GLOBAL BEER: TAPPING INTO GROWTH

If you need more convincing that beer has become one ofthe world’s truly global industries then consider thisrecent development at SABMiller: The company

announced in January it would replace the head of its US-based Miller Brewing division with South African Breweriesdirector Norman Adami.

Now, how the South African takes to those less-than-balmyWisconsin winters is a whole other story.

Adami’s relocation to the US is but one example of theeffects of continuing consolidation in the global beer industry.But it probably won’t be the last. Chances are we’ll be seeingadditional chief executives catching the next flight to their newcountry of residence—and more often.

“Consolidation led by major international brewers and vol-ume growth in developing markets, particularly China, areundoubtedly the most important recent trends in the globalbeer industry,” says Glen Steinman, president of the Hong

Kong-based Seema International, a specialist in beer indus-try development in Asia and North America.

A number of trends are converging to fuel the consol-idation. The larger brewers are faced with lowprospects for volume growth in developed markets

leading them to seek growth either via the acquisition ofother brewers, by aggressive participation in developing

markets—or both. “According to various studies we have done, aggregate

volume of the world’s top 10 brewers has grown at morethan four times the pace of total industry volume since themid-1990s,” says Steinman. “Combined volume of allother brewers actually decreased during the same

period. This further fuels consolidation,which also means the rapid disappear-

ance of many purely local brewers.”Each of the world’s leading

brewers have beenhighly active in the

global market.While the creationof SABMiller wasby far the biggestdeal of 2002,Anheuser-Busch

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24 BeverageWorld February 2003

Sustained Chinese growth and industry consolidation captured the

headlines in 2002. Will 2003 mean more of the same? BY ANDREW KAPLAN

www.beverageworld.com BeverageWorld February 2003 25

was also very active, especially with itsdeal to acquire 27 percent (over time)of Tsingtao Brewery, China’s No. 1brewer by volume.

Meanwhile, Coors demonstrated itsreadiness and ability to compete inthe international big leagues with itsacquisition of Carling Brewery in theUK. And each of Europe’s brewingleaders, Heineken, Interbrew,Carlsberg and Scottish & Newcastle,have made significant acquisitions inthe past two years.

“These brewers are active acquirersbecause in a consolidating and global-izing market environment they needto grow volume and, equally impor-tant, they need to keep pace with theircompetitors,” explains Steinman.

At the same time, the leading brew-er in Latin America, São Pãolo, Brazil-based AmBev continues to publicizeits plans to become a pan-Americanbrewer. The brewer’s moves intoneighboring Argentina and Uruguayare shaking the foundations of SouthAmerica’s strong national brewers.Also in 2002, AmBev saw its direct—and only meaningful—competitor inBrazil (Kaiser) change hands to comeunder ownership of Canada’s Molson.

So what’s ahead for 2003? Steinmansays the year will certainly see moreacquisitions and a continued focus onChina, as well as Russia and LatinAmerica, which are the world’s otherleading markets for growth. Thesedeveloping regions have all the ingre-dients for strong growth, includingpositive long-term economic out-looks, low per-capita beer consump-tion and youthful demographics.

“Behind the scenes,” he says, “eachof the leading brewers is exertinggreat efforts to establish global bestpractices programs that can enable

them to execute locally around theworld at the same high levels theyhave established in their home mar-kets. At Seema, we consistentlyemphasize that increasing profitablevolume is key to victory. This meansthat while acquisitions are necessaryto improve scale, execution is key to aprofitable future.”

SABMiller spokesman NickChaloner sees a trend whereby acqui-sitions become more complex andlonger to resolve. “In general,” hesays, “the global beer market is begin-ning to consolidate rather faster thanit was prior to our Miller acquisition,although it is a long way off some ofthe other sectors such as soft drinks.”

In the next 12 to 18 months,Chaloner predicts further majormergers or tie-ups amongst the bigbrewers, to the detriment of the mid-

and small-size companies. “We planto continue to play our part in theglobal consolidation of the sector andmake value-adding acquisitions inboth developed and developing mar-kets,” he says. “It is also true thatwhile there are big beer brands pres-ent in the world—Budweiser andHeineken, for instance—these brandsare only big because of their relativesize in one or two markets. For exam-ple, 95 percent of Bud’s sales volumeis in the US, while Heineken is big inWestern Europe and the US but notseriously elsewhere. There is still nosign of genuinely global beer brands.”

Chaloner has a point. Tracking glob-al brewers under No. 11-ranked Asahi’s2 percent market share gets tough, buttry tracking top brands—none holdmarket share of more than Budweiser’s3.4 percent.

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GLOBAL BEER CONSUMPTION The US was expected to lose its place as the No. 1 beer consuming nation in2002. The new title holder: China. But while China may now consume the mostbeer as a nation, when it comes to per capita consumption, the Chinese (at15.8 liters) still have a ways to go before they catch up with Americans (83.1liters). So why then does China now rank No. 1? With 1.2 billion people in Chinacompared with the approximately 280 million in the US, there are simply a lotmore Chinese consumers.

Source: Beverage Marketing Corporation: Productschap voor Gedistilleerde Dranken/ Commodity Board for theDistilled Spirits Industry (Netherlands); Joh. Barth & Sohn GmbH & Co.

Share Change Per Capita Consumption (2001) 2000-2001 (in liters)

US 16.4% -0.2% 83.1China 14.3% +5.6% 15.8Germany 7.3% -1.6% 123.1Brazil 5.8% -5.7% 46.7UK 4.1% +2.1% 97.1Japan 3.6% -1.9% 40.0Mexico 3.5% -0.7% 48.6Russian Federation 3.1% +5.2% 30.0Poland 1.7% +1.5% 60.5France 1.5% –0.5% 35.9Czech Republic 1.2% -1.3% 158.1

26 www.beverageworld.com

CHINA EMERGESChina was expected to have surpassedthe US as the world’s No. 1 beer mar-ket by volume in 2002, althoughSeema estimates that will actuallyoccur in 2003, says Steinman. “Ofcourse,” he adds, “this will merelyturn out to be a historical footnotebecause China is set to continue togrow substantially.”

Just consider this: conservative pro-jections suggest that 80 million hecto-liters of new volume will be created inthe country by 2010. “Putting that incontext,” Steinman says, “China’s vol-ume growth alone will exceed the totalvolume of Japan, which is currentlythe world’s fourth largest market.”

SABMiller, which lays the claim tobeing the most profitable and second

largest brewer in China, sees this devel-oping nation as mostly fueling volume,not margin growth. Adds its spokesman,Chaloner: “There is an increasing trendby other leading brewers to impact inour established markets, such as A-B’sinvestment in China.”

In fact, Anheuser-Busch andTsingtao Brewery Co., Ltd., (China’sleading brewer) signed an agreement in2002 that will increase A-B’s ownershipin the company to 27 percent and pro-vide Tsingtao with financial and techni-cal resources to help it lead change andgrowth in the China beer industry, saysStephen J. Burrows, president and CEOof Anheuser-Busch International. Theinvestment was recently approved byTsingtao shareholders and is expectedto close late in the first quarter.

“China’s entry into the World TradeOrganization in 2002 was significant,creating a new competitive landscapein the country,” says Burrows. “In2003, we’ll be watching to seewhether the overall economic benefitsWTO brings to all of China are goodfor the beer industry. If so, it will helpfurther advance China’s economicreform and development, reduce thecost of goods and services, spurinvestments and create new jobs.

“China’s ‘opening up’ policies havebeen widely praised worldwide andare recognized as instrumental to thedevelopment of the economy and thetrading environment,” Burrows con-tinues. “However, China’s WTO entrycould result in a flood of sub-standardimports that would necessitate gov-ernment oversight to ensure a levelplaying field for all brewers.”

Steinman says China’s growingimportance in the global beer indus-try also is reflected by the fact thatactive in China along with A-B andSABMiller are Coors, Heineken,Interbrew and Carlsberg.

US FEELS EFFECT OF GLOBAL CONSOLIDATION In the United States, the biggest news in

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2002 was the Johannesberg—basedSouth African Breweries’ acquisition ofMiller Brewing Co., announced in July.The deal transformed SAB intoSABMiller, the second-largest globalbrewer by volume. Since then SAB hasannounced new senior management forMiller and closed the brewer’s smallestplant in Tumwater, WA, USA.

“We are clearly focusing muchresources and time on Miller, but this isnot to the detriment of the other mar-kets where we operate,” Chaloner says.“It is quite likely that other progress wewill make in 2003 will include furtherinfill acquisitions in those markets aswell as changes as required at Miller.”

Chaloner predicts the US marketwill result in growth for Miller in2003 of about 1 to 1.5 percent (abouton par with predictions of 1.5 percentgrowth for the US this year). Heattributes part of that growth to an

Hispanic-American demographic“bubble” that will reach drinking age

this year. “The malt flavored bever-ages are likely to stay with us and

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TOP GLOBAL BREWERS*2002 Share of Volume(e)

Despite consolidation, the global beer market is still frag-

mented. The top 11 brewersrepresent 51.6 percent of allbeer. But change is rapid. Theaggregate volume of the top10 has grown at four timesthe pace of total industryvolume since the mid-1990s.

* Includes only beer produced in breweries under ownership-control of the companies;excludes licensing volumes and non-controlling minority stakes.(e)estimated

Others48.4%

Anheuser-Busch9.0% SAB/

SABMiller8.5%

Heineken6.2%

Interbrew6.0%

Carlsberg5.0%

AmBev4.4%

Scottish & Newcastle 2.7%

Coors 2.8%

Asahi Breweries 2.0%Tsingtao 2.2%

Modelo 2.8%

Source: Beverage Marketing Corp.

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have carved a share of 3 to 4 percentin the US,” he adds.

While SABMiller has been tinkeringwith Miller, Anheuser-Busch achievedrecord US beer sales volume in 2002.“We are pleased to report that ourdomestic beer shipments to whole-salers grew to an all-time high of 101.8million barrels in 2002—increasing 2.1million barrels or 2.1 percent over2001,” says A-B president August A.Busch IV. “For the first time, totaldomestic shipments exceeded the 100million barrel milestone.”

Busch credited the successful intro-ductions of Michelob Ultra and BacardiSilver with the historic numbers. Ultra,a low-carbohydrate beer, representedabout 2 percent of A-B’s volume in theUS and one percent of US beer indus-try sales in December. In its Jan. 3report on A-B, UBS Warburg noted thatUltra was doing very well in most parts

of the country. “In fact many distribu-tors across the nation have had prob-lems with production shortages—anissue we believe should be quicklyresolved in 2003,” the report read.

A-B is looking to translate its successin the US to other markets. “In 2003,Anheuser-Busch will continue to focuson its international strategy, which is togrow Budweiser in foreign markets andinvest in local brewers and brands ingrowth markets,” says Burrows.

He says the company’s selection ofcountries, partners and investmentdecisions are based on three things: afocus on countries with good beerindustry volume and profit growthpotential; creating partnerships withcompanies that are leaders in the localindustry; and the ability of the part-nership to add value for the companyand shareholders.

Burrows adds that Budweiser bene-

fits from the continued globalization ofAmerican culture, including films, TV,music and products.

Another worldwide trend that isfavorable for Budweiser is the move tolighter beverages. This generallyinvolves a shift from hard liquor to wineand beer, and within beer to the lighter,less-bitter spectrum and away from thetraditional European-style beers.

“Generally speaking, in our prioritymarkets, we view all of these factorsas favorable, that support Anheuser-Busch’s ability to grow,” addsBurrows. “In 2002, Anheuser-Buschexperienced good volume growth inCanada, China, Mexico and the UK—four of the company’s largest marketsoutside the United States.”

And if the current trends continue,A-B and other global beer marketersshould have plenty of additional mar-kets to tap well into the future. BW

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