Global beer market trends
Developing markets continue to grow
Trends in 2012/2013
Developing markets remain the engine of volume growth for the global beer industry. Per capita alcohol consumption continues to rise as disposable incomes increase and consumers trade up from informal alcohol (often spirits) to professionally brewed beer. The result is strong volume growth in Africa, Asia and Latin America. In contrast, consumption in Western Europe continues to slide.
There has been an increasing realisation that not all developing markets are equally attractive. Industry structures vary widely from country to country, with African and Latin American markets being in general much more concentrated, putting them in the global sweet spot of combining strong long-term volume growth and high EBIT1 margins.
As well as trading up into beer, consumers are trading up within the beer category. Local premium brands increased their share in developing markets with international premium brands often growing just as strongly, albeit from a lower base. This trend is also clear in mature markets such as the USA where premium imports and craft beers continued to strongly outperform mainstream beer. Even in the declining UK beer market, the premium brand segment has done well and gained share.
One feature of mature markets is that the premium segment tends to fragment over time as consumers seek a broader repertoire of brands – hence the growing popularity of local premium, imported and local craft beers.
Industry consolidation has continued apace. AB InBev announced the intended acquisition of the Mexican brewer, Grupo Modelo. Heineken completed the acquisition of Asia Pacific Breweries and Molson Coors acquired StarBev in Central and Eastern Europe. CR Snow (SABMiller’s joint venture with CRE) announced the intended acquisition of Kingway Brewery in China.
The debate continues about the long-term profit prospects for China, the world’s biggest beer market by far in volume terms. Growth remains strong, as does the potential for future growth. That said, unit pricing and margins are still extremely low. All the big four brewers have embarked on regional expansion, both organic and through acquisition, increasing their collective share of the market at the expense of smaller players. CR Snow remains the clear leader by volume.
Industry consolidation has left many companies with fragmented IT and back-office systems, presenting opportunities to improve global efficiency without losing local flexibility. Three of the four major global brewers – SABMiller, Heineken and Carlsberg – are currently carrying out programmes to restructure and cut costs.
- With unemployment falling among key sections of the population, the US beer market appeared to turn the corner with 1.1% volume growth, making 2012 the first growth year since 2008.
- At the same time global commodity pressures started to ease. Although grain markets remain volatile with extreme weather affecting the price of wheat and corn, barley markets improved after better harvests in Western Europe. In addition, the spot price of aluminium fell sharply.
The beer category remains a very attractive long-term investment opportunity.
European large cap brewers outperformed the stock market, as measured by the MSCI Europe index, by 24% in 2012, following an average 11% outperformance every year for the last 10 years.
Prospects for future growth remain strong with volume growth primarily driven by developing markets. In developed markets the focus will be on premium brands, new variants and pricing. Together with increasing economies of scale and efficiency savings, these trends should ensure steady margin expansion and strong cash flow.
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Regional beer revenue per hl vs. EBIT1 margin
Source: Company data, Plato, Bernstein Research.
1 Normalised EBIT margin is defi ned as EBIT adjusted for exceptional items.
European large cap brewers relative performance vs. MSCI2 Europe
Source: Bloomberg. Note: European large cap brewers include AB InBev, Carlsberg, Heineken and SABMiller. Scottish & Newcastle is included for the period 2001-2007.
2 The MSCI Europe Index is a free fl oat-adjusted market capitali sation weighted index, designed to measure the equity market performance of 16 developed markets in Europe.