Research - Global beer players under the microscope

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The wave of major consolidation activity in the beer market over 2008 was followed by weakening volume growth in 2009 as the economic downturn put a dampener on bullish tactics. With the global beer landscape and future growth opportunities realigned, Euromonitor International’s latest global briefing ‘Strategies for Growth in an Increasingly Consolidated Global Beer Market’ deciphers the measures that companies have taken in light of this new operating environment and how they fit in with long-term strategies. Spiros Malandrakis, Alcoholic Drinks Analyst at Euromonitor International, investigates.

Survival of the fittest

All the current major brewers took part in the round of consolidation which marked the beer industry over the past decade, while, of the top ten brewers in 2000, only Modelo and Heineken still held a place in the top 10 rankings in 2009 without undergoing a name change due to merger or acquisition activity. In the emerging markets of the Middle East and Africa, Asia-Pacific and Latin America, brewers have rushed to capture volume growth, while in the mature markets of North America and Western Europe the consolidation took place with brewers looking to balance portfolios between value and volume gains.

This led to a dramatic increase in the volumes of the top ten brewers, which have captured a steadily rising proportion of the global beer market since 2000, while leaving relatively little scope for major acquisitions as well as pushing up the value of all the key players. Within this context, the top four brewers accounted for over 40% of global beer volumes in 2009.

Anheuser-Busch InBev is established as the global leader. Posting a 19.5% market share, A-B InBev's volume sales are over double those of its nearest rival, SABMiller. InBev's acquisition of Anheuser-Busch was the only major acquisition of a top ten brewer that InBev could make without many potential divestments due to regulatory issues in markets in Europe, Latin America and, to a lesser extent, China.

Since the turn of the century SABMiller, has transformed itself from a regional brewer into the world's number two, with its 2002 acquisition of Miller providing its most significant step-up. Along with this, it made a number of regional brand acquisitions which it incorporated into its international portfolio, the most significant and recent being Grolsch in 2008.

Both Carlsberg and Heineken have increased their exposure to European markets with the S&N acquisition. Several markets in these regions experienced declines in 2008/2009 due to saturation and harsh economic conditions, including the UK, Ireland, Russia, Ukraine and the Baltic States. The acquisition has mostly been financed by debt, thus increasing both Carlsberg and Heineken's debt profiles, with both companies stating that paying off this liability is a key priority for them going forward.

Consolidation slowing but not stopping

In early 2010, FEMSA announced that its beer unit was being sold to Heineken in return for a 20% stake in Heineken. The deal included debt and pension obligations of US$2.1bn, with the equity value of the business being valued at US$5.5bn. This means that FEMSA shareholders will receive a 20% stake in Heineken to be delivered over the next five years, while decreasing Heineken's reliance on Western and Eastern European volumes, which have suffered in the recent economic downturn. Heineken has subsequently gained access to Mexico, which is the second largest beer market in Latin America, and a market with limited opportunities for entry due to its duopolistic nature.

What’s more, Heineken's gain represents a lost opportunity for others. The acquisition of FEMSA Cerveza would have strengthened SABMiller's position in Latin America, where it lacks presence in the major Brazilian and Mexican markets. On a global level, it would have also helped to close the gap opened up by A-B InBev. On the other hand, and given the recent propensity of Japanese companies to expand outside their domestic market, a deal would have presented an interesting scenario and given Kirin and its proposed partner Suntory a significant international presence. FEMSA Cerveza could also have helped Molson Coors diversify its sources of income away from North America and the UK and into the more dynamic markets of Latin America. Its conservative strategy, which could be explained by the controlling family shareholders wishing to maintain control of the company, has meant that it has not really taken part in the major acquisition activity in beer over the last five years.

Following Heineken’s acquisition of FEMSA Cerveza, the fate of the other large Mexican brewer, Grupo Modelo, is set to be determined by arbitration proceedings against its largest shareholder, A-B InBev. The arbitration proceedings were started by Modelo in relation to InBev’s acquisition of Anheuser-Busch and its 50.2% non-controlling equity stake in Modelo. Regardless of the legislative hurdles, Modelo’s operations and position in Mexico look attractive, as does the success of Corona Extra in its export markets, and this would naturally prove a draw for most of the major brewers. Whereas previously Modelo has strived for independence, it might now wish to align itself with a global leader given the scale of competition that it faces.

Economic downturn illustrates need for geographic diversity

In 2009, the leading four brewers reported organic volume declines, driven by adverse economic conditions in Europe and North America. The downturn emphasised the necessity of having a balanced geographic portfolio encompassing key growth areas, notably the fast growing Chinese market and future rising stars such as India.

There are fewer major acquisition opportunities remaining which would have a material impact on global rankings, and this applies to both the global leaders and second-tier companies trying to close the gap. In order to expand, regional deals are more likely with joint ventures and equity stakes, important vehicles through which to extend geographical presence. This has already been seen in China where all but two of the top 10 players have an international partner.

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