Beer Monopoly




    International Reports







Posted September 2012


Uzbekistan – Has Carlsberg fallen victim to dodgy machinations?

Or did they just fail to grasp the fundamentals of doing business in a market which is as “interesting” as Uzbekistan’s? In early September 2012 Russian media reported that Carlsberg is in talks with investors to sell its subsidiary in Uzbekistan. Uzbekistan is the most populous and mainly Muslim country of 28 million people in Central Asia.

Potential buyers of the assets and other conditions of a possible deal were not mentioned. Obviously, Carlsberg would not comment on these rumours. When approached, a spokesperson for the brewer only said that production has been shut down due to a lack of raw materials.

Now, why would the Danish try to sell a brewery – reportedly with a capacity of over 1 million hl – in which they gained complete control in 2009 after having bought out a local partner? Read on


Singapore – ThaiBev throws another spanner into Heineken’s offer for APB

Heineken’s takeover bid for Asia Pacific Breweries (APB) is getting more and more into trouble. On 13 September 2012 TCC Assets, another company controlled by ThaiBev’s big man Charoen Sirivadhanabhakdi, launched a USD 7.2 billion offer to buy out the other shareholders of Fraser and Neave (F&N).

F&N is Heineken’s joint venture partner in APB. Two months ago Heineken made a bid to take full control of APB. On 18 August 2012 Heineken reached an agreement with F&N’s board for its USD 6.3 billion purchase of all the shares in APB, including F&N's stake in the maker of Tiger beer.

Whether F&N’s shareholders will agree to the board’s recommendation when they meet on 28 September 2012 looks seriously doubtful now.

TCC Assets offered to pay USD 7.2 billion for the F&N shares that the Thai billionaire did not already own. He is said to control over 30 percent of F&N’s shares. But industry watchers say Mr Charoen will need to pay more if he is really set on taking full control of F&N. The property portfolio alone is worth more than USD 6.51 billion, Asian media say.

Mr Charoen has managed to notch up his stake in F&N to 30.36 percent in recent weeks, the bulk of it through ThaiBev, it was reported. He needs a simple majority of votes at the September shareholder meeting to overturn the agreement between F&N's board and the Dutch brewer.

As I see it, this leaves Heineken with two options: either to make a full bid for F&N itself or to make a joint offer for F&N with let’s say Japan’s beer and beverage group Kirin, which owns nearly 15 percent of F&N. Heineken has gone down that road before when it bought Scottish & Newcastle together with Carlsberg in 2008.

Kirin said previously it was interested in F&N's food and non-alcoholic drinks business.

The trouble with both scenarios is that neither Heineken nor Kirin know what to do with F&N’s property business. Read on


Australia - Foster's raises the alcohol in its main seller VB beer

Better late than never. Carlton & United Breweries (CUB), the Australian beer business SABMiller acquired with its takeover of Foster’s last year, will revert to a formula for its flagship brand Victoria Bitter, which it abandoned in 2007, and raise the alcohol content from 4.6 percent to 4.9 percent from October this year, CUB said on 4 September 2012.

Apparently, SABMiller hopes it was the lower alcohol content which saw Victoria Bitter, or VB as the locals call it, being overtaken as Australia’s top seller by rival Lion's XXXX Gold. Lion is owned by Japan's brewer Kirin.

On 4 September 2012, CUB placed a full-page advertisement in the Herald Sun, Australia’s top selling daily newspaper, saying “we got it wrong.”

This brings back memories of another big marketing flop: Coca-Cola's New Coke. Coke was showered in protests when it replaced Coca-Cola’s classic formula in 1985 with New Coke. A few months later a po-faced Coke reintroduced the original product.

The reason why VB dropped its alcohol content twice - in 2007 and 2009 - was money. In order to maintain prices in the face of rising excise levied on alcohol content, the former Foster's management saw no other way out than to lower VB's alcohol content.

The company also introduced new packaging and new variants of the brew to arrest a slipping market share.

Alas, XXXX Gold, has since overtaken VB as Australia's top-selling beer, a position VB held for over 20 years. According to Nielsen data, XXXX Gold had a 12.4 percent market share in the 12 months through June 2012 compared to 12.1 percent for VB.

The decision to up VB’s alcohol content will cost SABMiller more than AUD 10 million a year in excise tax, it was reported.

The Vic Bitter drinkers have spoken and told us that we should not have tinkered with their beer,” Andy Gibson, CUB’s chief marketing officer, was quoted as saying. He added: “We have listened.”

However, market observers are not sure if a higher alcohol content will be enough to restore VB to its former glory. Does it not seem strange that VB was overtaken by XXXX Gold when the latter is a mid-strength, low carb beer (3.5 % abv). Ultimately, many wonder if alcohol content really plays such an important role.

Australian beer drinkers in recent years have increasingly taken to buying premium imports. The prices of imported beer are now more competitive, thanks to a strengthening of the Australian dollar against the U.S. dollar over the past few years. They have also taken to more flavoursome craft beers and sweeter alcoholic beverages like cider.

Could it be that mainstream beers in Australia find themselves in a bit of a squeeze?


India - United Spirits mulls strategic options

This could be Diageo's chance to get its foot into the door at India's leading spirits company United Spirits (USL), as Vijay Mallya, the Indian beer and drinks baron, who owns a 28 percent stake in USL, is struggling to save his troubled Kingfisher Airlines.

Previously, in 2009, Diageo sought to buy a stake in USL but failed.

According to media sources the world's number one drinks company Diageo, which owns brands like Johnnie Walker whisky and Smirnoff vodka, is again holding talks with USL.

Fresh expectations of a deal have mounted in recent months all the while Mr Mallya is fighting to protect his personal holdings in the spirits and beer business from the near-collapse of his Kingfisher Airlines. Kingfisher has been saddled with a huge debt load and in November 2011 was forced to reduce operations massively. It currently operates 12 aircraft from the earlier 66, and has reduced daily flights to close to 90 from the earlier 360, Indian media reported in August 2012.

Mr Mallya seems to be considering all options to save his beleaguered airline. In early September 2012 Indian media reported rumours that Mr Mallya may sell up to 27 percent in USL or offload up to 48 percent in its flagship whisky brand Whyte & Mackay. Read on


Nigeria – Clouds of corruption hang over SABMiller’s new brewery in Onitsha

This would not be Nigeria if a new project did not immediately drown in a mire of alleged or factual corruption. Same with SABMiller’s new 500,000 hl brewery in Onitsha, Anambra State in southeastern Nigeria, which is the brewer’s first greenfield brewery in the country. It was officially opened on 30 August 2012, in the presence of Nigeria’s President Dr Goodluck Ebele Jonathan.

SABMiller reported that work began on the Onitsha site in 2011, following an investment of over USD100 million, making it the largest single investment in Anambra State for almost 20 years.

Allegations of corruption have been flying around the internet for months, following a press report in May 2012 in which Peter Stuttard, the Business Development Manager of the SABMiller, said that 22.5 percent of the new brewery is owned by indigenous entrepreneurs, with 10 percent for the Anambra State Government, while other private local investors have 12.5 percent.

This alerted hacks in Nigeria, who always seem to smell a rat when they hear of private local investors taking a stake in a venture. Read on


Nigeria – SABMiller against the rest

It takes some daring to put big money behind a new brewery venture in Nigeria if you happen to be a latecomer to the market like SABMiller. The market is basically a cushy duopoly by Heineken and Diageo, both of whom have been active in Nigeria for decades. Heineken entered in 1946, Guinness in 1962. The two heavyweights have the market cornered: Heineken’s market share is about 70 percent, while Diageo’s is 25 percent.

In this respect, Nigeria is structured the way big brewers like it best: two major players only, which means that competitive wrangles can be kept to a minimum in order not to hurt profits.

When it comes to profits, Nigeria spells LOADSA MONEY. According to Brauwelt’s estimates, total beer profits came to about USD 670 million in EBIT in 2011, the bulk of which went into Heineken’s coffers, thanks to their high market share. Nomura, a bank, puts the figure much lower at only USD 450 million in total EBIT, but then it reckons that beer consumption was only 16 million hl.

According to the recent Barth Report, Nigeria’s beer consumption in 2011 was 19.5 million hl, which makes it Africa’s second highest behind South Africa’s. Given that the country has a population of 170 million people, per capita consumption is fairly low - under 10 litres. Most of Nigeria’s beer consumption is concentrated in the southern half of the country where the predominantly non-Muslim population lives.

That’s why it was a non-brainer that SABMiller would build a new brewery in the southern state of Anambra. And SABMiller built big. The Onitsha brewery has an annual production capacity of 500,000 hl, says SABMiller. Add to that SABMiller’s Port Harcourt brewery, which was acquired in 2009 and has a capacity of 400,000 hl, plus the - perhaps - 800,000 hl former Castel brewery in Ilesha, whose management SABMiller took over in 2011, and the calculator reads 1.7 million hl of installed capacity.

To put this into perspective: Heineken’s installed brewing capacity is 18 million hl, Diageo’s is 6.5 million hl.

However, as we all know, installed capacity is one thing - sales volume is what really matters.

Although SABMiller does not say how much beer it produces in Nigeria, insiders estimate that sales volumes this year could be as high as 800,000 hl (300,000 hl in Port Harcourt and 500,000 hl in Ilesha).

Apologies for sounding arrogant, but that’s almost nothing, especially as SABMiller has been in the market for over three years and obtained the management of the successful Castel brewery more or less by chance thanks to a pan-African deal with Pierre Castel in 2011.

Perhaps SABMiller’s beer volumes will rise more quickly now that the Onitsha brewery has come on stream. But I daren’t make the same forecast for profits as Eisili Eigben, an analyst at Stanbic IBTC Bank, already warned last year that it could take SABMiller a decade, if not two decades, to reach a market share of 10 percent. SABMiller current market share is about 4 percent.

Fortunately, the Nigerian beer market is forecasted to grow by about 6 percent annually. Surely, SABMiller’s future prospects would look far grimmer if the Nigerian market entered a phase of flat sales.

In retrospect, it seems that SABMiller recklessly underestimated the challenges it would face in Nigeria. Perhaps it thought it could break Heineken’s and Diageo’s stronghold over the country’s bars and clubs more easily and quickly. According to Mr Eigben, 80 percent of all beer in Nigeria is consumed in the on-premise.

Of course, if SABMiller were prepared to put a lot of money on bar owners’ tables, it might be able to persuade them to sell their beers instead of the competitions’. On the other hand, why should bar owners take the risk of serving an SABMiller beer brand to their customers that hardly anybody else seems to drink?

Incidentally, SABMiller’s new lager from the Onitsha brewery is called Hero Lager. How appropriate. It takes a real hero to go into battle in Nigeria’s beer market.


USA – North American Breweries possibly for sale

By rule of thumb, private equity companies like to seek an exit after three to four years. That’s why it should not come as a surprise that North American Breweries, which sells Genesee and Labatt beer in the U.S., is rumoured to have been put up for sale by its owner, private equity firm KPS Capital Partners, media reported on 6 September 2012. Representatives from KPS were quick to refute the allegation.

The beer company was bundled together in 2009 and produced over 3.2 million hl beer in 20011at its four breweries says Beer Insights, a trade publication. According to insider estimates, it had sales of over USD 50 million and could be worth around USD 400 million. Read on


Switzerland – Basle’s publicans annoy Heineken with parallel imports

The beer wars between the Association of Basle Publicans and the country’s major brewers Carlsberg and Heineken have entered a new stage. In May 2012, the Basle publicans began self-importing Carlsberg beer. As of September 2012, they will also self-import Heineken to protest against the brewers’ wholesale prices for draught beer.

"We want to teach the cost drivers Carlsberg and Heineken a lesson that we are not willing to tolerate their price policies any longer," said Maurus Ebneter, the spokesman of the Association of Basle Publicans. Through parallel imports the association hopes to encourage other publicans to circumvent the brewers’ official sales channels.

What has led to the new round of boycotts is Heineken’s recent price increase. Heineken Switzerland, which brews the domestic beer brands Eichhof and Calanda, had announced in July 2012 that it would raise prices by an average of 3.9 percent as of October.
Heineken only followed its competitor Carlsberg, whose local unit, Feldschlösschen, had announced a few months previously a price increase of 4.4 percent. Outraged, the Association of Basle Publicans lodged an official complaint with the country’s competition authority, Weko, in February this year.
Price increases in lockstep have been an all too familiar game in Switzerland. Between 2007 and 2012 Carlsberg and Heineken have raised their wholesale prices by more than 20 percent respectively.
Read on

Switzerland – Cantons bicker over Carlsberg relocating its procurement division

When Carlsberg announced at the end of 2011that it was establishing in Switzerland a centralised supply organisation for Europe, incorporating group procurement, supply chain and logistics functions, Swiss officials rubbed their hands. The small country in the heart of Europe has received so much bad press lately because of its banks that Carlsberg’s decision was most welcome, as it signalled that Switzerland still bested the rest of Europe when it comes to low corporate taxes.

Traditionally, low taxes have been one of the key reasons for companies to set up shop in one of Switzerland’s 26 cantons (i.e. member states). Unfortunately, they are not uniformly low, with some cantons having much lower taxes than others.

That’s why Carlsberg’s announcement on 31 August 2012 to move its supply organisation to the town of Ziegelbrücke, canton Glarus, was met with scorn by Swiss officials in canton Aargau, where Carlsberg has a major brewery in the town of Rheinfelden. The two towns are only 140 km apart - Rheinfelden lies 70 km to the northwest of Zürich and Ziegelbrücke 70 km to the southeast of Zürich - but in Swiss terms that’s worlds apart. Read on


Belgium - The media and the silly season: let's talk about raising beer prices

Beer price hikes are a non-issue but this has not stopped Belgian media from making them an issue. For several years now, it's been like this in Belgium. Preparing for the long summer months, when the business of politics grinds to a halt, hacks will go through their archives, wondering if there is some kind of staple issue that could be taken up again to fill their pages and TV hours with news. What do they invariably discover? The issue of higher beer prices. There may be nothing to this story but this does not prevent journalists from doggedly pursuing it.

Same this year. On 23 July 2012 someone from Brasserie du Bocq, a small brewery from the French-speaking part of Belgium, gave an interview to a national newspaper, saying that they may have to raise beer prices this year because of higher costs - giving the usual explanation (which consumers cannot verify) that barley crops have suffered in the recent rains.

The Belgian hacks sensed a scoop, blissfully ignorant of the fact that in the world's major barley growing regions weather conditions have actually been quite good with yields and qualities well above average (said the Swiss trader Evergrain on 24 August 2012).

Without any further research, the journalists followed du Bocq's line of argument and insinuated that all brewers in Belgium could raise prices this November.

Although Belgium's major brewers AB-InBev and Alken-Maes, who together control about 80 percent of the market, have refrained from responding to the allegation that they will in fact do so, the media would not let go of the story, which again flared up nationwide at the end of August.

In a free economy, where the government does not set prices for certain staples like beer, raising the price of beer each year should be considered normal, yes, normal and legitimate business practice. It's one means - not the only one, but one among several - to secure a company's future vis a vis higher cost bases.

Of course, Belgian readers and viewers will remember that this year AB-InBev was the first to raise beer prices by 6 percent in March. Alken-Maes, owned by Heineken, followed suit a few weeks later. Many smaller Belgian brewers raised prices in July. However, several have not raised prices at all this year.

While it is true that between 2006 and 2012 beer prices in Belgium have gone up by about 20 percent, it is equally true that wages and pensions have risen too over this period - something the hacks failed to mention.

One should bear in mind that Belgium is one of the few countries in western Europe that still has an extensive automatic index-linking for setting wages. This means that pay and social security benefits are linked to the consumer price index. Belgium’s measure for wage indexation -- the health index -- excludes tobacco, alcohol and motor fuels, but it includes home heating oil, gas and electricity, Bloomberg reported. The link is intended to prevent the erosion of purchasing power by inflation.

The interesting aspect to note in this debate is the following: beer prices still seem to stir public emotion. I wonder: why is there no consumer outcry if Coca-Cola raises prices?

Denmark - Carlsberg and unions work together to combat the exploitation of "beer girls"

The working conditions of "beer girls", euphemistically called "beer promoters", are a disgrace. Although NGOs have long criticised how beer girls are being exploited, especially in Asia but also in Africa, it has taken Carlsberg and the Danish trade unions until this August to come to some sort of agreement on how to better work together to materially improve the conditions of beer promoters in Cambodia.

Never mind that beer girls have a tough life in many markets, it was the Cambodian girls' plight that alerted international NGOs to action. In a statement of 23 August 2012, Carlsberg said that "working in bars, women sales promoters in Cambodia are occasionally exposed to harassment from customers, coerced into drinking, and in some cases, subjected to sexual abuse." "Occasionally"? "In some cases"? Well, it's all a matter of perspective. Read on


Singapore - ThaiBev hikes F&N stake to critical level

Oh, oh, it does not look good for Heineken and its plans to buy out Fraser & Neave's stake in Asia Pacific Breweries. On 28 August 2012 Thai Beverage (ThaiBev) said it has raised its stake in Singapore conglomerate Fraser & Neave (F&N) to 29 percent, just below the 30 percent level that would trigger a mandatory offer for the whole company.

ThaiBev, controlled by Thai billionaire Charoen Sirivadhanabhakdi, said it had bought another 2.6 percent stake in F&N for USD 252 million. This brings its interest to 29 percent. If it hits 30 percent, ThaiBev will be obliged to bid for all of the Singapore conglomerate.

ThaiBev is a key shareholder in F&N, along with Japanese brewer Kirin.

A few days previously, the board of F&N had said it plans to distribute USD 3.2 billion to shareholders if an offer by Dutch firm Heineken to buy its stake in Asia Pacific Breweries (APB) is approved. The cash distribution represents 84 percent of the gains after transaction costs, it was reported. Read on

Denmark - Carlsberg's operating profit in Russia drops

Whose figures do you trust more? Carlsberg reported that the Russian beer market grew 2 percent in the first six months of 2012 while Russian media said that beer consumption was down 0.3 percent to 51.8 million hl year-on-year. Be that is it may, there is worse to come. Beer consumption is expected to drop sharply in the first quarter of 2013, when beer sales by kiosks will be banned, while excise duties will go up 33 percent.

Market observers have pointed out that the impact of new regulations on the Russian beer market has yet to be felt, since some producers refrained from increasing prices until the high summer season. Once tighter regulations are enacted, consumers are expected to switch to vodka, which is viewed as a cheaper and more accessible product. Read on


USA - Cashing in on the craft beer boom

About a year after paying USD 38.8 million to acquire the long-established Chicago craft brewer Goose Island, AB-InBev plans to roll out its beers nationally as of November 2012.

Even before buying out Goose Island's founder John Hall, Anheuser-Busch had a distribution agreement with the brewer. Moreover, six years ago, the then Anheuser-Busch had bought a 40 percent stake in Goose Island, which had been strapped for cash to fund a brewery expansion.

As could be expected, the full takeover of Goose Island was met by cries of derision by Chicago's beer lovers. But do they matter? Or rather, will the rest of the U.S. care that AB-InBev now fully owns Goose Island? Read on


Australia - Coca-Cola Amatil partners with Casella

It's been all over town that if Coca-Cola Amatil (CCA) wanted to re-enter the Australian beer scene, it was only through a partnership with the newly opened Casella brewery. Lo and behold, in August 2012 the beverage giant CCA and the beer industry newcomer announced that they have set up a joint venture.

The company behind the Casella brewery is the privately-owned wine company Casella, better known for its international wine brand Yellow Tail.

Casella made a bit of a splash in June this year when it launched its beers Arvo 51 and 34.

Under the terms of the agreement, CCA will lend AUD 46 million to a joint venture vehicle, Australian Beer Company, to double brewing capacity to 500,000 hl at its winery near Griffith in south-western New South Wales. This loan will convert to a 50 percent stake in the business on 16 December 2013 when CCA’s non-compete clause with SABMiller expires. Read on

Australia - Lion's boss Murray succeeded by ex-Nestle man

Media called him the "Lion King", probably for his proven staying power at the helm of Australia's brewer and dairy company Lion. But in February 2012 Kirin-owned Lion said that its CEO Rob Murray, 51, would step down next year after eight years spent running the consumer goods giant.

Mr Murray came to the job from Nestle and has seen Lion through the integration of National Foods, the acquisition of Dairy Farmers and Lion’s takeover by Japan-based Kirin.

Lion did not give any reason why Mr Murray was leaving. Did he not fancy running a beer-to-dairy company? Or did he think that a decade with Lion was enough for a lifetime?

In any case, pundits did get it wrong who would succeed Mr Murray. Most market observers thought Lion would go for an internal candidate from its beer division.

But no. Lion in August 2012 announced that the Nestle man Stuart Irvine will take over the role in January 2013.  Read on




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