Beer Monopoly






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Posted August 2011


Pick your tipple wisely

Global spirits market | Many a brewer I have heard saying: "When I am thirsty I will have a beer. When I am feeling queasy, I will have a schnaps. But I have never felt so sick as to feel like having a glass of water." If this is indicative of brewers' overall consumption habits, they cannot have contributed much to the spirits industry's growth this past decade. In total spirits represent around 9 percent of total alcohol volume. Consumption has grown 1.8 percent per annum on average. This was slower than beer at some 3.4 percent but ahead of wine at 1.2 percent. Which just goes to show: brewers know how to move with the flow.


Over the past twenty years the globalisation of the brewing industry has proceeded at such speed that brewers, still scratching their heads over where to find their companies' latest far-flung purchases on a map, can be forgiven for not having followed M&A activity in the spirits industry all that closely.


In fact, for most of us, the world spirits map resembles a Roman map. Like us, the Romans had a fairly good notion of Europe but many regions beyond they just marked with a "HIC SVNT LEONES", or HSL, which translates to "here are lions" and means the territory is uncharted, unexplored and wild.


This is another way of saying that brewers may have taken note of France's Pernod Ricard buying Sweden's Vin & Sprit, the maker of Absolut vodka for USD 9 billion; or Diageo acquiring a 50 percent stake in Ketel One, the Dutch vodka maker for USD 900 million, both in 2008. However, if they were asked which other transactions come to mind, many of them will draw a blank.


Still, the consolidation of the spirits industry has been heady and frantic, albeit confined mostly to HSL geographies like Asia and done by local operators. To this day, the global spirits market remains highly fragmented with numerous, cheap products available locally. The International Wine and Spirits Record lists over 900 spirits producers, but they account for less than a third of the total volume of spirits produced worldwide.


Before I look at the beer and spirits industries more closely, let me issue a warning: all figures concerning global spirits volumes and profits are guestimates. Depending on whose market research you consult, they can vary widely, not least if unrecorded spirits volumes - moonshine - are factored in or not. There is a huge volume of unrecorded alcohol sloshing around in virtually every country, which includes both traditional home-brew and "brush whiskey", says the International Center on Alcohol Policy, an alcohol-industry funded body. Unrecorded alcohol accounts for 30 percent of total consumption in China and Eastern Europe, 50 percent in India and over 80 percent in several African countries, according to WHO estimates. In other words, no one has the faintest idea as to how much booze people really drink.


When comparing the beer and spirits industries, we need to bear in mind that we are basically comparing apples and pears: although beer and spirits companies, the listed-ones at least, are usually lumped together by bankers and investors as "sin stocks", the two industries have very little in common. When we talk about beer, we talk about a fairly uniform product the world over (95 percent of global beer is lager according to Canadean), whose material differences are limited to bottles, labels and price points. I know this will raise beer marketers' hackles, but never mind.


Spirits companies - a hotchpotch group

Now, when we talk about spirits, we not only need to look at different sub-categories like vodka, gin, bourbon, Scotch, rum etc. We also have to take into account that spirits range from rotgut sold for a few cents in teabag-sized sachets in places like Africa to pure luxury items such as the Hennessy XO Extra Old Cognac which retails at EUR 150 a bottle.


That makes spirits companies a fairly hotchpotch group and immediately begs the questions: which ones do you compare? The companies that predominantly sell western spirits like Diageo, Pernod Ricard, Bacardi, Fortune Brands (Jim Beam), Brown Forman (Jack Daniel’s)?


Moreover, do you include Asian giants like United Spirits from India, controlled by the colourful VJ Mallya, who also owns United Breweries - together with Heineken- and Kingfisher Airlines? United Spirits, which ranks third behind Diageo and Pernod Ricard in volume sales - so it claims - markets more than 140 brands of whisky, vodka, rum, brandy and scotch. Unfortunately many of its brands sell for less than USD 1.30 per bottle. Accordingly, it reported hardly any profits on a turnover of USD 1.4 billion in the year ended 31 March 2010.


And what about the likes of LVMH and Remy Cointreau? What's the common denominator of, say, Diageo and LVMH?


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