The report looks at the consolidation process that the global brewing sector has experienced over the past decade, and says that recent activity suggests that this process is continuing.
Rabobank’s research shows that as the top four brewers grew through acquisitions, many of the smaller local brewers stood on the sidelines and are now finding themselves competing with global giants, rather than with other local, niche players.
Until recently, local brewers have been able to stand their ground, but bank analysts say there is no guarantee this will remain the case.
As the economic crisis is causing unprecedented volume declines in mature markets, Rabobank says, local brewers are about to find out whether they can maintain their position or whether they need to adapt to a changing playing field.
Rabobank’s report points out that the brewing sector has seen a lot of M&A activity in recent years. The leading four brewers – AB InBev, SABMiller, Heineken and Carlsberg – which had a market share of just 16% in 2001, today account for nearly half the global beer volume. As a result, many local brewers are now facing competition from these brewing ‘giants’ rather than from other local players.
The brewing giants have undertaken M&A programmes to increase their scale by entering new markets, or adding differentiating products to their portfolio.
The local brewers’ market share has remained fairly stable over time, with local brewers selling 100 billion litres and having a 53% market share in 2011 (2001: 56%), meaning that, organically, local brewers haven’t lost significant market share to acquisitive giants.
“Despite considerable M&A activities, the brewing giants have not seen an acceleration in volume growth because their increased economies of scale have not been passed on to consumers,” says Rabobank analyst Francois Sonneville. “However, the giants have improved their margins at a faster rate than the beer market in general. Our research indicates that, in 2011, local brewers made up just 25% of the profit pool, declining from a 45% share in 2002. Brewing giants have been able to increase their share of profits through efficiency gains and implementation of a ‘premiumization’ strategy in emerging markets where premium beer brands are more profitable.”
In absolute terms, Rabobank says, local brewers have also benefited from the growth of the profit pool, as their operating profits have increased over the years. This should give local brewers some peace of mind at a time when mature market conditions are deteriorating, bank analysts say, driven by the recession and reductions in disposable income.
However, it’s no guarantee for the future because the giants may decide to change their strategy and focus on volume rather than profit.
In order to compete, Rabobank advises local brewers to evaluate their cost structure and consider alternatives, such as joint purchasing or co-manufacturing, which could give them greater economies of scale.
Source: Rabobank
© FoodBev Media Ltd 2024