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Major Brewers Set to Struggle to Match Future Global Growth

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Euromonitor International Bio

Following a decade of intense consolidation within the brewing industry, which saw the 10 biggest brewers’ share of global beer volumes rise from 43.2% to 64% (or 66% if A-B InBev’s 2013 acquisition of Modelo is included) over 2003-2012, this method of expansion is coming to an end as a major force.

Any new acquisitions will likely involve either a brewer taking control of a company in which it has a minority stake, for example SABMiller and Castel, or buying second- or third-tier companies in key markets, the most important of which is Petrópolis, Brazil’s privately-owned, second-ranked brewer. For brewers to carry on growing their beer volumes, organic growth will become increasingly important.

One View of the Future

To see how the top four brewers might perform organically in the future, Euromonitor International has taken the volumes of each company in each of the main categories in every country in which they were present in 2012 and increased/decreased those volumes to 2017 by the forecast growth rate for the category in each country.

It is highly unlikely that the brewers will match these growth rates. Nevertheless, it further highlights the leading brewers’ relative strengths and weaknesses.

Much will depend on how much each company wants to support its brands in key markets and the health of individual brands. A strong or weak position in a healthy or declining market may not help or hinder a company as much as category growth might suggest. A strong position in a particular market might be a hindrance as the main brand may have maximised its distribution penetration or lost popular appeal and actually be declining faster than the market, as the Budweiser brand did in the US over 2007-2012, losing three percentage points over that period.

In contrast, a weak position in a category gives a company the opportunity to outperform that category, as SABMiller did in the UK where its Peroni Nastro Azzurro brand doubled its volumes in a lager category which declined by 15% over 2007-2012.

Future Growth Rates for Leading International Brewers

Source: Euromonitor International

Losing Share

All the leading brewers are likely to fail to match beer’s global volume growth rate of 14.2% over 2012-2017. One major factor behind this will be the companies’ relatively limited exposure to China, which is set to be the category’s key growth market over the forecast period, accounting for 50% of global volume growth. The Chinese market continues to be dominated by local players, with only A-B InBev commanding any sizeable share.

The world’s second biggest brewer, SABMiller, is set to come closest to the global average, although if the volumes from its 49% stake in the biggest Chinese brewer China Resources are included, it would far exceed the global average.

That SABMiller will come so close will be due to the fact that it is the least exposed to the mature markets of North America, Australia and, most importantly, Western Europe. In 2012, only 4% of its volumes derived from Western Europe. Equally importantly, it has strong exposure to some of the fastest growing markets in both the Middle East and Africa and Latin America.

In contrast, A-B InBev, despite a relatively strong presence in China, is being held back by its exposure to two of the weakest markets in Western Europe – Germany and the UK – as well as being heavily reliant on the US (33% of global volumes) for its volumes. In addition, it has a major gap in its geographical portfolio, the Middle East and Africa, which, as the region continues to grow rapidly, will increasingly hurt the company.

This is not a problem for Heineken, which is the second biggest player in the Middle East and Africa and is particularly strong in the region’s key growth driver, Nigeria. The company has also benefited from its greater exposure to key growth regions in Latin America via its 2011 FEMSA acquisition and Asia Pacific via its 2012 purchase of Asia Pacific Breweries. However, it is being held back by its overexposure to the declining Western European and sluggish Eastern European markets, especially the contracting Russian market.

Carlsberg, the world’s fourth biggest brewer, is in turn expected to be the weakest performer. This will be due to its reliance on the two European regions for its volumes and in particular the declining Russian market, which accounted for 30% of the company’s global volumes in 2012. Just as important is its limited exposure to fast growing emerging markets. It has a negligible presence in both Latin America and the Middle East and Africa, two of the category’s key growth regions. While the company has recently focused on boosting its presence in Asia Pacific, as seen by its 2013 move into Myanmar, this will not be enough to counter its geographical weaknesses.

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