Beer Monopoly





  International Reports








Posted September 2011

Germany – Salmon is it

The news rocked the earth. Schörghuber Group, Heineken’s joint venture partner in Germany, is going to invest in salmon farming in Chile. But what about the new Paulaner brewery project? No further details. In an exclusive with Germany’s leading national daily “Süddeutsche Zeitung” on 13 September 2011, the heiress to the EUR 1.2 billion turnover Schörghuber Group, Alexandra Schörghuber, only reiterated what has been common knowledge for several months: that they will make a decision on whether to build a new Paulaner brewery in Munich before the end of the year. Read on


Australia - Shame on both houses

SABMiller may have become a bit of a laughing stock. On 8 September 2011 the Australian Takeovers Panel rejected its application to investigate Foster's accounting policy, which SABMiller considered "misleading and deceptive".

But likewise Foster's stubbornness in rejecting SABMiller's bid as too low was further undermined when ACNielsen market figures for the May -to-July quarter 2011 were released which showed that Foster's share of the local packaged beer market has declined. Read on


UK - Supermarket beer sales will overtake pub beer sales for first time

It's a worry. The UK is drifting towards continental Europe. At least when it comes to beer consumption patterns. British drinkers are about to consume more beer at home than in pubs for the first time ever. A report from Zolfo Cooper, a financial advisory firm, which was released in August 2011, suggests that the number of trips people were making to the pub has fallen 19 percent in the past year. It said drinkers now visit pubs an average of 4.3 times a month – against 5.3 times a year ago. Read on


UK - Publicans are but the taxman's sidekicks

How naive of you to think that pubs are places to enjoy a beer. They are the taxman's office away from the office and the publicans his assistants. This message was driven home by Tim Martin, who is Chairman of the 823-strong pub group JD Wetherspoon which he founded in 1979. Read on


DR Congo - Brewers hope to tap the dividend of political stability

It's good to know: should you plan to travel around the DR Congo by truck (some reckless tourists seem to do just that), pick a truck carrying bags of something soft like peanuts because sitting on top of them can be quite comfortable. Beer trucks are not.

To international brewers the Democratic Republic of Congo (DRC), formerly known as Zaire, is a country of immense potential. With a land area spanning two-thirds of the European Union and a widely dispersed population of an estimated 64 million or 66 million people, of which one-third live in urban centres, like the capital Kinshasa, which itself is said to be home to about 10 million people, the DRC has been mostly known for its extraordinary agricultural and mineral resources and for the extravagances of its dictator Mobuto Sese Seko (1930-1997).

The country's two brewers, Heineken (Bralima) and Castel (Bracongo/Brasimba) have had to show great perseverance over the past twenty years. Although the country is potentially one of Africa’s richest countries and one of the continent’s key engines for growth, it has been ravaged by a conflict which began in 1996 and which could be termed Africa's world war even though it sadly received little sustained attention from the rest of the world.

The Congo war pitted government forces, supported by Angola, Namibia and Zimbabwe, against rebels backed by Uganda and Rwanda. Despite a peace deal and the formation of a transitional government in 2003, people in the east of the country still remain in terror of marauding militia and the army.

The DRC's beer production figures are indicative of the country's tragedy of war and poverty. In 1989, beer production was 3.1 million hl according to the Barth Report. It dropped to 1.5 million hl in 1996 when the conflict started and stood at 1.4 million hl in 2001.

While the country is largely at peace, the situation remains fragile. The socio-economic conditions in the country are dire, says the World Bank. The country’s infrastructure was largely destroyed during the conflict. Despite progress over the past five years in political and economic reforms, many communities live in deteriorating conditions, with little access to markets for purchasing supplies or for selling their produce, and poor access to public services.

Nevertheless, market leader Heineken, with an estimated market share of 65 percent, plans to invest EUR 400 million in its local unit Bralima over the next five years, it was reported in September 2011. Bralima operates 6 breweries across the country.

In recent years beer production in the DRC has risen steadily: from 1.6 million hl in 2005 to 4.1 million hl in 2010 (Barth Report) This had persuaded Heineken to build a brewery in Lubumbashi in the DRC's southeastern corner near Zambia. Lubumbashi is the DRC's second-largest city and its Katanga province is a rich mining region, which supplies cobalt, copper, tin, radium, uranium and diamonds. The brewery was opened in 2008 and has a capacity of several hundred thousand hl.

On 7 September 2011 Hans van Mameren, Bralima's Managing Director, was quoted as saying that the DRC's outlook was positive despite uncertainty hanging over the general elections scheduled for 28 November 2011, as economic growth looked robust and any boost to infrastructure would see new markets open rapidly.

Bralima, which has been majority-owned by Heineken since 1986 (95 percent), has been operating in the DRC since 1923 and makes the country's most popular beer, Primus.

Due to lack of infrastructure, Heineken's breweries mostly serve local markets. If beer has to travel hundreds of kilometres by road or river to reach its destination, that pushes up the price to extremely high levels. A 0.75 litre bottle of Primus in Kinshasa may sell at USD 1.50 but the further away the higher the price.

Although DRC's business climate is fairly hostile and tax is as high as 40 percent, Mr Mameren believes the nature of the product protects Bralima from the worst excesses of corruption and government hassle.


Ethiopia - Diageo wins auction for Meta Abo Brewery

Wors fail us when looking at the prices paid by international brewers for Ethiopia's privatised breweries. Early in September 2011 it was reported that

Diageo, the world’s major spirits company, submitted the highest bid for Ethiopia’s state-owned Meta Abo Brewery.

Diageo is said to have offered USD 225 million for 100 percent of Meta Abo. SABMiller with SouthWest Development (SWD) bid USD 190 million, while Heineken offered USD 188 million, local media said, citing Ethiopia's Privatisation and Public Enterprise Supervising Agency.

Earlier this year, the privatisation agency had called off an auction for a stake in Meta Abo, which it had put on the block in a joint venture with the government.

Even then Diageo was said to have submitted a staggering USD 200 million bid for the Meta Abo, while Heineken came second with an offer of close to USD 100 million. Read on


Netherlands - Heineken feels "uncomfortable" with Kirin stake

Ah, the promiscuity of brewers: in bed with each other in one place, in competition in another. What's wrong with having an open relationship? If it suits the brewers, fine. Who are we to object?

Given that brewers have behaved like serial philanderers for so long it still comes as a bit of a surprise that one brewer has actually taken the moral high ground against such widespread naughtiness.

Heineken's half year results presentation on 23 August 2011 saw a concerned-looking Heineken CEO complain to analysts about Heineken's involuntary menage à trois with Kirin and Fraser & Neave (F&N).

In July 2010 Japan’s Kirin bought a 15 percent stake in F&N, the largest beverage company in Singapore and Malaysia.

There is nothing untoward in that, except that F&N has a long-standing joint venture with Heineken – Asia Pacific Breweries (APB). APB has interests in more than 20 breweries in 13 countries in the Asia-Pacific region.

Prior to the results presentation, in an "exclusive" with the Financial Times, Heineken's CEO Jean-François van Boxmeer broke his public silence for the first time and said that Heineken felt uncomfortable with Kirin owning a stake in F&N because Heineken and Kirin are competitors in a number of markets.

Mr van Boxmeer added that of course there were "control mechanisms" in place like the Kirin representative on F&N's board leaving the room when issues relating to APB were being discussed.

Mr van Boxmeer, shrewdly, would not be drawn on how to solve this situation but the Financial Times found an analyst who filled in the bits Mr van Boxmeer had left unsaid:

"Clearly what you have got here is a situation that cannot stay forever", Ian Shackleton, drinks analyst with the Japanese bank Nomura, commented.

Funny he should say that. When earlier this year Belgian brewer Duvel appointed Alain Beyens, CEO of the central European brewer StarBev, to its board - a move we thought highly unusual at the time because Duvel and StarBev are competitors in the Czech Republic - bankers in London did not think the arrangement unkosher at all, since Mr Beyens would leave the board room when matters relating to the Czech Republic were discussed.

If the Duvel board members can be cavalier about trifling matters such as competition, why can't F&N's board members?

What we find interesting is that Heineken views Kirin as a competitor. That's news to us. Could that be the same Kirin that brews Heineken in Japan? To press further, could that be the same Kirin with whom Heineken may soon be obliged to set up a joint venture in Brazil, if the two want to get anywhere with their respective beer interests, minuscule in market share that they are? In Brazil Kirin has a stake in Schincariol whereas Heineken/Kaiser owns FEMSA.

Whatever Kirin is to Heineken - it isn't all that clear-cut. Remember they are partners in Japan and Australia, but competitors in New Zealand and Indonesia.

Heineken's dealings with Kirin change from market to market. That's why it's a bit rich coming from Heineken that Kirin is their competitor.

What we find even more interesting is to muse on the reasons for Heineken telling us its side of the story. Is it perhaps to cajole Kirin into committing itself to something more regular, like a French-style "cinq à sept" (five to seven pm) affair?

Mr Shackleton certainly thinks this is where they should take their relationship. He told the Financial Times that there was also a possibility for the two to embrace a broader partnership.

But like any experienced relationship counsellor, Mr Shackleton feels that Kirin may not be ready for a serious relationship.

"Are Kirin ready to work with a global partner rather than just piecemeal in [certain] markets?" he asked.

UK - Kronenbourg 1664: a French beer (*but not brewed in France)

Mon dieu. Why do these suits who run the Advertising Standards Authority (ASA) have to be so darn literal? In a recent ruling the ASA slapped Heineken UK on the wrist for saying (or rather implying) in its advertising that Kronenbourg 1664 on sale in the UK is brewed in France.


Mexico – Another spot of bother for Heineken

Seems like the FEMSA acquisition is already giving Heineken's executives a headache. Just a few days after Heineken CEO Jean-François van Boxmeer had to admit to analysts that FEMSA is losing market share in Mexico, the man in charge of improving FEMSA's domestic business, Michiel Herkemij, left the company to join the coffee company Sara Lee. Coincidence or consequence?

When Heineken published its second quarter results on 23 August 2011, analysts were not amused. In the Americas Heineken reported a 2.0 percent volume loss - after a volume growth of 5.8 percent in the first quarter of 2011. Bad enough. To make matters worse, EBIT in the Americas was only EUR 294 million. The analysts had hoped for EUR 350 million.

In Mexico, FEMSA grew volumes 0.8 percent, which was small consolation as the overall market had grown between 4 percent and 5 percent. This implies a market share loss of 2 percent to 39 percent.

Basically FEMSA’s share has hovered around 43 percent and Grupo Modelo’s at around 56 percent since 1999. However, between 2009 and 2010 FEMSA's share has fallen to 41 percent while Grupo Modelo’s (the brewer of Corona Extra) increased to 57 percent.

Small wonder analysts hinted ominously at "uncertainty on the acquired FEMSA beer business". Read on

Australia - SABMiller sends out its militia

The battle over Foster's is turning nasty or ludicrous now that SABMiller has sent out its vanguard troups, made up of, you will never guess: its bean-counters! The USD 10 billion battle for control of Foster's heated up once more when SABMiller on 2 September 2011 lobbed a grenade into Foster's trenches, accusing its takeover target of making "misleading and deceptive" statements about its debt position and trading outlook when reporting its annual results.

With the help of its bean-counters, SABMiller made the accusations in an application to the Australian Takeover Panel and asked that Foster's be forced to retract the statements. Read on


Kenya - Kenyan men don't have a hobby

It's a big worry. Many Kenyans, especially Kenyan men, do not have any hobbies. All they enjoy doing is going to bars to drink. The African bloggosphere is full of complaints about male folk vanishing in the morning and staggering home in the evening, while leaving much of the work on the coffee farms to women and children.

Well, no more.

In an effort to clamp down on men idling their days away in bars, an alcohol law came into force in November 2010 which prohibits the sale and consumption of alcoholic drinks before 5 p.m. and after 11 p.m. during weekdays and before 2 p.m. during weekends.

Obviously, the law has bitten into EABL's beer volumes. That is why the leading East African brewer is looking at selling more beer in cans in a bid to boost home consumption and thus reverse the drop in volumes in the Kenyan market. Read on

Germany – Facebook party to mourn the demise of “party trains”

Russia can. And so can Hamburg. Clamp down on alcohol consumption in public places, that is. Arguing that trains and buses are not pubs on wheels, the city’s authorities have ruled that as of 1 September 2011 drinking alcohol on public transport will be illegal. As of 1 October 2011, fines of EUR 40 (USD 58) will be issued to those found wandering around stations and bus stops with as much as an open beer bottle.

A telephone poll among 1,200 Hamburg citizens last year revealed that 86 percent are in favour of banning alcohol consumption on Hamburg’s public trains and buses. They said they are fed up with having to wade through beer spillages while being intimidated by anti-social behaviour.

In response, several tens of thousands have joined a Facebook party to come together for a “Hamburg public transport farewell boozing” on 30 September 2011 between 8 pm and 11 pm.

How many will actually turn up for the biggest “booze in” in Hamburg is anybody’s guess.

Still, the authorities fear they could face a situation as in London in 2008, when on 30 September thousands drank themselves silly on the Underground to demonstrate their opposition to a ban on alcohol consumption coming into effect the following day.

London eye-witnesses reported that drunken partygoers began fighting and vomiting, ripping up maps and adverts, spilling alcohol and leaving debris. It took the authorities a few days and immense cost to clean up the mess.

Unlike Russia, whose tough new anti-alcohol law, passed in July 2011, has also banned the sale of alcohol at kiosks and train stations, the Hamburg ban ignores these outlets. Commuters will still be able to buy beer and spirits at the station but they must not consume alcohol while on board of trains and buses.

However, as in Russia, many seasoned Hamburg citizens wonder how the ban will be enforced. Hamburg’s public transport authorities said they have hired over 100 extra staff to police trains and buses.

Come 30 September and we shall know how effective these measures are.

UK – Diageo grows profits ahead of sales

After the poor half-year results from the brewers, Diageo’s full-year figures, which it released on 25 August 2011, were a relief to investors. Total sales in the year to June 2011 rose 2 percent to GBP 9.94 billion (EUR 11.2 billion/USD 16.3 billion), with profits overall 5 percent higher at GBP 2.36 billion (EUR 2.7 billion/USD 3.9 billion).

Apparently, Scotch and vodka sales in emerging markets – led by Johnnie Walker and Smirnoff – and good sales of top end brands in more mature markets helped Diageo offset the problems in Europe.

Diageo’s European revenues fell 5 percent in the year which triggered a 23 percent slump in profits in the region to GBP 621million (EUR 703 million/USD 1.0 billion). Sales in Spain and Greece were especially weak due to the grim economic situation in the two countries.

Sales of the Guinness stout declined 5 percent across the continent, with volumes in core markets of the UK and Ireland hit by economic conditions, it was reported. Read on

Denmark - From Russia with trouble

Carlsberg’s dependency on the Russian market must be causing its executives nightmares. After three years of beer consumption declines, first caused by economic woes, then followed by a steep tax hike and now a tough anti-alcohol law, Carlsberg’s top brass has come to realize that a return to growth will only happen after 2013. In the time frame of the financial markets, this is the same as saying “never”, especially given the fact that the worst bit of the law, which President Dmitry Medvedev approved in July, will come into effect in 2013: the prohibition of beer sales by kiosks.

Should investors have harboured an optimistic view of Russia and Carlsberg, this view was dashed in August 2011 when Danish brewer Carlsberg, the world’s number four brewer, had to admit that its second quarter net profit declined 22 percent from the same period a year ago.

Carlsberg, the owner of the Baltika brand, gets about 45 percent of profit from the country, down from over 50 percent a few years ago. Read on


Netherlands – Heineken received thumbs down after forecasting flat 2011 profits

Which planet do investors live on that they expect brewers to keep on growing bigger and ever more profitable while the world economy is entering a dangerous new phase? Shares in Heineken were sent spiralling down after Europe's top brewer warned that demand for its beer in Europe and the U.S. will remain "challenging" this year.

Bad enough that the brewer on 24 August 2011 revealed weaker-than-expected net profits of EUR 605million (USD 872 million) for the first half of the year.

What brought investors close to a nervous breakdown was that Heineken said its full-year profit is unlikely to grow over last year. So-called organic adjusted net income for 2011 will be “broadly in line” with last year, the Amsterdam-based company reported.

Investors had better stop hand-wringing and moaning and listen to CEO Jean-Francois van Boxmeer telling them what Heineken is doing to combat the long-term consumption decline in Europe. True, these efforts require investments and they will not bear fruit in the short-term. But the alternative is clearly to cost-cut yourself into extinction. And how clever is that? Read on


Philippines – Government to appeal WTO ruling on alcohol tax

Seems like they want to buy time. Or why should the Philippine government ask the World Trade Organisation (WTO) to revisit a ruling that declared a tax levied on spirits from the European Union and the United States in violation of the trade body's rules? The Philippines government said in August that the ruling was not binding until the appeal was taken into consideration and processed by the WTO Appellate Body.

The government has 60 days (until mid-October 2011) to file an appeal. Once filed, the Appellate Body is expected to take 90 days to come out with its findings and conclusions.

All in all, the Philippines’ drinks producers have until the end of the year at most to prepare for the inevitable, a lowering of taxes, which, they maintain, will threaten the very survival of the distilled spirits manufacturing sector including allied and downstream industries. Read on


USA –Micros’ joy, majors’ sorrow

Who’s more concerned about U.S. beer production having declined about 2.3 million hl each year since 2008? Not the craft brewers. While beer production dropped 1.1 percent in the first six months of 2011, the small and independent craft brewers saw dollar sales rise 15 percent and volume sales grow 14 percent to an estimated 6 million hl (compared to 9 percent volume growth in the first half of 2010). The U.S. now boasts 1,790 breweries—an increase of 165 breweries since June 2010.

Capacity expansion is the major issue with which many craft brewers grapple. But few actually plan to do what Sierra Nevada and New Belgium Brewery will do: build a new brewery. Read on


USA - Fresh beer is better ...

A great gem of wisdom by Boston Beer, the maker of Samuel Adams. “I want Sam Adams to be the freshest beer in town, whether you’re in Boston or Quincy or Los Angeles or Seattle,” Jim Koch, the founder of Boston Beer, boasted last November. While consumers enjoying the benefits of Boston Beer’s “Freshest Beer Programme” blew Jim a kiss, investors rolled their eyes. Especially, when Boston Beer released its 2011 second quarter earnings in August 2011. They were not bad, but they did not meet analysts’ forecasts either. Several bankers have already told their clients to sell their shares in Boston Beer because they think its momentum is starting to flag.

Excuse me for asking: but wasn’t Boston Beer the toast of the town only last year when its share price doubled to USD 100?

How come this fall from grace? Read on


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