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
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.
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.
Has beer become a
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
United Kingdom - SABMiller reports rise in
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
SABMiller said that beer price rises helped
the group to push up its underlying revenue in its
October-December third quarter by 7 percent.
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.
Germany - 2011 beer volumes up - but at what
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
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
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,
Australia - Coopers Brewery celebrates 150th
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
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.
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
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
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
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
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
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
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
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
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.
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
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
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
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.
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
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.
2009 december ·