Review of the Year 2009 - Beer
What 2009 lacked in explosive headlines in the brewing category, it more than made up for in tactical manoeuvres for the future. Olly Wehring considers a year that was always going to struggle, in every way possible.
Dominating the headlines for the global brewing industry in 2009, as for all other industries, has been the continuing economic downturn. The fallout was keenly felt, for instance, by Diageo, who in January said it had shelved plans to build a new brewery for its Guinness brand in Ireland. The company said at the time that it had decided to "conduct a re-evaluation of this brewing investment programme in order to ensure its scope remains appropriate in the changed economic environment". This review is still ongoing, with Diageo hoping to provide further information in the first half of next year.
The less developed beer markets of Eastern Europe were not immune to the tough conditions either. Poland, for example, saw beer sales in the first six months of the year decrease for the first time since the fall of the Iron Curtain.
Anheuser-Busch InBev, meanwhile, highlighted an innovative approach to combating the crisis. In October, the world's largest brewer teamed up with PepsiCo "to purchase goods and services more efficiently and at competitive prices". Whilst the tie-up suggests possible greater co-operation between the two going forward, the announcement served also as a further example of A-B InBev's notorious - and sometimes canny - approach to shaving costs.
Speaking of A-B InBev, the brewer dominated 2008's news pages when InBev acquired A-B. This year, the newly-merged company was again never far from the spotlight, albeit for a plethora of transactions in the opposite direction. The brewer started the year committed to disposals in order to help pay off a US$7bn bridge loan taken out to fund InBev's $52bn takeover of A-B, and the sales kicked off in January, when it offloaded a 20% stake in China's Tsingtao Brewery to Asahi for $667m. Four months later, A-B InBev sold its remaining 7% stake in Tsingtao to a Chinese private investor, Chen Fashu, for US$235m. Incidentally, the brewer maintains it is still committed to China through its 28.56% stake in Zhujiang Brewery.
Further divestments came throughout the year, with private equity group KPS Capital Partners buying InBev's US business, the distributor for Labatt beer in the country, in February. Then, also in May, the widely-expected sale of A-B InBev's Oriental Brewery came off, with another private equity group, Kohlberg Kravis Roberts (KKR) & Co, snapping up the business for $1.8bn. During the summer, Ireland's C&C Group stepped in to acquire the Tennent's lager brand and associated trading assets in Scotland, Northern Ireland and the Republic of Ireland for $292m. But it was in October that A-B InBev finally broke the $7bn barrier with the $2.7bn sale of A-B's entertainment park business to Blackstone Capital Partners, and the purchase of brewing assets in Eastern Europe by CVC Capital Partners for $2.2bn.
A-B InBev's movements in the market place in 2009, however, suggest that the company is looking to play it safe going forward. This year's deals have seen North America, Latin America and Western Europe emerge as the core markets for the firm. After its raft of divestments, A-B InBev's exposure to emerging markets is much less than some its peers.
History will show that the watershed moment in the race for consolidation in the global brewing category was InBev's move for A-B. The swell that followed the event kept the waters still for all of 2009, but next year looks set to see the restart of skirmishes. In October, Mexico's Fomento Economico Mexicano (FEMSA) confirmed that it is in discussions to "explore opportunities" involving its beer business, FEMSA Cerveza. SABMiller is widely believed to head the pack in the race for Mexico's second largest brewer (behind Grupo Modelo). The UK-based company is well-placed geographically - following its purchase of Colombia's Grupo Empresarial Bavaria in 2005 - and financially - having kept its powder dry since 2005, preferring instead, in the US, a merger move in 2007 between its operations in the country and Molson Coors' presence there.
The other name which regularly crops up is Heineken, which has a ten-year import agreement in the US with FEMSA Cerveza. A sale to Heineken would solidify the US relationship, while giving Heineken a more meaningful presence in Latin America, a region where it is currently under-represented.
Gentlemen, start your engines.
The remaining brewer operating on a truly global level, meanwhile, has seen storm clouds brewing in the east in 2009. Almost two years ago, Carlsberg took over complete control of its Russian joint venture with Scottish & Newcastle, Baltic Beverages Holding, when it teamed up with Heineken to acquire S&N. At the time, most observers felt Carlsberg was well-placed to brave the economic crisis thanks to its position as leader of the growing beer market in Russia. The announcement last month, however, that a proposal to triple excise tax on beer in the country from January passed a first vote in the country's parliament, will see many a sleepless night in Copenhagen over Christmas.
The proposal remains subject to subsequent votes before being taken up by the Government, so Carlsberg's fingers will remain firmly crossed going into 2010.
Further east, the brewers of Japan were bristling with activity this year, with the big four of Asahi Breweries, Kirin Brewery Co, Sapporo Breweries and Suntory all clambering over each other to branch out beyond their struggling domestic market and diversify in more ways than one.
Right at the end of 2008, Asahi started the ball rolling with its acquisition of Schweppes Australia, Cadbury's soft drinks business in the country, for $809.2m. Then, in February, Kirin agreed a deal to buy 43% of Philippines-based San Miguel Brewery - from its namesake parent company - for around $1.2bn. It has since upped its holding in San Miguel to almost 49%. Kirin followed this in April by moving to take full control of Australia's Lion Nathan, in which it previously held a 46% stake. The biggest news out of the country this year, however, was reserved for July, when Kirin and Suntory confirmed that they were in merger talks. Should the two companies merge - and we're still waiting - then they would control around half of the Japanese beer market.
While 2009 didn't have the fireworks of the other years of this century in beer, what has kept the last 12 months interesting have been the moves and machinations of brewers around the world to position themselves for the future. Next year looks perfectly poised, then, for a return to colour - starting with Mexico.
Finally, any review of this year could not pass without wishing one of the stalwarts of our industry a happy birthday. Back in September, Diageo threw a lavish party in Dublin to celebrate the 250th anniversary of Guinness. The event was overshadowed somewhat, however, by the terrifying/fantastic possibility that Diageo's CEO may have flown to Dublin on Ryanair.
Well, it has been a tough year.
Sectors: Beer & cider
Companies: Anheuser-Busch InBev, Diageo, Heineken, Tsingtao Brewery Company, Fomento Economico Mexicano, Asahi Breweries, Carlsberg, Guinness, PepsiCo, Kirin Brewery Co., C&C Group plc, SABMiller, Grupo Modelo, Grupo Empresarial Bavaria, Molson Coors, Suntory, Baltic Beverages Holding, Scottish & Newcastle, Sapporo Holdings, Cadbury, Lion Nathan
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