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The beer category in 2015 - just-drinks' Review of the Year, Part II

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With 2015 drawing to a close, just-drinks looks back at the stories that have made the headlines across the global drinks industry. Here, editor Olly Wehring picks out the highs and lows for the beer and cider categories.

2015 was dominated by AB InBevs pursuit of SABMiller

2015 was dominated by AB InBev's pursuit of SABMiller

Beer

Let's get the big one out of the way: as we predicted in last year's annual review, Anheuser-Busch InBev finally made its move for SABMiller in 2015. The adventure finally started in September, when AB InBev was moved by speculation to confirm it was preparing an offer for SAB. Almost a month of silence was broken by a GBP42.15-per-share offer, which was rejected by SAB's board almost immediately. Despite making a (subtle) overture to SAB's shareholders directly, CEO Carlos Brito kept AB InBev's approach civilised, upping the offer to GBP43.50 per share, before finally getting the SAB board's nod – at GBP44 per share – on 13 October. What has followed – and still continues – has been AB InBev attempting to see off regulatory concerns for what will be the third-largest takeover in corporate history. Already tidied away is the MillerCoors joint-venture in the US, with SAB's partner, Molson Coors, set to take full control upon completion of the larger deal. The spotlight remains on China, however, where regulatory authorities are certain to take issue with the size of a combined group. Earlier this month, AB InBev's eagerness to close the deal was highlighted by news that SAB's Grolsch and Peroni Nastro Azzuro brands are up for sale.

Despite this pro-active approach, consensus suggests that AB InBev's expectation to close in the second half of 2016 may be on the optimistic side.

For just-drinks' full coverage of AB InBev's pursuit of SABMiller, click here

Craft goes from strength to strength to strength

Beyond Megabrew, or whatever else you'd like to call the AB InBev/SAB behemoth, 2015 was another year when craft dominated the headlines. Indeed, with global beer volumes slowing and margin benefits coming predominantly from consolidation, it is of little surprise that the healthy margins on offer in the craft segment are proving appealing to all and sundry. In the US, the modern-day home of the craft beer movement, figures released in March showed a healthy double-digit leap in both sales and volumes for the segment in 2014. One can see, then, why the larger brewers have continued to be active both in buying up craft players and in setting up craft divisions of their own. 

A quiet start to the year - bar AB InBev's move for Seattle's Elysian Brewing Co in January - finally stirred in September, when Heineken marked its craft arrival in the US with the purchase of a 50% stake in California-based Lagunitas Brewing Co. A couple of days later, MillerCoors took majority control of Saint Archer Brewing Co. The month was rounded off by AB InBev with its takeover of Golden Road Brewing. Then, last month, number three Constellation Brands followed AB InBev and MillerCoors, spending US$1bn on San Diego's Ballast Point Brewing & Spirits.

The craft phenomenon gathered pace beyond the US this year, with AB InBev's Labatt Breweries of Canada division buying Toronto craft brewer Mill Street Brewery in October, and the company targeting South America through its purchase of Bogotá Beer Co in Colombia in May, as well as Brazil's Colorado Brewery in July.

In Europe, Carlsberg strengthened its link with New York's Brooklyn Brewery, with the pair opening a second production facility in Scandinavia, this time in Norway. SABMiller, meanwhile, made a move in the UK, acquiring London's Meantime Brewing Co for an undisclosed sum. In Japan, a market crying out for a rejuvenation of its beer category, Kirin was reportedly looking to produce craft offerings in-house. Similarly, in March, Diageo said it would prefer to concentrate on extensions of its Guinness brand than make craft acquisitions. It will be interesting to see if this approach is successful in a sector based very much on 'local boy/girl done good'.

A growing familiarity with the craft segment has seen the larger brewers start to learn a thing or two from their smaller cousins, for example, when it comes to sustainability. And yet, the temptation to put the young upstarts in their place remains, and proved too great for AB InBev in the US in late-January. The irony of AB InBev giving craft brewers a prod while simultaneously brandishing its chequebook in the sector was not wasted on many.

A note of warning was sounded towards the end of the year, however: Are consumers growing suspicious and cynical of the term 'craft'?

The world's developed markets

The past 12 months has provided a very mixed bag both for the developed and for the emerging beer markets of the world. In its first-quarter results in May, Molson Coors highlighted the weakening demand for mainstream lager in Europe. Then, four months later, the company's MillerCoors JV in the US announced the closure of one of its facilities in the country, again due to declining volumes. The tough times in the US were laid bare again last month, when AB InBev CEO Carlos Brito admitted the brewer had not given its Bud Light brand the support it had required in the country, as it struggled with losing market share. A few days later, MillerCoors said it was considering trimming its lower-priced beer offerings in the US, with the more premium end proving far more appealing.

And all the while, Constellation Brands has continued to toast its brewing division for driving the group's growth. The company's ownership of the Modelo portfolio in the US is the gift that keeps giving and came at the perfect time, as the country's beer drinkers look for more premium, less well-known brews to pique their interest. Consequently, despite its developed status, the US continues to be a fertile breeding ground for higher-end and imported beer, a fact that Suntory looks set to capitalise on in the coming year.

Elsewhere, avenues for success have opened up in the most established of places. Figures released in February showed a lift in volume sales in Germany in 2014, for the first time in nine years, while the European Union continues to see the number of breweries rise across the region. And, in Australia, the head of Coca-Cola Amatil believes she has found an untapped growth opportunity for the company's beer division.

Meanwhile, on the emerging front

The year was no less up-and-down over in the emerging markets. In February, figures out of China showed a slide in volume production for the first time in ten years, with the effect of anti-corruption legislation spreading from spirits into beer. The country's devaluation of the Yuan will also give brewers a headache, with imported products likely to become more expensive. Domestic brewers are not immune either, with the price of barley also expected to rise. That domestic beer brands saw volumes fall by 8% in the first half of the year is a worry, especially in a country that has been slower than most to embrace the premiumisation concept.

Asia Pacific more broadly has long been a volume play for the world's brewers. Research published by Euromonitor in October suggested that, rather than try to push consumers up your beer value chain, starting from a higher price point in the first place will keep you protected from the region's big volume/low value reputation.

Other bumps in the road were experienced in Indonesia, where the introduction in April of a ban on beer sales in smaller stores gave the likes of Heineken cause for concern. Then, in the month prior, Heineken also warned of the negative effect lower oil prices will have on beer consumption in Nigeria.

Despite these hiccups, the markets of Africa, Asia and Latin America continue to drive the growth of the global beer category. According to Canadean, Africa is already the world's fastest-growing beer region, while Euromonitor described the continent as "the final frontier for beer". And, prior to succumbing to AB InBev's advances, SABMiller said in March that it expects its sales in Africa to increase by 10% over the next three to five years.

Later in the year, Diageo got its African house in order, first in July, when it called time on its South African and Namibian brewing joint-venture with Heineken and Namibian Breweries, then again in October, with the divestment of its stakes in Jamaica's Desnoes & Geddes and in Singapore-based brewer GAPL to Heineken, in return for buying Heineken's holding in Guinness Ghana Breweries. The purchase raised Diageo's shareholding in GGB to 72.42%. All the while, the group was at pains to emphasise the importance of its beer footprint to its African plans.

The smaller global brewers were pretty quiet in the emerging markets: Molson Coors bought Mount Shivalik Breweries in India in April, while Carlsberg increased its presence in China, taking full ownership of its Wusu Beer Group JV.

Markets to watch in the coming years are Vietnam, where A-B InBev opened its first brewery in May and US brewers got excited about the potential following the signing of the Trans-Pacific Partnership in October, and Myanmar, where Heineken and then Kirin jostled for position.

Heineken and United Breweries

Returning to India, a lot was made this year of Heineken's perceived intentions in the country. With the year barely a week old, local reports claimed the company was looking to increase its 38.9% stake in market leader United Breweries. Despite Heineken's silence on matter, fuel fanned the flames in July, when the group increased its holding to 42.1%. The rumour mill then hit fever pitch two months later, when Heineken set about raising around EUR500m (US$559.5m) from a note placement

A further stake increase to 42.2% last month and a second note placement for another EUR460m last week suggests that control is being sought. Could 2016 see Heineken make a takeover move for UB?

Carlsberg says farewell to its CEO

After almost eight years in charge, Carlsberg CEO Jørgen Buhl Rasmussen left the company in June. While he was officially "retiring", the initial announcement coincided with a near-20% drop in full-year net profits in 2014.

Coincidence, then?

The Danish brewer has seen its Russian dream turn into a nightmare – since taking full control of market leader  Baltic Beverages Holding in 2008, Russia has become Carlsberg's problem child; not ideal when the country – along with Ukraine - accounts for about 40% of group EBIT. The threat of brewery closures in early-January came to fruition later in the month, with two of its ten facilities lined up for the chop.

Make no mistake, it was Russia rather than retirement that did for (then 59-year-old) Rasmussen. And, with a job-cut programme announced last month, new CEO Cees 't Hart has a job on his hands to turn Carlsberg around in 2016.

One possible solution presented itself earlier this month: Is Carlsberg best-placed to buy SABMiller's Grolsch and Peroni beer brands, which have become surplus to AB InBev's requirements?

Bending the marketing rules

On two occasions this year, AB InBev found itself in hot water in the US. Each time, the company was moved to reach a settlement with consumers. In January, AB InBev "reached a compromise" with consumers over claims that it did not clearly specify where Kirin, which the company brews in the US under licence, originates from. Then, in June, the same outcome followed a legal challenge over the provenance of the Beck's that is sold in the US.

Other legal rows included Lagunitas going up against Sierra Nevada over the branding on the latter's Hop Hunter IPA, and Sierra Nevada (again) stepping back from a date in court with Monster Beverage Corp as it tried to register the brand name 'Bock Ness Monster'.

In the court of public opinion, meanwhile, AB InBev came out poorly after it suggested in April that Bud Light was "the perfect beer for removing the word 'no' from your vocabulary for the night".

The health opportunity

Long-associated with expanding waistlines, the beer category has been keen to jump on the health & wellness bandwagon in recent years. This year, MillerCoors highlighted the potential on offer for gluten-free beer brands. In May, Carlsberg raised its focus on healthier beers, noting the strong sales zero alcohol, fruit-flavoured Tourtel Twist brand.

While Germany's Erdinger continues to lead the way with its endurance sport-sponsoring Alkoholfrei, we can expect to see much more being made in 2016 of beer's health-related attributes.

For just-drinks' full review of 2015, click here


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