Perhaps the most important trend to have shaped the global brewing business over the last decade is that volume growth has primarily come from emerging markets. Since 2000, the compound annual growth rate (CAGR) has been 2.8% for the global beer market. The same period, however, has seen CAGRs of 5.1% in Asia, 3.9% in Africa and the Middle East, and a substantial 6.2% in Eastern Europe.
This trend is likely to continue. Between 2006 and 2011, the most significant overall volume growth is likely to come from Asia (115 million hectolitres), Central and South America (41 million hectolitres) and Eastern Europe (41 million hectolitres), rewarding brewers with strong footprints in emerging markets (chart 1).
Economic growth and rising disposable incomes are encouraging consumers in some markets to trade up into the beer category away from cheaper, traditional, local spirits and non commercially brewed beer. Brewers are nurturing this trend by offering more appealing and affordable products. In addition to those trading up into commercially produced beer, there is much trading up within the beer category as consumers choose premium brands more frequently (chart 2).
For example, in developed markets such as the USA, imported premium brands have achieved a CAGR of 6.0% over the last five years, and this contrasts with negative growth in US domestic brands. Similarly in many less developed markets in Eastern Europe and Russia, international brands are growing by up to 30 percentage points faster than local brands.
Against this backdrop, brewers who can offer full and varied brand portfolios, with brands differentiated by functional benefits (intrinsics) and emotional benefits (extrinsics) across a range of price segments, are more likely to retain or increase their market share.
Given these trends in consumer behaviour, the brewing industry has been consolidating to secure brands and national positions. International brewers have also been investing for further growth, particularly in new and developing markets such as China, Latin America and Russia. The past five years have seen a steady flow of mergers and acquisitions, with the bigger brewers the busiest. Over this period, the top 20 brewers have been involved in more than 280 deals with a total transaction value of over US$80 billion. Activity has been particularly heated in emerging markets where most of the brewers have made investments.
All this has led to increasing globalisation, with the top 20 brewers now averaging 53% of sales from outside their traditional home markets, compared with just 33% in 2001. Looking ahead, further consolidation is expected as companies seek to broaden their global footprints in order to chase enhanced growth from emerging markets. There is clearly room for further moves as, despite recent activity, the beer industry remains relatively fragmented, with the five largest companies accounting for 38% of the market compared with 75% in carbonated soft drinks.
Looking ahead, we expect competition will get fiercer at a local level, as global businesses compete head to head. At the same time, the retail trade is becoming increasingly sophisticated across markets as grocery modernises in emerging markets like China and Russia, and continues to consolidate in many developed markets. The likely implications will be that access to distribution routes will become more ubiquitous, brand scale will become increasingly critical to driving availability, and customer management skills will become more important.
This trading environment will reward brewers who have the right brands, who are strong at local market execution and are able to leverage effectively their global scale and scope.
Data sourced from: Dealogics and Canadean 2006/2007
* The entire content of this section has been contributed by, and reflects the views of, a leading industry consultant.