Beer Monopoly




    International Reports







Posted December 2013

Obituary - Graham Mackay, Chairman of SABMiller, died 18 December 2013, aged 64

Appearances can be deceiving – never more so than in the case of Graham Mackay. Had there been a competition “Best Dressed Brewer” he would have easily won it year after year. Not for him the dressed down look of an open collared button-down shirt with flashing white undershirt, espoused by some of his competitors. No, Mr Mackay was an ultra-sharp dresser, always wearing shiny silk ties with handkerchiefs just popping out of his breast pocket and pin-striped suits, whose stripes were often so thick and broad he could have been mistaken for a Cockney wide boy made good.

Strangely, he also seemed to have a penchant for those garish red braces popularised by the 1987 film “Wall Street”, which starred Michael Douglas as the flamboyant but ruthless trader Gordon Gekko. If memory serves me right, some years back SABMiller even had a photo of Mr Mackay in Gordon Gekko pose on its corporate website, wearing shirtsleeves and red braces. Apparently, someone eventually persuaded Mr Mackay that following the financial crisis of 2008 such a photo might give shareholders wrong ideas about the company and it was taken off the web.

Over the years I have been an avid follower of Mr Mackey’s public persona. I know that secretly he would have chuckled at what observers, like me, read into his looks: did he want to be taken for a London banker or for a Wall Street tycoon? In fact, he was neither. He was one of the most down-to-earth executives in the brewing industry, with a really wicked sense of humour, probably getting endless mileage out of winding people up, especially if they happened to be his competitors.

Unlike the money types, Mr Mackay did not believe in corporate mumbo-jumbo. He did not mince words nor did he eat crow. Mr Mackay was notorious for his bullish nonchalance in defying business etiquette by publically commenting on his competitors while spelling out uncomfortable truths in an almost offensive matter-of-fact way.

Being in the presence of Mr Mackay could be intimidating: the shaven head, the hawk nose and those hooded eyes with one slightly raised eyebrow which gave him an air of an overbearing schoolmaster exuding paternalist concern for the dumb, dimwitted or otherwise intellectually challenged.

It must have been in the early Noughties at a brewers’ convention in South Africa, when the severity of the HIV/AIDS pandemic in Africa was finally being acknowledged in the rest of the world, that I approached Mr Mackay and asked him whether he would mind being interviewed by me on the spot. He did not, although it would not have been standard procedure to face a journalist without PR staff hovering over us.

As we settled into our chairs facing each other, I fired my first question at him. “Mr Mackay, what are you at SAB going to do about HIV/AIDS?” If he had been caught out by my question, he did not show. But rather than fobbing me off with some effusive corporate waffle, he merely leant back, raised his eyebrow and retorted: “Why should I be doing something about it?” I explained to him that he could do it for two reasons: one being economic (at the time 19 percent of South Africa’s adult population suffered from HIV/AIDS and businesses feared losing staff to the illness because the Mbeki government did not provide them with treatment) the other moral.

However, no matter how hard I pressed on, even reminding him of Jürgen Schrempp, the CEO of the German carmaker Mercedes-Benz, who had made it his personal priority to implement an HIV/AIDS strategy at their plant in South Africa in defiance of the government’s official stance, Mr Mackay refused to be cajoled into an answer, let alone some sort of commitment. Most likely, he sighed to himself that yet again he had to face one of those European do-gooders who had come to Africa with a moral chip on her shoulder the size of the Kilimanjaro, while knowing precious little about African realities and SAB’s precarious position viv à vis the country’s ANC government.

Although I feared that eventually Mr Mackay would send me flying out as we both stood our grounds, we managed to bring the interview to a civil closure. I never learnt what Mr Mackay thought was SAB’s corporate duty with regard to the HIV/AIDS pandemic. But I noticed that soon afterwards a department at SAB was set up to deal with the issue, thus shaming South Africa’s government into changing its AIDS policy. It now offers the 6 million South Africans with HIV free antiretroviral drugs if their immune strength drops below a critical level.

I am quite convinced that Mr Mackay personally adhered to the Milton Friedman school of thought that the social responsibility of business is to run successful companies, contributing to tax revenues and investing in local economies. He did not believe that companies had a duty to do the work of elected governments. Being a hard-nosed South African, he probably thought the whole corporate responsibility agenda a whole lot of hogwash. But he was also a pragmatist, relentlessly working to keep SAB and later SABMiller on good terms with shareholders and investors. That’s why he sent SABMiller down the CSR path when pressure piled up on stock-market listed companies to engage in sustainability programmes. Or when there were calls for more women on corporate boards, SABMiller was among the first to make several high-profile appointments.

Naturally, Mr Mackay had a big ego, yet he was no megalomaniac. Hubris, greed and braggadocio weren’t among his character traits. In actual fact, if anybody in the brewing industry excelled in the art of deal-making it was him. Rather than let the acquired walk away with a pot of his gold, he persuaded them to take a stake in SAB instead, most famously when he acquired Miller Brewing in the U.S. in 2002, which led to the subsequent re-naming of the business as SABMiller, and when he took over Bavaria in Latin America in 2005. Other transactions may not have made huge waves like the share-swaps with France’s Castel in 2001 and Turkey’s Efes in 2011, or the joint venture between SABMiller and Molson Coors in the USA in 2008. However, they all, in one way or another, helped eliminate the threat of potentially acrimonious competition and fend off unwanted attention from prying rivals.

Considering the, ahem, complex composition of SABMiller’s board, Mr Mackay cannot have been a sun king who surrounded himself with yes-men and crushed dissent. He was a leader and an integrator. Take it as a proof of his brilliance that unlike other CEOs these days, who last half as long in the job, on average, as they did a decade ago, Mr Mackay enjoyed the longest tenure among his brewing industry peers. For 16 years he was at the top of SABMiller, having been appointed Group Managing Director of SAB in 1997 and CEO in 1999. Cruelly, when he became non-executive Chairman in April 2013, he was diagnosed with a brain tumor. After a brave battle against the disease he passed away on 18 December 2013 in Hampshire.

It may be a cliché to say when someone dies that they will be sorely missed, or that they will leave a gap that is hard to fill, but in the case of Mr Mackay all the clichés are true.


Mexico – Heineken banks on premium segment growth

So much for those lofty economic growth forecasts. Both Brazil and Mexico have had to revise their GDP growth rates down: Brazil is heading for growth of less than 3 percent this year, while Mexico is expected to expand by 1.2 percent. Beer markets have taken a hit. Consumption of beer in Brazil and Mexico is expected to decline in the low single digits this year.

Still, Heineken remains upbeat. At an investor conference in Mexico on 5 and 6 December 2013, the Dutch brewer said they are stepping up their drive into the premium beer market in Mexico. It’s going to be tough, though. Read on


China – Carlsberg ups stake in Chongqing Brewery

Danish brewer Carlsberg has increased its stake in China's Chongqing Brewery to 60 percent, strengthening its foothold in the world's largest beer market by volume, and hopes to further increase its holding.

It was essential for Carlsberg to get the majority stake as it makes it possible to implement its business strategies and increase profitability.

Carlsberg, which inherited a stake in Chongqing Brewery through its takeover of British brewer Scottish & Newcastle in 2008, raised it in 2010 to become the biggest shareholder in the Chinese company with 29.7 percent.

On 5 December 2013 it completed its purchase of an additional 30.3 percent for USD 476 million, which translates into an EBITDA multiple of 15.7. Read on


USA – Cider outpaces beer category

In the on-premise sector, beer has had a challenging year. According to GuestMetrics, a company that tracks the hospitality industry, sales of beer in the first ten months of 2013 are down 3.7 percent, underperforming the wine and spirits categories.

However, cider has displayed exceptional strength, with volumes up 53 percent in the same period and 52 percent during the third quarter 2013. Not all of the 240 cider brands that compete in the on-premise have seen volumes go up. The Angry Orchard brand family (produced by Boston Beer) rules the roost, followed by Strongbow (Heineken) and Stella Artois Cidre (AB-InBev). Together, the three brands now account for 45 percent of total cider volumes in the on-premise channel (up from 17 percent in 2012)… and drove over 99 percent of the volume growth, according to GuestMetrics. Said differently, the remaining 230 or so cider brands have only increased volumes 0.3 percent compared to the prior year.

What may have helped Angry Orchard’s ascent in sales is a clever pricing policy. Angry Orchard’s average price in the on-premise is USD 4.99 per pint glass (16 oz), Stella Artois Cidre’s is USD 5.38. The “tail” of smaller craft cider brands sell for USD 5.48 per glass. Strongbow’s average price is USD 5.64 in the on-premise, a 13 percent premium above Angry Orchard.

Cider, a niche product, accounts for less than 1 percent of the nearly USD 100 billion U.S. beer market (sales), but some analysts project that volumes could grow to about 3 percent of the beer market over the next few years. Read on


USA – Big beer not doing too well

Except for Crown Imports, the top U.S. brewers saw beer sales flat or decline in the nine months to end of September 2013, Beerinsights reports. Meanwhile, lots of craft brewers continued to score double-digit growth.

AB-InBev saw beer shipments drop -1.9 percent in the third quarter, similar to a -1.7 percent drop in the second quarter. For the nine months, AB-InBev’s shipments are down 2.15 million barrels (2.4 million hl) or nearly 3 percent. MillerCoors followed its biggest-ever shipments drop in the second quarter with a more modest decline of 230,000 barrels, or -1.5 percent, in the third quarter. Volume sales for the nine months are down 1.45 million barrels (-3.2 percent).

Beerinsights reckons that Crown (the Corona importer now fully owned by the wine company Constellation) had a great third quarter: up 320,000 barrels or 9.4 percent. That pushed Crown's nine month gain to over half a million barrels or 5 percent. If Crown does well in the fourth quarter too, it could sell 13 million barrels (15.2 million hl) of beer this year. Read on


UK – SABMiller lifts earnings

SABMiller, the world's number two brewer, reported a rise in profits for the first half of its financial year, as its business in Africa helped offset declining beer sales in Europe and North America.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 7 percent to USD 3.27 billion in the six months ended 30 September 2013.

Lager sales by volume rose 1 percent. Gains of 9 percent in Africa, 4 percent in Asia Pacific and 1 percent in Latin America helped compensate declines of -4 percent in Europe and -3 percent in North America. Read on


France – The “Bud versus Budvar” saga continues

So Bud is not a place. Who would have thought? The Colmar Court of Appeal has ruled that the “Bud” appellation of origin, owned by the Czech brewer Budejovicky Budvar, is invalid, AB-InBev reported in early November 2013.

The Court of Appeal said that “Bud” could not be protected in France as an appellation of origin because the European Commission did not protect the term following accession of the Czech Republic to the European Union in 2004. The Court also held that “Bud” was not a place name as required for protection as an appellation of origin.

AB-InBev must be pleased with this ruling because it solidifies their trademark position in France. Read on


Australia – New Managing Director for Coke

A woman at the top of a major beverage company. That’s a new one to us. On 2 December 2013, Coca-Cola Amatil (CCA) announced the appointment of Alison Watkins, 50, currently CEO of GrainCorp, as Group Managing Director. She will join CCA on 3 March 2014, replacing the current and long-serving group MD Terry Davis, who had said earlier this year that he would step down on this date.

Currently, the grain handling and marketing company GrainCorp is making headlines as the target of a USD 2.7 billion takeover attempt by U.S. agribusiness giant Archer Daniels Midland (ADM), an action for which Australian federal government approval was denied at the end of November 2013 because it was not in the national interest. Many industry participants, particularly growers in eastern Australia, have expressed concern that the proposed acquisition could reduce competition and impede growers’ ability to access the grain storage, logistics and distribution network. Read on


Nigeria – Trouble in brewers’ promised land

The fear of terrorism continues to cast a long shadow across northern Nigeria,” The Economist newspaper wrote on 30 November 2013. Following Boko Haram’s bloody insurgency, foreign companies tend to avoid the north. But Guinness Nigeria is hanging on, The Economist reports, although one of their sales divisions is located in Jos, a city affected by Islamist terrorist attacks. Even if Guinness Nigeria, which is partly owned by Diageo, wanted to decamp, they cannot as 20 percent of their sales are conducted in the northern half of Nigeria.

Still, because of terrorist assaults over the past few years, beer consumption in northern Nigeria has taken a hit. Consumers have tended to restrict drinking beer to safe locations and occasions.

As if this were not enough, in the past two or three quarters, the whole of Nigeria’s beer market has been in decline on account of a decrease in government spending, which has led to reduced cash in circulation, and shrinking discretionary income arising from the impact of inflation and removal of the fuel subsidy in January 2012. In fact, people are putting a lot more of their income into housing and food than into buying beer.

Guinness Nigeria reports that the trend in spending patterns was evident in consumers’ trading down from super-premium to premium and from mainstream to value beer brands. That’s why the beer market’s decline this year affected mainly the super-premium and mainstream segments which account for over 70 percent of beer volume.

At an investor conference in October 2013 Diageo said that they control about 37 percent of Nigeria’s beer market, with Heineken holding 57 percent and SABMiller 1 percent. As concerns the important non-alcoholic malt beverage segment, Diageo’s share is 34 percent, compared with Heineken’s 63 percent and SABMiller’s 1 percent.

With Nigeria being Guinness’ most important market – Diageo sells more Guinness in Nigeria than in Ireland - Diageo has recently rolled out new looking Guinness bottles and packs. The company is hoping the re-brand will help them tap into a new generation of drinkers in Africa as competition on the continent intensifies.

Guinness beer isn’t a cheap delight in Nigeria. On average, a 330 ml bottle retails at a 60 percent premium over any mainstream stout. In some places it can be sold at up to double the price of a normal beer.

On 15 November 2013, Guinness Nigeria announced revenues were up 5 percent to NGN 122.5 billion in 2013 financial year that ended June 2013 from NGN 116.5 billion recorded in the previous year, while profits after tax dropped to NGN 12 billion (USD 75.7 million) from NGN 14.2 billion in 2012.

Analysts called Guinness Nigeria’s performance “unimpressive”. I wonder what they would call SABMiller’s performance: although they have been in the country for five years and last year opened a USD 100 million greenfield brewery, their estimated market share of 1 percent translates into a sales volume of only 100,000 hl. That’s not good by any measure.

It’s hard to say if beer consumption will continue to decline through 2014. In any case, brewers in the country have already set their eyes on Nigeria’s next general elections, scheduled for 2015. Usually, government spending and parties’ handouts rise ahead of elections so that voters can be swayed in their favour. In all likelihood, voters will use those windfall gains in their pockets to splash out on beer. That will not be too soon for the country’s brewers. As the Managing Director of Guinness Nigeria, Seni Adetu, admitted in September 2013, the brewing industry is suffering from massive overcapacity. “My guess is”, he said “that we have a 30 percent headroom capacity. In other words, what we have in terms of demand is about 30 percent short of the capacity that we have here.”

Hopefully, Nigeria’s President Goodluck Jonathan will call for an early election.

Russia – Price hike on vodka to fight alcoholism

With hundreds of thousands of Russians dying of excessive drinking every year, the Kremlin says it plans to hike minimum prices for strong spirits, including vodka. According to a draft decree published by the government on 29 November 2013, the cheapest half-litre bottle of vodka will cost 199 rubles (USD 6.0/EUR 4.40), up from the current 170 rubles, as of 1 January 2014.

It also noted the price for strong spirits would further rise to 220 rubles per half litre from August 2014, bringing total increases next year to almost 30 percent.

Already in 2010, Russia hiked prices for vodka and beer to combat alcoholism. Since then the government has further put a ban on alcohol advertising, limited sales hours and banned kiosks from peddling alcohol. Read on

Ghana – Another African beer wonderland about to emerge?

Take it as a measure of intensifying competition across Africa that SABMiller and Diageo are pouring money into this tiny market. At 1.7 million hl in 2012 Ghana’s beer market is not small but considering that the country is home to 25 million people (half the number of South Africa) Ghana’s per capita consumption of beer at 6 litres in 2012 is among the lowest in Africa. The African average is 10 litres.

Ghana has not been an easy market for international brewers Diageo, Heineken and SABMiller, although the country is governed well (compared to others in the region) and its economy has grown thanks to mining (gold), oil and cocoa forming the bedrock of the economy. People seem to prefer their homebrews which are far cheaper than commercial beers. Read on


Germany – Drinking against bankruptcy

Just because Michael Hollmann, 55, used to be CEO of one of Germany’s largest brewing groups, Brau + Brunnen, which he sold to Radeberger Brewery in 2004, it does not mean that he has the wherewithal to run his own brewery. In mid-November 2013 his Iserlohn Brewery filed for bankruptcy, owing suppliers and banks an estimated EUR 2 million.

Already in 2003, when Iserlohn was part of Brau + Brunnen and facing insolvency, he wanted to close the brewery down. In the end, he merely sold it off. Guess everybody’s surprise when in 2010 he bought it himself for an undisclosed sum, having previously taken over the Bolten alt beer brewery in 2005. Since then the Iserlohn brewery has struggled on, producing an estimated 500,000 hl of beer, 400,000 hl of which are private label beers for supermarket chains. Read on

Germany – Beer sales continue to decline

For the months January to October 2013, German brewers sold 2 percent less beer compared to the same period last year. Beer sales stood at 82.2 million hl. In October, beer exports declined too and registered -3.6 percent compared to October 2012. This adds to a loss of 3.1 percent for the January-October period. Beer mixes fared hardly better: sales declined 3 percent.




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