Beer Monopoly





  International Reports








Posted January 2012

China - Better late than never

Given that AB-InBev's Budweiser is already dominating the profitable premium beer segment, SABMiller's decision to launch its Miller Genuine Draft brand (MGD) in the Zhejiang region smacks of a five-to-twelve-effort.

SABMiller reported on 16 January 2011 that MGD will be imported - and not brewed under license in China.

That makes sense. Chinese consumers are a snotty lot. If they are expected to splash out, they expect to get the real thing. Also the decision to launch MGD in a well-off province like Zhejiang, which is one of the largest markets in coastal China and whose capital, Hangzhou, has one of the highest incomes of the provincial large cities, appears logical.

What has raised a few eyebrows among market observers is SABMiller's super-cautious approach. They are only planning to "test the potential" for an international brand with a premium beer imported from the USA.

Could it be that SABMiller's local joint venture partner in China Resources Snow Breweries (CR Snow), who holds a 51 percent stake, isn't really keen on having MGD on the portfolio? SABMiller will certainly have bargained for a higher share of the eventual spoils. Read on


Japan - That sinking feeling

Total shipments of beer and beer-like drinks in Japan dropped 3.7 percent in 2011 from a year earlier to a record low of 442.39 million cases. Although declining beer consumption is nothing new to Japan, last year's decline was partly due to the massive March earthquake and tsunami that disrupted supplies, industry data, which was released on 17 January 2012, showed.

Although price wars in the various beer categories are nothing new, last year still saw a genuine novelty: an all-malt beer priced as an Ersatz-beer.

In August 2011, the supermarket chain Aeon started selling its own-label beer Barreal Lager Beer priced at YEN 158 (USD 2.05) per 350 ml can, making it one of the cheapest real beers in the Japanese market. Read on


Australia - Has beer become a luxury item?

In the final quarter of 2011 Australian beer consumption is believed to have dropped 6 percent. In view of the fact that the last quarter of the year is the main drinking season - the Australian summer - the decline spells an unmitigated disaster. Read on


United Kingdom - SABMiller reports rise in beer sales

On 19 January 2012, SABMiller reported a 3 percent rise in beer volumes in the last three months of 2011, as growth in emerging markets helped offset volume declines in North America and Europe.

SABMiller said that beer price rises helped the group to push up its underlying revenue in its October-December third quarter by 7 percent.

However, beer volumes at its newly-acquired Foster's Australian business dipped 6 percent in the quarter and, although not included in its overall figures, showed the challenge faced by Foster's new chief Ari Mervis in such a difficult market. Read on


Germany - 2011 beer volumes up - but at what price?

How much madder can it get? According to estimates, German brewers have raised beer sales by perhaps 1percent in 2011 but they paid dearly for the extra volume: by an inflationary use of price promotions.

The trade publication Inside reported on 13 January 2011 that Germany's top beer brands (Beck's, Bitburger, Hasseröder, Jever, König, Krombacher, Radeberger, Veltins, Warsteiner and Wernesgrüner) sold about 67 percent of their total annual volume on promotion. That's up from 60 percent in 2010 and 52 percent in 2009.

Irrespective of their recommended retail prices, these major German beer brands sold on average for EUR 10 (per 10 litres) when on offer. That's down from EUR 10.31 in 2010 and EUR 10.67 in 2009.


USA - Never trust the Marlboro men

After two years of having gotten written up as a takeover target, every fund manager and his dog seem to have finally woken up to the idea that buying SABMiller's shares will land them a nice windfall profit in a few years' time when the world's number two brewer could be taken over.

Although I have repeatedly argued that SABMiller's numerous joint ventures (China, the U.S., Africa, Russia) may hamper a takeover, especially in China, where it is difficult to gauge the position of the Chinese government, over the longer term, however, SABMiller is potentially the only firm that could be taken over by AB-InBev.

To date, the brewer has done everything it can to remain independent and make a takeover as difficult as possible. The Foster's deal was proof of the company’s wish to remain independent.

But SABMiller's executives know only too well that they have a wobbler on their board: Altria, the U.S. cigarette company, which owns the Marlboro brand.

The position of Altria as a 27 percent shareholder in SABMiller, argues a recent report, could potentially be the deciding factor that determines further consolidation in the brewing industry.

By 2013/2014 Altria will have cut all the cost it can possibly cut out of its business and by that date the company will have started to take steps to counter the 3 percent to 4 percent annual decline in its own cigarette business. Whether Altria will have found a suitable acquisition target may well determine SABMiller’s availability by that date - which may well coincide with AB-InBev having built a sufficiently large war-chest to have a go at SABMiller.

Bankers have always argued that it's SABMiller's control characteristics - the fact that its three major shareholders Altria (with a 27 percent stake), the Santo Domingo family (14 percent), and Polish billionaire Jan Kulczyk (9 percent) have managed their stakes as a financial investment, with limited direct involvement in managing the company - which render SABMiller more vulnerable to a takeover than, let's say, Heineken or Carlsberg.

While we cannot predict how the Santo Domingo family or Mr Kulczyk will decide once an offer is placed right in front of them, it's easy to see what Altria will do.

Altria is by far the biggest U.S. cigarette maker in both market value (USD 61 billion) and revenue (roughly USD 16 billion) a year. Its business strategy, to the outsider, looks quite simple: cut costs, buy back shares, pay fat dividends (a generous 80 percent of earnings) and sell off stuff to fund it all.

Only some mean-minded critics would actually say that Altria has been cashing out this past decade, but there's some truth to this. In 2001 it sold Miller Brewing to SAB in exchange for a stake in SABMiller, now valued at USD 15 billion; in 2007 it divested its food unit Kraft and in 2008 its international cigarette division Philip Morris International.

These sales helped offset declines in its domestic business and allowed for nice dividend payments. Alas, most of the family silver is gone. Except for its stake in SABMiller and in a few vineyards, Altria has very little left that it can turn into cash.

That's why Altria might be more than happy to trade its stake in SABMiller for a fat pile of money which it could use - a cheeky analyst has suggested - to buy a utilities company. After all, that's a business model Altria knows only too well: use a captive client base to constantly raise prices and at the end of the day you'll laugh all the way to the bank.

Of course, it's early days still.


Australia - You mustn't brew my beer

In duopoly markets, foreign brewers often find themselves in a spot of bother: who shall brew their brands under license? In Australia, Kirin-owned Lion Nathan has emerged with the lion's share of Australia's top-selling imported beers, with Foster's losing the rights to brew and distribute Stella Artois in one of the first effects of its takeover by SABMiller.

In December 2011 Lion announced it would take over the distribution rights to Stella, the fourth-best selling premium foreign beer brand in Australia, as of April this year. Stella is owned by AB-InBev, a major rival to SABMiller.

Of the top eight imported beers by volume in Australia, Lion now holds the rights to four - Heineken, Beck's, Stella and Budweiser.

Obviously, Beck's, Stella and Budweiser are all owned by AB-InBev. But Heineken isn't. In effect, for years both Heineken and AB-InBev, although fierce competitors, have trusted a Kirin-controlled brewer to do the best it can for their brands, which - it must be stressed - all vie for the same share of throat in Australia. That's an interesting thought, isn't it? Read on


Australia - Coopers Brewery celebrates 150th anniversary

This is no small achievement for Australia's third largest and still family-owned brewery: Coopers Brewery reported that beer production had lifted slightly to a record 629,000 hl in 2010/2011 while the total beer market declined 6 percent.

Coopers Original Pale Ale accounts for 62 percent of sales and Sparkling Ale (‘Red label’) for 14 percent while new low-carb Coopers Clear has grown to 8 percent. Read on


Germany – Watchdogs to sniff out alleged beer cartels

Cologne and Belgium: the competition watchdogs have been working overtime. In the German city of Cologne, best known for its eponymous perfume and beer, 25 cartel busters with 15 policemen in tow raided five Kölsch breweries and a private apartment on 15 December 2011 as part of an investigation into illegal price fixing.

The watchdogs' office told media they were pursuing an initial suspicion of fraud. Whether anybody had acted as a whistleblower the watchdogs would not say.

Meanwhile, over in Belgium, the newly installed minister for the economy, Johan Vande Lanotte (probably in a effort to make up for the 535-plus days lost when Belgium was without a government), told the competition authorities to look into the matter of the recently announced price hikes by both AB-InBev and Heineken's Alken Maes and whether they smack of price fixing.

At the end of December it was announced that AB-InBev plans to increase wholesale prices for canned and bottled beer in Belgium by 5.9 percent, effective 1 March 2012 while Alken Maes will raise prices by about 6 percent as of 12 March. The two brewers have cited rising energy, staff and raw materials costs for the increases.

We are not sure if these investigations in Belgium will lead anywhere. In free competitive markets price increases are legitimate. Underlying motives may vary - from raising profits to passing on costs - but for as long as consumers have a choice and can vote with their feet, price increases are ultimately a risky undertaking.

True, AB-InBev and Heineken alone control over 65 percent of the Belgian beer market. However, as AB-InBev alone has over 55 percent of the market, any number two player would be daft not to raise prices as soon as the market leader pushes ahead. As far as we know, imitating someone else's price maneuvers does not constitute a cartel, or does it?

As for the Belgian consumers, there will always the motorway to Germany where they can stock up on really cheap beers.

At first glance the allegation that Kölsch breweries may be involved in a secret cartel to the detriment of their consumers seems ludicrous. Having checked with several wholesalers, we found that wholesale prices for Kölsch beers are as high (or rather as low) as for pils beers. Moreover, for the past three years Kölsch brewers have not raised prices - because they probably saw that consumers would immediately switch to cheaper pils beers.

Consumers in Cologne may cherish their Kölsch brands, which are brewed by about 12 breweries, and still drink about 2 million hl of the top-fermenting beer each year. Again, let's face it, Cologne's consumers are catholic in their tastes - they like beer, any beer, but only for as long as it is affordable.

The reason why many observers think there may be something to the allegations of price fixing is that the city of Cologne is notorious for its "Klüngel", a system of mutual help, based on the principle of "I scratch your back, you scratch mine", which in Cologne can run the full gamut from tokens of friendship to outright corruption.

It is expected that the German competition watchdogs will take their sweet time to study the evidence, especially as Cologne is now in the throes of carnival when no one seems to do any work at all.


USA - Coors Light to become number two beer brand in the U.S.

In Golden, Colorado, they will have celebrated this news with a cold one. In 2011 Coors Light surpassed Budweiser as the number two beer brand by shipments in the U.S., including Puerto Rico and exports, the trade publication Beer Marketer's Insights reported in early January 2012.

This marks the first time since 1993 that Anheuser-Busch didn't control both of the top two beer brands, according to the publication. Bud Light remains the nation's top seller.

Coors Light is distributed in the U.S. by MillerCoors, a joint venture between Molson Coors and SABMiller.

While Anheuser-Busch hasn’t yet released its own sales figures for 2011, the publication estimated that sales of Budweiser dropped 4.6 percentage points to 17.7 million barrels (20.7 million hl) while Coors Light shipped 18.2 million barrels (21.3 million hl), gaining about 0.8 percent over 2010. Read on

United Kingdom - SABMiller and Castel snuggle up to each other

About time too. On 9 January 2011, SABMiller announced that, after years of competing against each other in Nigeria and Angola, the two companies would combine the management in these two markets with SABMiller managing Nigeria and Castel Angola. In the rest of Africa, however, they will continue to go their separate ways.

SABMiller valued the gross assets of Castel's Nigerian businesses at USD 75 million (which we think a very generous valuation) compared to USD 918 million for SABMiller's Angolan businesses.

The organisational changes immediately fired deal fantasies, especially when a SABMiller spokesperson told Reuters that SABMiller would be interested in acquiring the African brewing operations of Castel should Mr Pierre Castel, the octogenarian owner, be willing to sell.

SABMiller and Mr Castel reached a strategic alliance in 2001 whereby SABMiller took a 20 percent stake in the Paris-based group's beer and soft drinks operations in Africa, and Castel acquired a 38 percent stake in SABI, which is SABMiller's Africa subsidiary. Read on


United Kingdom - Ombudsman steps in to solve S&N pension dispute

The UK Pensions Ombudsman is to investigate allegations by tens of thousands of pensioners of former brewer Scottish & Newcastle that they have suffered “a raw deal” following its takeover by Heineken in 2008.

The Ombudsman’s decision to adjudicate, announced shortly before Christmas 2011, is significant as the eventual finding will be “final and binding”, save any appeal to the High Court in London on a point of law.

The dispute between Heineken and the S&N Pensions Group (SNPG) centres on undertakings given by the Dutch brewer at the time of the takeover to continue a decades long practice by the Scottish company of providing inflation linked pension increases. Although these increases have always been "discretionary", pensioners think that they are entitled to them.       Read on


Ireland - Last orders for many Irish pubs

Almost 1,000 pubs have closed in Ireland since 2006 and Irish publicans are warning that a further 5,000 jobs will be lost during 2012. According to a report in the Financial Times on 8 January 2012, bar sales have fallen by almost a third since 2006 and there are now just 7,509 licensed pubs in a country of 4.5 million people.

There are many reasons for the decline of the pub, but they centre around changing lifestyles, regulatory changes and the weak economy,” Padraig Cribben, Chief Executive of the Vintners Federation of Ireland, a lobby group for the pub industry, was quoted as saying. “People are cash poor due to the recession, and [retail] sales have become a lot cheaper.”

Competition from supermarket chains has intensified since a change in the law in Ireland in 2006 removed a ban on below-cost selling of alcohol. The retail trade now accounts for more than 50 percent of the EUR 6 billion drinks market in Ireland. Read on



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