Comment - Beer - The End of the Road for International Brands?
Against a backdrop of explosive growth for craft beer, how does the future look for global beer brands?
Larry Nelson has been looking at the global brewers' numbers this month, and mulling what their report cards say about the state of international beer brands.
The latest round of financial reports issued by the multi-national brewers have landed in recent weeks. And, while there are financial explanations on offer for the market analysts, there’s also scope to compare and contrast results.
Nowhere do the numbers offer greater disparities than with the brewers’ designated global beer brands. Those happy with their immediate lot in life include Heineken, with its namesake brand up 6.6% in volume during the first six months of this year, a reversal from the declines reported in both halves of 2013.
Also amongst the momentarily-elated is Anheuser-Busch InBev, reporting that its three global brands - Budweiser, Corona and Stella Artois – collectively increased sales by 7% from January through June. And, brand Carlsberg also rose in the same period, by 3% in its ‘premium markets’ with this growth driven by brand extensions, reduced bitterness Chill and Light in China, and strong beer Carlsberg Elephant in India. The balance of Carlsberg’s international premium brands, Tuborg, Grimbergen and cider Somersby, all delivered double-digit growth.
So far, so good – but we’ll come to the exception(s) to this happy tale in a moment. The immediate question to be asked here is, what is driving the growth of premium brands – and does such a creature truly exist?
If it does, the colour it sports is green, as in Heineken green. Market data from industry researchers Canadean has the brand totalling 27.1m hectolitres outside of its home market in 2013, a total which easily outpaces second place Budweiser (14.2m hl), followed by Corona (13.2m hl) and Stella Artois (7.3m hl). You won’t need a calculator here to realise that the three followers are all A-B InBev’s and that their combined total surpasses that of Heineken plus the volume of stablemate Amstel, which adds 3.4m hl to the Dutch brewer’s total.
Heineken has consistently argued that a growth strategy that includes an international premium brand as one of its drivers is a winner, and the company’s management is duly proud of the brand, its heritage, its consistency and its quality.
But, perhaps a modified approach – different international brands targeted for different markets – is also a sustainable market development strategy, as with A-B InBev’s trio of champions.
Indeed, there are variations in approach, as with Carlsberg’s use of brand extensions to adapt to market preferences. Lightening the bitterness of the beer in China with Chill, and subsequently Light, recognises consumer preference. The same is true in India, where strong beers (thanks in part to a system of alcohol duties that tax beer at the same rates as spirits) are well above 5.0% in abv.
Yet there are dangers here. A lot of the gaudy growth percentages available in the latest financials are on the back of new products entering new markets. Carlsberg continues to roll out Somersby across Europe and beyond, for example, while Heineken is playing catch-up with Sol behind the better-established Corona in a battle of Mexican beer brands.
Essentially, brewers and marketers don’t want to say that their brand is in 170-odd countries if - in many of those instances - the presence is restricted to the mini-bar at the airport Hilton and a handful of other high-end outlets. When it comes to beer, scale does matter, and at some point there needs to be a choice between winners and losers when it comes to market presence.
This is understood – and there are differences in emphasis amongst the multinationals. SABMiller has not been mentioned here yet, in part because of a perception amongst some analysts that it has a weaker portfolio of international brands, namely Pilsner Urquell, Grolsch, Peroni Nastro Azzurro and Miller Genuine Draft. I don’t agree with that broad-stroke assessment, rather that SABMiller prefers to emphasise strong national brands in markets, slotting in one or more of its international brands within the segmentation.
This brings us to Guinness, the exception in more ways than one amongst international premium brands. According to Canadean data, the brand’s volumes totalled 9.6m hectolitres beyond its domestic Irish market last year, of which 2.0m hl were accounted for by the UK. The overall total pushes it into fourth place in the rankings of international brands, above Stella Artois but behind Corona.
Based on Diageo’s latest full-year figures, Guinness has had a tough time of late. Organic volumes fell by 5%, with net sales value down 1%. The brand performed poorly in Nigeria, where it was caught off-guard with premium pricing in a market moving to sub-mainstream offers, and corrections are being made that should right that market.
It is in North America, the US specifically, where Guinness took it on the chin. Here, organic volumes fell by 6% and net value by 3%. The result was attributed to a weak performance from Guinness Black Lager and "increased competition from the craft beer segment". The traditional solution, increased marketing spend, is proposed here. (As an aside, it can be argued that Guinness has the best, most emotive television advertising in the world – witness the Basketball ad, as part of the 'Made of More' platform.)
Yet, is what we’re seeing in Guinness’ performance in the US akin to that of a canary in a coalmine?
In a global setting, where share is being taken market after market by craft beers, are international premium brands as a group particularly susceptible?
What also sets Guinness apart from its international rivals is that it stands alone as a stout in beer style terms, against variations on pilsner. You can argue that, for many consumers, Guinness has been synonymous with stout. In the on-trade, it’s long been seen as a must-have brand, at least in the UK, and has been able to command margins in its listings.
But, note the use of past tense. The craft beer movement has encouraged consumers to experiment, and fragmentation is increasingly a way of life for many beer styles. There are British brewers now who once again brew and stock their own stouts, varying the taste by either increasing or decreasing bitterness, or playing with the roasted note provided by additions of chocolate malt.
The argument to be made here is that it will be more difficult for craft brewers to impinge on the fortunes of premium international lager brands by brewing variations on the theme. There are numerous craft lagers now being brewed, with most distinguishing themselves by additions of floral hops and a lessening of carbonation when packaged or served.
The exception here is Pilsner Urquell. With bitterness at 40 IBUs, amongst the international premiums it’s the one closet to being a ‘craft beer’ and should continue to fare well in markets where all things craft is in the ascendancy.
While different, the pilsner style is so firmly established in worldwide demand, that it will be difficult for craft beer to make serious inroads against well-marketed, consistently brewed brands.
The exception is Boston Beer Co, with its Samuel Adams Boston Lager established as America’s leading craft beer brand, the style of which is best described as Vienna Red, with a sweeter, malt offering complexity that sets it apart from other lagers. With its heritage and enticing flavour, it’s easy to envision that Sam Adams could have a future as an international premium brand, a nice fit alongside a Heineken or a Carlsberg font on a bar.
If Boston Beer founder Jim Koch were of a mind to sell control of his company, it’s the one in the current round of takeover speculation that most readily deserves a premium on share price for its global potential.
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