Beer Monopoly





  International Reports








Posted March 2011

Belgium – AB-InBev will cut its water usage to 3.5 hl/hl beer

Wai-wait: Could it possibly be true that the most aggressive cost-cutter AB-InBev is joining the Green Panthers? Have its executives suddenly seen the light and turned environmentalists? Or have they just realised that saving on water helps them improve their bottom line? It’s a commonly held belief that companies only start caring for the environment if they can make a business case for it. And this seems to have happened at AB-InBev.

On 14 March 2011, the world’s number one brewer announced its progress toward achieving a set of three-year global environmental goals as part of its Better World commitment. Read on


South Africa – HIV/AIDS: Saving lives, saving bottom lines

Times are a-changing and sometimes actually for the better. Ten years ago, your correspondent asked the CEO of what was then still SAB, Graham Mackay, what his company intended to do about the HIV/AIDS pandemic which had already begun to ravage Africa. His reply was: “Why should I be doing anything about it?” My reply was: “You could do something out of the goodness of your heart. Or you could do it for simple business reasons because if you don’t you will have to write-down your investments in human capital pretty quickly.”

I admit this was a most cynical thing to say. But as critics of companies’ Corporate Social Responsibility (CSR) programmes never tire of complaining: companies only do good if they stand to profit from their deeds.

Ten years later, SABMiller just like Heineken and others are spending money on corporate HIV/AIDS programmes because they have since come to realise that there is a cost benefit to the company if they provide testing and treatment to employees and their dependants.

In other words, it’s cheaper for SABMiller to run their HIV/AIDS programmes than to bear the costs of sick employees – factoring in the costs of absenteeism, benefit payments and replacement, plus the loss in productivity and skills.

In 2009 there were over 33 million people globally living with HIV or AIDS, yet Sub-Saharan Africa had the highest share – 60 percent. Although there was a decrease in new infections in 2009, an estimated 350,000 people still died of AIDS in South Africa alone in that year. For every two people who get treatment, five new people are infected, Jenni Gillies, SABMiller’s Group HIV consultant told delegates at the IBD Africa Convention in Uganda in March 2011.

SABMiller’s policy is to prevent new infections through counselling and testing and to provide those who are infected plus their spouses and dependants with treatment.

However, the challenge remains huge as those infected will on average infect another seven. Moreover, it is believed that less than 50 percent of all people infected know their status. Also only 30 percent to 40 percent of people who need antiretrovirals to help them fight the infection are able to access these drugs.

It’s a sad state of affairs that HIV/AIDS has become the biggest obstacle to social and economic development in Africa, Ms Gillies said.

Fortunately, brewers like SABMiller – which after all represent Africa’s major employer – have realised that it pays off for them to run HIV/AIDS programmes because as Ms Gillies hammered home: the consequences of the HIV/AIDS pandemic in Africa have the potential to be devastating in every sense.


Australia – More consolidation in the alcohol retail sector

Australia’s leading retailer Woolworths again faces the scrutiny of Australia's competition custodians after it revealed in late February 2011 an AUD 340 million deal to buy the dominant direct wine merchant Cellarmasters. 

The anti-trust watchdog has confirmed it will review the acquisition amid concerns that it threatens to undermine competition in the liquor marketplace and heap further pressure on independent vineyards. Read on

Belgium – It’s all about the U.S. and Brazil

With two markets (North America and Brazil) representing about 35 percent of the global beer profit pool it came as no surprise that AB-InBev’s CEO Carlos Brito would zoom in on these during AB-InBev’s 2010 full year results presentation given on 3 March 2011. Overall, AB-InBev managed to close 2010 with full year revenue growth of 4.4 percent to USD 36.3 billion, own beer volume growth of 2.1 percent to 348 million hl, EBITDA growth of 10.6 percent to USD13.9 billion with an EBITDA margin reaching 38.2 percent from 35.8 percent in 2009. Read on


China - China Resources buys 21.37 percent stake in Kingway Brewery from APB/Heineken

Consolidation of the Chinese beer market is gathering pace. China Resources Enterprises, which is in a joint venture with SABMiller and also happens to be China’s major brewer, bought a 21.37 percent stake in Kingway Brewery on 9 March 2011 according to a Hong Kong stock exchange disclosure.

China Resources paid around USD 164.4 million for the stake, according to Chinese media sources.

Only a few days previously, Kingway Brewery, which has seven breweries in China according to its web site, had said that its shareholder Heineken-APB was planning to divest its stake in the Chinese brewer. Read on

Nigeria – SABMiller to build a new brewery

Double and half the price of beer and go farming!” That’s how Mark Bowman, President of SAB Miller Africa summed up his company’s strategy in Africa at an investor conference in Florida in February 2011. What could he have meant by this cryptic remark?

According to Mr Bowman, there are two price segments which promise the most growth. The first one is the “affordable beer segment”, sold at a price point about 20 percent below the mainstream segment. Beer offerings in this segment could lure consumers away from even cheaper traditional beers or moonshine, which are reckoned to be quite substantial in Africa. “Affordable beers” are often brewed with sorghum sourced locally and therefore aren’t only cheaper to produce, they also enjoy an excise cut that brewers pass on to the consumers. For example, in Uganda beers brewed with sorghum have an excise rate of 20 percent slapped on them whereas all-malt beers have an excise of 60 percent. Read on


Belgium – Michel Moortgat of Duvel brewery named “Manager of the Year”

Our colleagues over in Belgium picked a real winner. The Flemish-language business magazine Trends named Duvel CEO Michel Moortgat “Manager of the Year 2010”. Not enough. The title “Marketing Manager of the Year 2010” went to Johan Van Dijck, who heads marketing at Duvel. This being Belgium, the Walloons could not be left out. Hence Trends’ sister publication “Trends-Tendences” chose Nicolas Lambert, Marketing Manager at Heineken’s Alken-Maes brewery as its “Marketing Manager de l'Année 2010”.

Belgium’s brewers huffed and puffed. Three brewers out of four were Trends’ award recipients – that’s almost like having a straight flush at poker (well, not quite, but you get the drift). Read on


Turkey – Diageo’s Turkish delight (irony intended!)

When Turkey's Islamist-rooted conservative government introduced another 30 percent tax hike on alcohol in October 2010, amidst protests from café owners and beverage producers, many market observers thought that Diageo’s then rumoured deal with Turkey’s raki maker Mey Icki would fall through. But no. Diageo agreed on 21 February 2011 to buy Mey Icki for GBP 1.3 billion (USD 2.1 billion). Given that Diageo declined to buy Swedish vodka Absolut in 2008, the Turkish move is the first multibillion-dollar deal by Diageo in more than a decade. What is more, it is indicative of a major change in policy at Diageo’s. For the first time, Diageo was prepared to spend loads of money on a drinks business in an emerging market as “complex” (ahem) as Turkey’s.

In recent years, the conservative government has raised taxes frequently and tightened regulations on the sale and promotion of alcohol. Read on


Australia – Foster’s in search of a buyer

Who will buy Foster’s beer business? That’s a really good question as the Foster’s Group prepares for its demerger. Already, Japanese beer group Asahi Breweries has taken itself out of the running to buy Foster's beer arm, calling the assets too expensive, as did Coca-Cola Amatil’s boss Terry Davis who also thinks Foster’s looks a little too pricey. Which thins the ranks of the usual suspects down to SABMiller.

However, as Australian hacks have recently discovered, any buyer of Foster’s twin beer or wine unit will actually acquire a company that’s still joined at the hips to its former sibling through a shared IT platform, on which the core operation of each business, including orders, delivery, receivables and sales, are enmeshed. What a mess. And who’s responsible for that? Step forward: Foster’s current management.

The Managing Director of Coca-Cola Amatil (CCA), Terry Davis, has again played down the likelihood of a billion-dollar grab for the brewing operations of Foster's but has refused to confirm or deny speculation that his brewing partner SABMiller was about to make a bid for the Foster’s beer unit CUB.

In February 2011 the CCA-SABMiller joint venture, Pacific Beverages, recorded its maiden profit since its formation in 2006: AUD 1.5 million for the 12 months to 31 December 2010 against a loss of AUD 2.3 million in 2009.

As I reported in February 2011, SABMiller has spent the past few months working with lawyers to sort out legal and commercial issues relating to its joint venture which had prevented it from making a lone bid for Foster's.

At the end of February, Australia’s hacks discovered that the in-principle agreement between CCA and SABMiller, which will only come into effect if SABMiller bids for Foster's, is understood to include SABMiller paying CCA a sum of money, which some believe could reach AUD 350 million. Plus SABMiller would relinquish its 50 percent stake in the joint venture and walk away from the newly-built AUD 120 million Bluetongue Brewery near Sydney.

If this is really the nature of the in-principle agreement according to people familiar with the matter (which we at Brauwelt find hard to believe), it will make CCA a tidy one-off profit.

Against this backdrop, the big question is whether SABMiller or another potential bidder will circle in on Foster's before or after it releases its scheme booklet (which will give details of the demerger) in late March.

Whatever the case, a demerger appears to be more complicated than most had believed given some poor management and board decisions at Foster's over the past couple of years, including a decision to push on with the rollout of a single integrated platform, known as project Core Operations, across its beer and wine businesses even after it said last April it would demerge the businesses and list them separately on the Australian stock exchange.

Instead of adjusting the rollout from an integrated platform to two platforms in April 2010, the Foster's CEO, Ian Johnston, and the board proceeded with a common platform, Australian media said.

This decision is the key reason why the beer and wine businesses will remain joined until June 2013. According to estimates, it will cost Foster's AUD 42 million to separate the IT platform. And the overall costs of demerging could run to AUD 150 million - far higher than previous demergers.

This also makes it more complicated for any bidder to buy the beer or wine business. Whoever acquires one of the two units at the end will need to have a good relationship with the other owner because of the platform.

No matter what advice Johnston and the board got about the joint platform, they are ultimately responsible for this muddle. To make matters worse, Foster's head of IT left in December 2010, it was reported.

Seems like Foster’s executives could not organise a piss-up in a brewery let alone the demerger.

Russia - Beer to be classified as alcohol for first time in Russia

Readers will be forgiven for not watching Russia’s daily talk show “Let them speak” hosted by Andrey Malakhov, Russia’s answer to Oprah Winfrey. If they did, they would be aware of the plight of many Natashas, Tatjanas and Galinas who regularly call in to this show to tell tear-trenched stories about their husbands’ alcohol problems. Alcoholism and under age drinking in particular have taken on epidemic proportions in Russia. So much so that the Kremlin has pushed for a bill in the Duma that will classify beer as an alcoholic drink. Read on


Australia - Days of cheap wine are over

It’s a sad sight to behold. Walk into any Australian alcohol sales outlet and you will notice immediately the promotion offers clinging on to wine bottle necks. It cannot have been fun being an Australian wine producer these past years as the industry suffered from overproduction and a rising Australian currency which seriously hampered export sales. On 15 February 2011 Foster’s reported that during the first half of its current financial year (ended 31 December 2011) wine profit from sales in Australia and New Zealand rose 7 percent to AUD 39.6 million. Profit from wine in North America and South America gained 24 percent to AUD 54.2 million while in Europe, the Middle East and Africa wine turned to a loss of AUD 500,000 from a profit of AUD 12 million a year earlier. Read on


Belgium – AB-InBev launches Jupiler Force

That’s what we call serious bad timing. Just as Belgium’s anti-alcohol debate is gathering pace AB-InBev put its first Bionade-taste-alike soft drink into the market. Although Jupiler Force, introduced on 18 February 2011, should have pleased the anti-alcohol lobbyists, many of them, women in particular, still thought they smelt a rat. Because - if it’s a soft drink that should not be confused with a beer, why on earth did AB-InBev have to call the product Jupiler Force after Belgium’s major beer seller Jupiler? Why couldn’t they slab the label Manneken Pride or Ardeur d’Ardennes on it - if they were desperate for a naff double entendre?

To make matters worse, AB-InBev also said Jupiler Force is explicitly aimed at men. Our congratulations to AB-InBev’s marketing men. If they had tried to antagonise Belgium’s female politicians who spearhead the anti-alcohol campaign, they could not have done better. Read on


Netherlands – “You cannot cut yourself to greatness” says Heineken CEO

Words of wisdom from Jean-Francois van Boxmeer on cost-cutting. Which is another way of saying: How far can you cut into the flesh before you strike the bone? Yet you could see London’s finest and sharpest analysts get hot under their EUR 140 shirt collars. What could this possibly mean? That Heineken intends to put more money behind its brands in Europe? Indeed, that’s what Heineken’s CEO told analysts at its 2010 results meeting on 16 February 2011. Mr van Boxmeer said Heineken plans to invest in advertising to reverse a slide in sales volumes in Europe, where Heineken is the largest beer seller, a move that will hurt short-term profits in the region. Read on


USA – Will August Busch IV lose his seat on AB-InBev’s board?

Mr Busch must have gone through a version of hell while he was being chewed over by the world’s press following the death of his girl-friend just before Christmas 2010. On 9 February 2011 the St. Louis County prosecutor Bob McCulloch said that cocaine and oxycodone were found in Adrienne Martin's system as a result of an accidental overdose. However, no charges will be filed. Some relief for August Busch IV.

Following the release of the medical examiner’s report on Ms Martin’s death, the U.S. blogosphere was rife with indignation. Many bloggers complained that in the U.S. there was one set of laws for the rich and privileged, another set for everybody else.

What bloggers disliked was the seemingly quick dismissal of any and all responsibility for this of Mr Busch, whereas anybody else would have been investigated for months and likely prosecuted just for allowing it to happen.

Still, the fact that no charges will be pressed against Mr Busch does not mean that he will come out of this sad affair unscathed.

As I already wrote in my review of Julie Macintosh’s book “Dethroning the king” in December last year, the question remains of whether August Busch will be able to hold on to his seat on AB-InBev’s board of directors following the revelations about Ms Martin’s death.

Many beer industry analysts think we shall know the answer before the end of March when AB-InBev will send out invitations to its General Shareholder Meeting scheduled for 26 April 2011. According to AB-InBev’s regulations, shareholders will need to approve any changes to its board.

Another board director pegged to resign is Jean-Luc Dehaene, the former Belgian Prime Minister (1992-1999), who joined Interbrew’s board in 2001. Mr Dehaene turned 70 last summer and thus reached the board’s statutory retirement age.


Denmark – Carlsberg’s profits fall on Russian tax increase

Obviously, it did not pay off for Carlsberg that it did not immediately pass the massive tax hike in Russia on to consumers. The world’s number four brewer waited until the summer before it finally raised prices. On 21 February 2011, Danish brewer Carlsberg reported a fall in fourth-quarter net profit. Net profit for the last three months of 2010 fell to DDK 301 million (USD 55 million; EUR 40.4 million) from DKK 383 million in the same period 2009. The brewer gets almost half of its earnings from eastern Europe, where operating profit dropped 56 percent in the quarter. Carlsberg said beer volumes in eastern Europe last year fell by 9 percent. Read on


Mexico - Grupo Modelo’s sales rise in 2010 but profits remain under pressure

It could have been worse. Mexican brewer Grupo Modelo reported on 18 February 2011 that its net sales for the full year ended 31 December 2010 rose 3.9 percent to MXN 85 billion (EUR 5.1 billion; USD 7.0 billion), thanks to an increase of 4.0 percent in domestic sales. However, operating income dropped 0.2 percent to MXN 21.6 billion (EUR 1.3 billion; USD 1.7 billion) because of higher costs. Read on


France - Pernod CEO says acquisitions are off the agenda

French spirits group Pernod Ricard on 17 February 2011 reported a 10 percent rise in first-half 2011 net profit (ended 31December 2010) to EUR 666 million (USD 903.4 million) against a year-ago profit of EUR 648 million. First-half sales for the group rose 13 percent to EUR 4.28 billion, lifted by strong growth in emerging markets, an improvement in Europe and a gradual recovery in the United States. However, Pernod Ricard’s share price fell 4.3 percent to EUR 67.61 as Pernod Ricard had missed analysts’ profits estimates. Too bad.

A few days later, on 23 February 2011, CEO Pierre Pringuet was quoted as saying that mergers and acquisitions were not foremost on his mind in the short-term. Instead the French group would focus on reducing debt and growing organically in rebounding markets around the world. Read on 


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