Beer Monopoly





  International Reports








Posted November 2009

Germany – The return of Mr Fix-it

Wolfgang Burgard, the retired chief of Carlsberg Germany and President of Germany’s Brewers’ Association was given standing ovations by Holsten brewery employees when it was announced on 27 October 2009 that he was to follow – on an interim basis – Jörg Croseck, 44, who had been given the sack by Copenhagen. Apparently, Mr Croseck, who had been appointed as Mr Burgard’s successor in 2008, had been unable to deliver the goods. The Danish brewer Carlsberg, which has to pay off a huge debt load following the takeover of Scottish & Newcastle together with Heineken, seems desperate enough to bleed its divisions dry, even if it means selling off profitable chunks of its business.

Mr Burgard is not to be envied. He has been given the task of turning around Carlsberg’s German business (Holsten, Feldschlösschen) in order to meet profit margins.

From what we have heard on the grapevine, Mr Croseck did not try hard enough to achieve that goal and fell for the easy solution to this complex demand: rather than fixing things, he decided to sell and kill.

It was under Mr Croseck’s stewardship that a cost saving and profit maximising strategy was devised which included selling off the supermarket own label brewing business located at the Braunschweig Feldschlösschen brewery to Germany’s king of discount beers, Oettinger, in June this year.

Had it not been for the economic crisis, which has depressed Germany’s real estate market, Mr Croseck would have already closed down the Holsten brewery in Hamburg and sold the land to a developer.

Apparently, this fate is lying in store for Carlsberg’s Feldschlösschen brewery in Dresden. The reason? It is surplus to requirements.

In the long run, market observers believe that Carlsberg will limit itself to operating just one brewery in Germany, which is the Lübz brewery. The brewery in north-eastern Germany will become its anchor brewery – a euphemism for “the one and only” – with the remaining volume being brought in from across the nearby Danish border, where Carlsberg has its Fredericia brewery.     

As far as we at Brauwelt can tell, Carlsberg’s Danish management in Copenhagen has decided that to operate in the whole of Germany is not worth the effort. Carlsberg’s policy for Germany seems to be a regional one with the focus on northern Germany, which in military terms would be called Carlsberg’s “glacis” – the reclaimed territory around Carlsberg’s Nordic Fortress, where intruders will be fought.

In this regard, it makes perfect sense that Carlsberg Germany set up a 50:50 distribution venture – Nordic - with the distributor Nordmann in spring this year. Having recently received the regulators’ go –ahead, Nordic will be the largest distribution business in northern Germany.

Branching out into distribution was the logical next step for a brewer which has decided to limit its geographical reach. By expanding vertically into distribution Carlsberg Germany obviously hopes to protect its market and widen its margin. Brewers’ margins in Germany are notoriously small.

Had it not sold the Braunschweig brewery, Carlsberg Germany would have produced 5.7 million hl beer this year. Because of the sale, volumes will drop to about 4.5 million hl beer.


Russia – Carlsberg will be crying into its beer

Remember BRIC? Those much-hyped growth markets? Well, forget about the “R”. While Russia is considering plans to quadruple excise duties on beer by 2012, Carlsberg with over 40 percent of the market, reckons this will add 20 percent to 30 percent to retail prices and lead to a massive drop in beer sales. The alcohol industry is used to being seen as an easy target by cash-strapped governments. But if you think the upward lurch in Russia’s taxes particularly rough on the country’s foreign brewers, which control about 80 percent of the market, you are right. Where we come from it’s called gung ho jingoism – a sentiment most dear to Russia’s powers-that-be, who in their infinite wisdom also decided that Russia’s huge—and largely locally owned—vodka industry will be exempted from the excise increase.   Read on


Japan – Kirin to close two breweries

Kirin Holdings will close two of its eleven breweries in Japan by the end of 2012 to streamline operations ahead of its merger with Suntory, Japanese media reported at the end of October 2009. Kirin Holding plans to close two domestic breweries as part of a three-year plan to increase operating income by around 50 percent. The closures were announced as part of a business plan designed to substantially increase group earnings. Whilst in the past the emphasis has been on raising turnover, the focus now has shifted to increasing earnings. This shift indicates that Kirin has accepted it must lay itself open to international standards of comparison – EBITA rather than turnover - if it wants to compete globally.  Read on


United Kingdom – Learning from the best

There is no need to call yourself a consumer goods company, or even a fast moving consumer goods company, as many brewers deem it necessary these days, to convince investors that theirs is a sound business. But this should not stop brewers from studying the practices of consumer goods companies.

In this respect, the global drinks company Diageo could be leading the way. It is adapting its sales practices to a changing retail environment which is holding much lower stock levels than ever before. Diageo admits it is using lessons learnt from the food sector to ensure its products are both available and desirable for shoppers to take home.  Read on


Russia – Oleg Tinkov sells his brewpub chain

He is one of Russia’s most famous “Bisnezmeny”, the closest they’ll probably get to a perma-grin Richard Branson. Oleg Tinkov came out of the woodworks in the 1990s, a flamboyant Siberian with roubles stuffed in his pockets whose source few liked to know anything about and founded a frozen food company specialising in pelmeni (Russian dumplings) before setting up St Petersburg’s hippest and coolest brewpub Tinkoff in 1998. At the height of Russia’s beer boom in 2005, he sold his beer business to InBev for about USD 200 million to concentrate on his chain of brewpubs and his online credit card business, Tinkoff Credit Systems. Now Mr Tinkov, 43, professional cyclist manqué, and founder of the Tinkoff cycling team, has sold his chain of ten brewpubs to private equity company Mint Capital for an undisclosed sum, having invited bidders through Twitter. Could it be that his luck has left him in Russia’s economic crisis? Or did he just get bored?          Read on             


Austria – Heineken sells stake in Ottakringer – will Paulaner be next?

If you are looking for a reason why Heineken sold its stake in Ottakringer brewery at the end of September 2009 – well it cannot have been the money Heineken made from the sale. The market value of the Ottakringer stake, which was held by Heineken’s Austrian and central European unit BBAG, was EUR 17 million. Evidently, Heineken pulled out because its executives no longer see any value in having minority investments which do not provide them with management control. This does not bode well for Heineken’s stake in Germany’s Brau Holding International, Heineken’s joint venture with Schörghuber Group (Paulaner) in which Heineken has a 49.9 percent stake. Rumour has it that a divorce is imminent and that the partners are quibbling over a mere technicality: the price Heineken is asking for its exit.   

Eleven years ago, BBAG acquired a minority interest in the Viennese Ottakringer brewery – which was five years before Heineken bought BBAG. Although Heineken professedly wanted out of Ottakringer immediately, it has taken Heineken and Ottakringer six years before they could go their separate ways. The final bone of contention was Ottakringer’s plan to integrate the mineral water brand Vöslauer into the company, which would have doubled Ottakringer’s turnover. It presently stands at EUR 80 million annually.  

Both parties would not disclose the terms of the deal.

Ottakringer (592,000 hl beer) is Austria’s number four brewer, behind Brau Union (owned by Heineken) which has a 50 percent market share, the Stiegl brewery in Salzburg (1 million hl) and the Egger brewery in Unterradlberg (650,000 hl).

Austria’s beer market is flat. Growth is achieved only at the price of crowding out the competition. During the first half of 2009, beer production in Austria declined 5 percent, while the number of breweries remained constant: 67 breweries and 108 brewpubs in a country of 8.2 million people.

Heineken reported that during the first six months of 2009 beer production at its 60 breweries in central and eastern Europe dropped 9.8 percent to 22.5 million hl compared to the same period last year. Turnover went down 14 percent to EUR 1.5 billion, mainly because of currency devaluations.

Austria did not perform any better: Brau Union registered a volume decline of 11 percent during the first half of 2009.  


Belgium – AB-InBev sells central European business and prepares exit from Germany

Although the rumour mill spread it as early as July 2009 that AB-InBev would sell the central European unit to private equity fund CVC Capital Partners, the deal still makes interesting reading. In mid-October 2009 it was revealed that AB-InBev will receive USD 1.68 billion in cash to start, with an additional USD 613 million coming in deferred payments and minority interests, and the possibility of USD 800 million later, depending on the unit’s future earnings.

To us, this means that AB-InBev was so desperate that they even gave CVC credit to take the unit off their hands – although AB-InBev’s accountants will probably know how to turn that into a win-win. CVC, which already bought AB-InBev’s Korean business, will get a 15 million hl operation with a total of eleven breweries in Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Hungary, Montenegro, Romania, Serbia and Slovakia.

The operations will be renamed StarBev, AB-InBev said. As part of the deal, set to close in January 2010, AB-InBev will license CVC to brew and distribute brands like Stella Artois, Beck’s, Löwenbräu, Hoegaarden, Spaten and Leffe.

This has already raised some eyebrows in Belgium, since Leffe is marketed as a Belgian monastery beer and for reasons of credibility should not be brewed elsewhere under license. But do they still care about this at AB-InBev? Apparently, not. 

In both deals with CVC, AB-InBev has the option of buying back the assets if they are ever put up for sale - something the company may be tempted to do once it further decreases its leverage. But that may only apply to the Korean business, as Korea is fundamentally a growth market.

In central Europe, the picture is different. AB-InBev’s Czech and Romanian units did not live up to expectations while the Croatian and Montenegrin subsidiaries failed to boost their market share. Looks like these central European assets could be gone forever. For further proof of this assumption, look no further: AB-InBev’s central European unit was headed by a Brazilian, Francisco Sá.

A CVC spokesperson was quick to point out that CVC’s investment plan calls for CVC to stick to these assets for four to six years before exiting. If need be, CVC will keep them longer.

Actually, exiting may not be such a problem for CVC. There is still plenty of scope for consolidation in these markets. Who knows, once the economy improves, perhaps Heineken or SABMiller will be happy to buy some of these assets in order to increase their own market share and profitability. Of course, regulatory consent permitting.

With central Europe gone, AB-InBev may even get lucky and find a buyer for its German business. In Germany AB-InBev is number two and claims to have a market share of 9.5 percent. Most of its five breweries might find a buyer if sold off. But market observers think that this could be the best time ever for a private equity buyer to enter the market with the aim of thoroughly restructuring and consolidating it. 

The spotlight is on Germany now.


Germany – Karlsberg launches a novel beer + beer mix

Why would anybody want to mix a lager beer and a wheat beer and package the result in a longneck bottle? Richard Weber, the owner of Karlsberg brewery thinks this is the wrong question. Rather, we should ask ourselves: why has no one thought of such a mix before? On 9 November 2009 Karlsberg brewery is launching “Mixery Blend“, a novel product under its Mixery beer mix label. Mixery Blend is a lager beer (69%) mixed with a wheat beer (30%) and a third, albeit secret ingredient and targeted at young adults, who, according to Dr Weber, think most German beer brands dowdy.  Read on  


Netherlands – Heineken sees light at the end of the tunnel

Dutch brewer Heineken on 25 October 2009 raised its full-year earnings guidance as it increased prices and cut costs, offsetting a 3.9 percent drop in third-quarter revenue from EUR 4.24 billion a year earlier and decline in volumes by 4.1 percent. The decline was greatest in the Americas, and Heineken mainly blamed the challenging consumer environment in North America.

The company said markets in Europe and the U.S. remain under pressure because consumers are switching to cheaper beers or just drink less, echoing comments made by other brewers which have said the move to premium beers seen before the downturn has slowed.  Read on


United Kingdom – Heineken buys struggling pub company

On 30 October 2009 Dutch brewer Heineken made its first foray into the UK pub business after buying the assets of Globe Pub Company, the cash-strapped pub operator owned by property tycoon Robert Tchenguiz, from the receivers for GBP 180 million (EUR 200 million).

Heineken acquired the Globe’s estate of 421 leased and tenanted pubs via a new vehicle called EBP Pub Company, after the pub group was placed into an administrative receivership.

Against its will the Dutch brewer has been drawn into the UK’s pub retail market, having “inherited” some unusual beer sales contracts from Scottish & Newcastle, which meant Heineken would have lost even more money on the Globe had it not saved the Globe. Read on


Mexico – Mexicans still enjoy their beer

Grupo Modelo, Mexico’s number one brewer, has compensated a dip in export sales with higher domestic sales to report solid rises in net sales and earnings for the third quarter of 2009. Net sales for the three months to the end of September 2009 rose 11 percent to MXN 22.1 billion (USD 1.68 billion), compared to the same period of last year, Grupo Modelo said on 28 October 2009.

Net profits for the three months increased 13 percent to MXN 2.95 billion, with operating profits up 27 percent to nearly MXN 6.1 billion. Read on


Mexico – Do as bankers tell you

At first there was only talk that Mexico’s beer and beverage conglomerate FEMSA would spin off its beer division (Sol, Dos Equis). Now analysts are talking about the whole of FEMSA being sold. We wonder if Mr Buffett has a hand in this deal too? It was his willingness to sell his shares in Anheuser-Busch to InBev which gave last year’s super-deal the green light. Obviously, the prospective sale of FEMSA has increased the pressure on Grupo Modelo to agree to a complete sell-out to Anheuser-Busch InBev.  Read on


Germany – Krones expects to break even in the fourth quarter this year

On 29 October 2009, the world’s leading manufacturer of packaging and filling machinery, Krones, reported a 22.8 percent drop in sales for the first nine months this year and a pre-tax loss of EUR 25.4 million.  

While sales in Germany and the rest of Europe were down, orders continued to come in from all other regions less affected by the economic downturn. Read on


Japan – Kirin-Suntory merger may be delayed

The planned merger between Kirin Holdings and Suntory Ltd may not take place this year as Japanese regulators request more information, Japanese media claimed at the end of October 2009. The Fair Trade Commission reportedly wants the two firms to disclose material which outlines the impact of their merger on the domestic market.

On 14 July 2009, Kirin and Suntory, two big Japanese brewers, announced that they are in merger talks. A marriage would create a company with sales of YEN 3.8 trillion (USD 41 billion) and a domestic market share of 30 percent for soft drinks, 50 percent for beer and nearly 80 percent for whisky. Read on  


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