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Is diversification the future for beer? - Comment

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From operating way beyond the beer category to selling off so-called non-core assets, brewers are now looking for growth elsewhere again. just-drinks' beer commentator, Stephen Beaumont, considers the cyclical history and looks at where the world's brewers are now.

Back in the day - 'the day' being pretty much any time from the start of industrialised brewing to a few decades ago - beer companies were expected to be diversified. Anheuser-Busch owned amusement parks and a baseball team; North America's oldest brewing company, Molson, had at different times banks, steamships and a hockey team, even generally 'pure play' Heineken was for a time involved in the soft drink and liquor markets.

That all came to an end shortly before the last Century did the same, and the divestment of non-beer assets became the new normal with the international breweries shedding their diverse interests at a furious pace. As we have been witnessing lately, though, it appears that the 'new normal' is rapidly being replaced by the 'new new normal'.

It all began with cider, or at least that's how it seemed, with everyone from Heineken (Bulmers, Strongbow and others) to Carlsberg (Somersby and others) to Boston Beer Co (Angry Orchard) rushing to grab a piece of what, for a time at least, looked to be the next big thing. Cider was followed by other vaguely beer-esque alcoholic beverages, such as sweetened RTDs and alcoholic seltzers.

And then, well, along came cannabis.

Even before legal weed made its impact, cross-category competition had spurred many, mostly smaller-sized breweries to diversify into distilling. In the US, craft brewers like Dogfish Head, Rogue and New Holland were among the first to cross the line, abetted, no doubt, by the huge growth in American craft distilling, but then and since, they've hardly been alone with brewery-distilleries operational in Sweden, Canada, Belgium and well beyond. Small wonder that BrewDog recently announced their intent to enter - and disrupt, naturally - the Scotch whisky market.

Of course, no discussion of diversification would be complete without a mention of the world's largest brewing company, Anheuser-Busch InBev. Once the champion of locally-focused brewing, A-B InBev is now the king of the side hustle, with investments in countless non-beer enterprises, both directly and through its ZX Ventures arm, from online magazines to concert promotion, from e-commerce to home brewing supplies.

All of which raises several questions. Were the brewery decision-makers of the 1980s and early-'90s really that far off when they spearheaded their anti-diversification initiatives? Does a brewing company really have any business being involved in cannabis or concerts? Perhaps most importantly, is beer's future really in that bad shape?

Save for the last, these are largely rhetorical queries. Near the end of the 1900s, it certainly must have made sense for the big breweries to sell-off their external interests, particularly when you consider that they did so almost uniformly. I'm sure, though, that there were also those on the sidelines and in the business press at the time who thought it pure madness. And, while the case can be made that pretty much any company is risking plenty when they dive into the largely-foreign waters of an entirely different industry, it can equally be asserted that it's not the nature of the business that matters so much as it is the quality of the people at the helm.

We come to the 'state of the future of beer' question. For that, there is, I believe, more than a single correct response.

For the big international brewers, the answer would seem to be that things are indeed a little bleak at present, the reason being the combined effects of westerners drinking less, drinking different sorts of beer - hello, craft! - and choosing to drink things other than beer, such as wine, spirits and cocktails. Is this argument enough to back a dive into cannabis and cider and spirits? Likely, yes, all three being at least somewhat related to beer in that they are inebriants and so fill the same role as beer for a great many people.

Concerts and magazines and e-commerce? Let's say that the jury is still out on that front.

For mid-sized national brewers and junior internationals, the future is more uncertain than it is dire, with competition mainly coming from the 'drink local' ethos that seems to have captured the hearts of many beer drinkers these days. As such, their 'diversification' is - and likely will continue to be - into other brewers that occupy different niches within the market, as with the recent Dogfish Head and Boston Beer tie-up, or Sierra Nevada's acquisition of the 'active lifestyle' brewer, Sufferfest Beer Co.

Brewery diversification is almost certain to continue for some time to come, be they large companies stepping outside of their core business or smaller companies reaching beyond the limits of their base markets. And likely just as certain is that, at some point in the future, it will all be reversed and the inevitable sell-offs shall follow.


Expert Analysis

Beer & Cider Top 5 Emerging Markets Industry Guide 2013-2022

Beer & Cider Top 5 Emerging Markets Industry Guide 2013-2022

The Emerging 5 Beer & Cider industry profile provides top-line qualitative and quantitative summary information including: market share, market size (value and volume 2013-17, and forecast to 2022). T...

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