7.5%. "The company's transformation is illustrated by the fact that its domestic Belgian business now accounts for less than 8% of the company's total volume, compared to 43% in 1992," says Canadean.
But while the world's top ten beer markets accounted for 45% of Interbrew's
total volumes in 1999, Canadean does not believe these are pivotal to Interbrew's
future. "With the exception of China this group of markets," it says,
"are not central to Interbrew's growth strategy other than that the company
is seeking to consolidate its position in mature markets and improve margins
through higher volumes of premium and speciality brands."
Interbrew Domestic vs International Volume
(International Volumes Labelled) 000HL
To find out more about these reports or order online visit:
Company Focus Strategic Review 2000 - reviews on Anheuser-Busch, Carlsberg,
Guinness, Heineken, Interbrew and South African Breweries.
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