Global beer market trends

Growing importance of brand development, innovation and partnerships

Growth and development trends in the global beer market were generally unchanged in 2011. Emerging markets were still the principal source of volume growth while developed markets faced weak consumer demand as a result of difficult economic conditions and shifting consumer trends.

The better performing markets, regardless of their stage of development, continued to be those in which industry leaders used brand development, innovation and partnerships to capture latent opportunities and stay ahead of changing consumer trends.

The biggest beer market, China, accounted for 43% of the world’s volume growth and nearly 37% of the volume growth from emerging markets. China’s top five brewers accounted for 63% of total industry volumes. However, beer pricing remains low in China and profit margins are thin. Consolidation of the fragmented Chinese beer industry remains an important long-term trend and one that will lead eventually to greater industry profitability.

In contrast to China’s high growth in volumes but low profitability, South America, impressively, saw growth in both volumes and profitability. In the continent’s biggest market, Brazil, beer sales were resilient in the face of softer consumer trends and the development of premium brands remains an opportunity – as it also does in Argentina. In Peru and Colombia, where the premium segment is better established, brewers continue to attract young adult consumers and to raise the image of the beer category as a whole. A trend from informal spirits to beer was evident in Peru which still offers sizeable growth opportunities for beer from adjacent categories. Latin America as a whole continues to offer excellent growth and profitability opportunities from an already strong and profitable base.

In South Africa, brand development work among mainstream and premium brands solidified the leading brewer’s share in 2011. Elsewhere in Africa, the ability to form effective partnerships continues to be an important component of growth for some companies and the opportunity to ‘formalise ’ informal beverages is a major factor in markets where affordability is critical. Industry leaders SABMiller, Castel and The Coca-Cola Company remain aligned in their pursuit of the opportunities provided by beverage volume growth in these low-scale markets.

In the USA, volumes declined 1.7% in 2011 as unemployment remained high, particularly among young, legal drinking age men. Newer craft beers and some imports continued to thrive at the upper end of the price spectrum at the expense of more sessionable and longer-established light beer brands.

Australia has new opportunities following SABMiller’s acquisition of Foster’s. We expect to see renewed focus on innovation and the development of mainstream, premium and import brands.

European consumer trends remain challenging. Difficult long-term demographic trends, a shift to home consumption in markets such as the UK and near-term austerity measures all combine to limit growth. Mergers and acquisitions remain a factor in the Czech Republic while partnerships have played a role in markets such as Russia where beer is still only 25% of alcohol consumption and where premium brands remain promising.

Capturing the opportunity in both developed and emerging markets requires three key skills – brand development, innovation and the ability to forge successful partnerships in markets where joint ventures are necessary. Very few brewers excel at all three. Investors looking for long-term returns in the beer industry need to be able to distinguish those firms that are truly ahead of the field in these intangible, elusive and sophisticated disciplines.

Independent industry analyst
May 2012