Major deals make 2005 a year to remember
By just-drinks.com editorial team | 17 January 2006
As we advance into the new year, Euromonitor International and just-drinks are publishing their Review of 2005 and Predictions for 2006 as the management briefing for January. The following feature is based on extracts from the report, in which members of the just-drinks editorial team examine the main events of 2005 across all the sectors we cover.
If there is one area of news that dominated across the categories just-drinks covers during 2005 it would have to be mergers and acquisitions. The acquisition of Allied Domecq, two major brewing deals in the form of the Molson Coors merger and SABMiller's acquisition of Bavaria, and the Foster's acquisition of Southcorp have shown that consolidation is not confined to any one area of the drinks market.
That there wasn't quite the same degree of merger excitement in the soft drinks industry is perhaps only due to the fact that the international soft drinks arena is already dominated by two massive entities. Nevertheless, there were some notable deals including the sale of Cadbury-Schweppes' European drinks operations, the flotation of Britvic in the UK and the buyout by Coca-Cola of Danone's interest in its US water joint venture. What perhaps the soft drinks sector was notable for was the absence of the big deal which might have been the acquisition of Danone by PepsiCo, the subject of rabid speculation for many months in 2005.
But there is little doubt which of the big deals created most interest and that was the acquisition of Allied Domecq by Pernod Ricard, with a little help from Jim Beam Brands. It was a tie-up that had seemingly been on the cards since 1999, when the merger of Grand Met and Guinness created a company in Diageo that dwarfed its rivals. But the jury remains out on whether Pernod Ricard can duplicate the success it showed in digesting its last big acquisition, Seagram. Pernod executives talk of replicating the strategy, but this is a much bigger ask. Brands such as Ballantine's and Beefeater won't be as easy to turn around as Chivas Regal and Martell. The deal polarised the press and analysts.
The Allied acquisition dominated headlines across the spirits world for much of the first half of the year and overshadowed a reasonable start to 2005 for the industry. Results from many of the top companies were steady, if unspectacular, and a report released by Vinexpo in February provided another early fillip. Growth in spirits over the next four years is predicted by Vinexpo to be around 12%, or twice the rate of growth of the previous four years, with Asia, and China in particular, key to this success.
Meanwhile, Vinexpo predicted that the Americas are expected to see steady if unspectacular growth, while Western Europe continues to decline, a prediction that illustrates the growing difference between two markets that are often conveniently, but increasingly wrongly, lumped together as the "Western World".
Although exciting corporate activity this year may have overshadowed the usual prime subject of debate in the spirits industry - that of alcohol policy and corporate responsibility - this issue has not gone away. However, a glass should be raised to the collective efforts to combat the perceived reluctance of the industry to tackle alcohol abuse.
Like the spirits market, the wine sector also saw a major acquisition in the form of the Foster's acquisition of Southcorp, the latter putting up a plucky fight in the face of a determined suitor.
However, 2005 was also notable for two deals which did not happen. Unable to resist an alluring Allied Domecq wine portfolio, Constellation got into bed with Brown-Forman and some venture capitalists in an attempt to foil Pernod's bid for the company, but was unsuccessful.
Constellation also failed in its attempt to acquire the Canadian group Vincor. Even its improved offer of C$33 a share failed to tempt Vincor's combative CEO, Don Triggs, allied with a group of equally resolute shareholders. While Vincor remains vulnerable to other advances, for Constellation, 2005 has to go down as a year of frustration.
One company which found itself far less frustrated, however, was the brewing group SABMiller, which became the second largest brewer by volume in the world with its US$7.8bn acquisition of the Colombian brewer Bavaria in July. Earlier in the year, the brewing sector had also seen the merger of Coors and Molson as the consolidation trend continued.
The other major trend to be seen in beer in 2005 was continued extensive investment in emerging markets. The last 12 months have seen access to emerging beer markets across Asia and Latin America become critical to the long-term growth prospects of multinational brewers, not least because of the favourable demographics. On average, in emerging markets, populations are growing faster, more consumers are coming into legal drinking age, armed with greater purchasing power.
In contrast, the beer markets of the West are stagnant, weighed down by ageing populations, health concerns among consumers that are hurting drinking patterns, rising demand for premium wine and spirits and fierce competition on price. In short, mature markets may still be vital in spreading risk but developing beer markets are where it's at - and where brewers will focus much of their investment.
SABMiller also moved to take full control of its joint venture with Shaw Wallace in India, a market shaping up to be one of the most attractive for multinational brewers. SABMiller has set aside a US$125m war chest to invest in India over the next five years and is already eyeing Mohan Meakin, a family-owned brewer up for sale in the beer guzzling state of Tamil Nadu.
Heineken and InBev are also thought to be interested in Mohan Meakin as a means of entering India, but the dominance of SABMiller and market leader United Breweries and heavy regulation means it will be a tough challenge to make inroads there. Heineken and InBev have found it easier to penetrate Russia and China - and have spent the last 12 months building up strong positions in the two markets.
In contrast to the alcoholic drinks segments, the soft drinks market did not see a major international acquisition during 2005. While acquisitions may have been on the minds of the industry's movers and shakers, they had plenty to occupy themselves with the ongoing challenges presented by concerns over health and diet which have put sweetened soft drinks under fire.
This was not a new trend in 2005 but the vehemence of the opposition weighed against the soft drinks industry grew stronger. There has been increased pressure for tighter controls on soft drinks sales in schools, resulting in an outright ban on vending machines in France and the introduction of a voluntary code by the American Beverage Association.
On a more positive note, the consumer interest in healthier diet has further fuelled the development of non-carb categories such as flavoured waters, functional drinks and smoothies, sectors which have shown strong growth across many markets during 2005. While soft drinks producers remain under pressure in the core carbonated soft drinks segments, innovation and new product development in the non-carb sector has clearly gathered pace over the last 12 months, and will continue to do so in 2006.
This feature is based on excerpts from this month's management briefing, 'Euromonitor International and just-drink's 2005 review and predictions for 2006', to be published shortly. For further information, go to http://www.just-drinks.com/membersclub/index.asp
View next/previous articles
18 Jan 2006 -
Currently reading -
Major deals make 2005 a year to remember
17 Jan 2006 -
17 Jan 2006 -