Preview of the Year - 2013 - Part IV: Beer
In the fourth part of Euromonitor's preview of 2013, alcoholic drinks analysts Spiros Malandrakis and Zsuzsa Szilagyi consider what the future holds for the world's brewers.
Craft: Semantics, definitions and existential questions
What makes a craft beer, well, craft? Is it the flavour profile, ingredients, branding and word-of-mouth promotional strategy? Is it pricing and positioning? Or, does it come down to the brewer’s ultimately independent nature and small-scale production? Even accepting that last - and marginally more consensus-driven - definition, what constitutes independence and small scale? Is it set in stone? Can a craft brewer fall victim to the momentum of its own success, raising volumes and revenues at the expense of its integrity and authenticity? Do consumers really care?
The days that the nascent craft revolution was only relevant to bearded, aspiring alchemists experimenting with exotic hop varieties in their sheds are long gone. Home-brewing will not stop gaining acolytes, however. Indeed, nano-brewing will be the next chapter in the industry’s frothy history, fostering irreverent experimentation, stretching definitional limitations and forcing the hand of bigger players. Their hand, after all, has already been forced.
“Craft inspired” or “faux craft” - depending on one’s perspective - offerings from the industry’s behemoths have already begun making waves. As an initial incubation period now comes to an end, 2013 will see big beer players invest in more complex and stratified speciality portfolios at the same time that price competition inevitably intensifies further.
The explosive expansion of micro start-ups across the US and UK will plateau. Many of these will either scale production back, be acquired or close altogether. Distribution issues and the potential for inflationary pressures on production will only accelerate such developments, as craft will finally come of age.
On-trade: poured by a cicerone, sipped from specialty beer glasses
Quaffing (fewer and fewer) pints of lager at a local bar/pub has become emblematic of the on-trade’s demise in the majority of mature western countries. However, the brave new world of craft and speciality beer surely needs its own ambassadors, experts, rituals and paraphernalia. Cicerones - sommeliers’ equivalents for the increasingly sophisticated beer world - will become flag bearers for the logical conclusion of the craft beer revolution, educating discerning drinkers as ales, bitters, weiss beers, porters and stouts keep on stealing the limelight from lager. The on-trade across the west will thus have one more chance to reverse its seemingly unstoppable decline, while increasing terminally hard-pressed profit margins.
Spirits and wine were traditionally perceived as the arch villains in big beer players’ version of the unfolding alcoholic drinks industry narrative. They are, however, now turning into a source of inspiration. Staying on the story’s sidelines while bemoaning a loss of consumers, drinking occasions and loyalty to more daring, youthful and dynamic categories will no longer suffice. 2013 will see beer borrowing concepts straight from wine and spirits’ marketing playbooks, including maturation techniques, barrel ageing, Champagne yeasts and hybrid offerings blurring the lines between once rigidly-defined categories. These trends will spearhead innovation.
Social media, internet sales and the virtual battleground
Twitter followers, Facebook “Likes”, viral videos and a solid presence in the ever-expanding blogosphere will eventually become as important as once-totemic television and print-focused promotional campaigns. Major players will utilise the full advantages of targeted marketing and forge closer relationships with data providers, search engines and the social media. They will thus try to catch up with the bottom-up, alternative, more cost-effective and millennial-targeted advertising strategies employed by micro-brewers. Diageo’s detrimental Twitter spat with beer's agent provocateur Brewdog should - and will - serve as a cautionary tale for those focused on new media penetration and damage control.
From France to Russia: From filling state coffers to curbing consumption
Excise tax hikes, advertising curbs and impulse channel sales restrictions are likely to make headlines once more across the globe. The more mature the sales in a country, the higher the probability of such measures being implemented, as neo-prohibition winds and mass deficits add additional hurdles to the category’s myriad troubles. Providing the option of lower abv offerings and engaging with governments in the ongoing debate will be major brewers’ primary weapons of choice. Expanding into emerging countries where beer can still claim to be far healthier than suspect homebrews or fiery local spirits will be a secondary strategy.
Companies to watch in 2013
Company activities are unlikely to change much in 2013. As the beer industry has become highly consolidated, there is less scope for large-scale acquisitions. Although there are some potential targets, such as Petropolis in Brazil and San Miguel in the Philippines, most players are expected to focus on organic growth during the year. Emerging countries will remain the growth generator for multinational companies. Meanwhile, a shift in consumer choices in mature countries will continue to attract brewers to niche categories, such as craft beers and cider/perry.0
Global leader Anheuser-Busch InBev is expected to continue to focus on revenue management in its two key countries, Brazil and the US. Meanwhile, the firm is likely to continue its expansion in the largest sales base of China. SABMiller, meanwhile, will continue to benefit from its strong foothold in Africa and, despite speculation, its merger with A-B InBev remains quite unlikely. Although A-B InBev would clearly benefit from SABMiller’s strong presence in Africa's dynamic markets, anti-trust issues in key countries such as China and the US make a deal less likely in the foreseeable future.
Heineken is one of the key players that will be worth watching in 2013. Although the company expanded its footprint in emerging countries with major acquisitions such as FEMSA in 2011 and Asia Pacific Breweries in 2012, its strong exposure to debt-ridden Western Europe is expected to continue to impact its performance. An increasing focus on Asia Pacific will be key to the company’s future growth. The brewer might also look for further targets in Latin America, while business rationalisation is likely to continue for the company’s European units.
Carlsberg will see another difficult year in 2013. Following a 200% tax hike in its main sales country, Russia, the company will see further tax increases in its key market of France as well this year. As beer sales in Russia are not expected to recover to pre-recession levels in the next five years, the company has to continue to look for opportunities in emerging countries. However, given high consolidation and the company’s limited financial ability, it is unlikely to significantly transform its current footprint. The company will thus continue to experience the troubles of maturity and economic uncertainty in European sales.
Chinese players will continue to take advantage of growing domestic demand, despite the growing fears of a slowing economy. Expansion by the largest domestic players is likely to continue. However, international players are also expected to try to grab a greater share through joint ventures with local players. There is keen interest in the future of CR Snow, the alliance between SABMiller and leading player China Resources. SABMiller would definitely like to snap up the venture, but strict state control makes any future deal quite unlikely.
Apart from large multi-nationals, there is also a growing importance for small craft breweries. These smaller players continue to gain importance in some mature countries such as the US and the UK. However, they have also started to pop up in less developed ones such as Mexico and India. As consumers turn away from mass-produced brands and continue to look for premium local products, craft beers will continue to enjoy stronger growth than the overall category. Big brewers are thus likely to continue to try to tap into this trend by offering craft-like brands or through the acquisition of successful microbreweries.
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