Preview of the Year - 2011 - Introduction
The first management briefing of 2011, brought to you by Euromonitor, looks at what this year will bring for the global drinks industry. Ahead of this, just-drinks looks back to look forward: Our briefing introduction considers what last year did to the landscape and makes the odd prediction or two for the next 12 months.
A new year, a new hope. After 2010's buttock-clenchingly challenging conditions, 2011 arrives like a bright new dawn, with a bountiful reward for those that made it through the storm.
Actually, that's not even remotely the case – sorry.
Although the trading environment at the end of last year looked to be as healthy as could be expected, for the global drinks industry, 2011 appears to offer further tough challenges, with divestment, streamlining and consolidation set to be the watchwords of the next 12 months.
The wine category exemplifies this forecast rather well. Just as most were turning off the lights for Christmas, Constellation Brands announced that it is selling its Australian, South African and European operations to private equity firm CHAMP for the bargain-basement price of AUD290M (US$290.8m). While Constellation is clearly keen to steer clear of troublesome areas such as Australia (production) and the UK (sales), the move is typical of many in the industry, who are keen to cut away problem units to focus on their leaner, fitter and, hopefully, more profitable operations.
Exhibit B comes from Remy Cointreau who, late last year put its Champagne business up for sale, with a view to concentrating its efforts on its spirits portfolio. Then, Brown-Forman is looking for potential buyers for its Hopland, California-based wine business, while Foster's Group is fluttering its eyelashes seductively at private equity regarding its Treasury Wine Estates division.
In spirits, what the situation lacks in comparative urgency it makes up for in size. Fortune Brands, the owner of the largest US-based spirits company, Beam Global Spirits & Wine, will split its three divisions this year, and focus solely on its drinks unit. While the move is expected to take place in the second half of 2011, the talk is that the main spirits players – including Diageo and Bacardi - have already begun circling Beam Global, regardless of what Fortune's intentions are.
Speaking of Diageo, the drinks giant looks likely to spend 2011 batting away long-running speculation linking it to a bid for the remaining stake that it does not yet own in LVMH's Moet Hennessy. While Diageo certainly has money in the bank, does that necessarily mean it considers these funds to be some sort of warchest? If consolidation is the name of the game in 2011, expect to see this cash used in less obvious ways than M&A.
SABMiller is in a similar position to Diageo going in to 2011. The London-based global brewer is widely-tipped to be the front-runner when it comes to M&A in the beer sector this year. Having lost out to Heineken in the race for Mexico's FEMSA Cerveza early last year, SAB has plenty of dry powder in its arsenal. Factor in the theory that CEO Graham Mackay would like to make one last, game-changing M&A transaction before heading into the sunset, and 2011 could be SAB's year.
As for the rest of the brewing world, expect this year's activity to be limited to offering the developed world's beer drinkers more niche products, as mainstream brews fail to cut the mustard in homogenised markets. Expect, also, to see the emerging markets continue to provide acquisition fodder as global brewers look to increase their footprints in China, India and South East Asia.
Emerging markets also played their part in the soft drinks arena last year, and look set to stay stage-centre in 2011. Late last year, PepsiCo stated its intentions for the future when it bought a majority stake in Russian juice and dairy giant Wimm-Bill-Dann. The move switches attention away from PepsiCo and The Coca-Cola Co's attempts to buy niche brands in the developed world, and suggested that the battleground is on more virgin territory.
Coca-Cola will also spend this year consolidating the North American operations of its largest bottler, Coca-Cola Enterprises. The acquisition, announced back in February, surprised many observers, but again highlights the desire to consolidate and streamline.
This year, then, may have an air of mopping up after the storm about it. Across the board, the general atmosphere is one of relief that we're all still here. Movement will be tentative and risk-averse, so expect a quiet 2011. We've earned it, at least.
For just-drinks' review of 2010, click here.
This month's management briefing for just-drinks' subscribers looks at the retail landscape for alcoholic drinks. In part one, we look at the shift from the on-trade to the off-trade in the mature mar...
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