You can’t accuse analysts of not keeping up with the times. Remember Marie Kondo, who introduced us to the Japanese art of decluttering back in 2019? The term has now become the latest buzzword among finance guys, who are calling upon the drinks industry’s big hitters to prune their portfolios of growth-shy brands.
It’s not as if Diageo’s or Pernod Ricard’s portfolios are in a mess like some of my cupboards and need tidying up. After all, only 25 years ago, the world’s major drinks companies were advised that they must have a full portfolio to better face economic headwinds. This led to several big deals in the Noughties: Seagram, Allied Domecq, Vin & Sprit.
Now it seems as if consolidation has given way to corporate refinement. Over the past 12 months, Pernod Ricard has offloaded Clan Campbell whisky, Becherovka liqueur and most of its wine assets. Nor is Pernod alone in this: On the same day that the Pernod-Accolade wine deal was unveiled (17 July), Diageo announced it was selling its Venezuelan rum brand Pampero to Italy’s Gruppo Montenegro. It previously disposed of brands Archers, Picon, various African beer assets and fruit liqueur Safari.
Luckily, what the big firms are told to regard as clutter, others prize. The merry-go-round of brands looks set to continue. Perhaps behind-the-scenes dealmakers should print “Clutter Fairies” on their business cards?
Pernod Ricard sells bulk of its wine unit. The Paris-listed drinks firm said on 17 July, that it will sell the majority of its wine portfolio to the owners of Australia’s Accolade Wines. The world’s second-biggest drinks firm plans to get rid of its wine brands from Australia, New Zealand and Spain, including well-known labels like Jacob’s Creek, Stoneleigh and Campo Viejo, subject to regulatory approvals. It did not disclose a price. Pernod Ricard will retain its US wine brands and a number of labels in France, Argentina, and China.
The move will see Pernod Ricard declutter its portfolio further towards spirits, like Absolut vodka and Martell cognac, especially spirits with a higher price tag.
According to reports, wine sales made up just 4 percent of Pernod’s sales in the financial year that ended in June 2023, when they declined by 2 percent. The company has increasingly focused on expensive spirits, as wine has lost drinkers to beer and spirits in Western markets. Consumption in China, a former high-growth wine market, is now declining.
Outsiders do not know how much money Pernod Ricard will receive for these assets – perhaps some EUR 670 million (USD 732 million) as was suggested by analysts. Most likely, however, Pernod Ricard would have got a lot more for these assets several years ago when a disposal was first mooted.
Bud Light drops to number 3 spot. The brand’s star is still falling – more than a year after a consumer boycott turned the US beer industry upside down. Modelo Especial, Michelob Ultra and Bud Light: Those are the recent sales rankings of the top three beers in the United States. The shake-up comes after a crucial period for beverage brands – between Memorial Day and July Fourth – that cements industry winners and losers for the year.
For the four-week period ending on 6 July, Bud Light accounted for 6.5 percent of beer retail dollars, while Michelob Ultra took 7.3 percent and Modelo Especial 9.7 percent. That is not necessarily bad news for Bud Light’s parent, AB-InBev, since it also brews Michelob Ultra, a low carb beer. The other good news is that Michelob Ultra is more high-end than Bud Light in terms of price, and will help AB-InBev recover some of what it has lost in sales following the marketing fiasco in 2023.
“While everyone latched on to the fact that Michelob Ultra had surpassed Bud Light in off-premise dollars in the latest NIQ scans, an equally striking shakeup laid overlooked. Turns out, Bud Light also lost its top spot in volume share over the latest four weeks,” the website Beer Business Daily reported on 21 July.
Heineken took a one-time impairment of EUR 874 million (USD 949 million) for the decline in valuation of its stake in China’s largest brewer. The write-down for the interest in China Resources Beer Holdings was due to concerns about softening consumer demand in the mainland, which had affected its share price, the Dutch brewer said in a statement on 29 July. As a result, Heineken booked a loss of EUR 95 million (USD 103 million) in its first half 2024, ending 30 June. Heineken had acquired a 40 percent stake in the parent of Hong-Kong listed China Resources Beer for USD 3.1 billion in 2018. The deal gave Heineken a partner with local distribution, while it allowed the Chinese firm to expand into the premium beer segment.
Boston Beer is now a Twisted Tea story. In a soft set of second quarter results, only Twisted Tea delivered bright results. The hard iced tea accounted for 57 percent of Boston Beers’s volumes in the latest Nielsen data (Truly Hard Seltzer at just 28 percent), wrote Nadine Sarwat of Bernstein on 25 July. She noted that two years ago those percentages were reversed. These days, Twisted Tea is Boston Beer’s “only meaningful source of growth”.
The firm reported second quarter earnings results on 25 July that showed a 4 percent decrease in net revenue to USD 579 million year-on-year. Net income came in at USD 52.3 million, a 9.8 percent decline that highlights ongoing cost issues. Boston Beer’s depletions (sales from distributors to retailers) were down 4 percent from the prior year. Shipment volume was approximately 2.2 million barrels, a 6.4 percent drop from the prior year. It is a worry that, for the full year, Boston Beer expects volume sales to grow between zero and the low single digits percent.
BrewDog will give up its carbon negative claim, exiting the carbon credits market from November. In an email to shareholders, which was made public on 18 July, BrewDog’s new CEO James Arrow said the high cost of purchasing credits led to the decision. BrewDog previously bought carbon credits to offset production and distribution emissions to sustain its claim to be a carbon negative brewery. “Some people will be disappointed that we’ll be relinquishing our carbon negative claim, but the use of funds we’d otherwise spend on carbon offsets is better invested in facilitating the decarbonisation of our process,” Mr Arrow added.
New Belgium takes over US Kirin production from AB-InBev by the end of the year. Colorado-based New Belgium is owned by brewer Lion/Kirin. Anheuser-Busch has held the production rights for Kirin Ichiban and Kirin Light beers via a partnership with Kirin since 1996.
Australia-based brewer Lion, which is a subsidiary of Kirin Holdings, acquired New Belgium in 2019 for an estimated USD 350 million to USD 400 million. In 2021, it bought Michigan-based craft brewer Bell’s. In 2023, it took over Constellation’s production brewery in Daleville, Virginia,
Carlsberg took the plunge and made a third offer for soft drinks firm Britvic on 8 July. A few days before, the website just drinks reported that AB-InBev’s UK unit, Budweiser Brewing Group, is to take over the production, distribution, and promotion of San Miguel beers in the UK from Carlsberg on 1 January 2025. Carlsberg has held the UK licence since 2008.
The loss of the licence will hurt Carlsberg, since the San Miguel brand represented some 627 000 hl of on-premise sales in 2023. It was ranked 7th best-selling lager in pubs according to The Drinks List.
Even before the departure of San Miguel, Carlsberg’s UK business was circa 30 percent smaller than Britvic’s, calculates Barclays Investment Bank. In other words, in the tie up between Carlsberg and Britvic, a brewing operation will be added to an existing soft drink business rather than the other way around, the bankers say.
One begins to sense Carlsberg’s growing desperation. Having lost a sizable business in Russia, which previously contributed 9 percent to group revenue and faced with a slowing China market, which currently accounts for 20 percent of group sales, the Danish brewer seems to be clutching at every straw.
Carlsberg and Britvic: Probably not the most popular transaction. The Danish brewer agreed to pay GBP 3.3 billion (USD 4.2 billion) to take over the soft drinks firm and Pepsi bottler, following two bids which were rejected in June. The sweetened bid represents a premium of around 36 percent, compared to the price before speculation about the deal. Carlsberg brushed off concerns from some analysts about the transaction’s rationale, saying Carlsberg has a strong track record of running beer and soft drink businesses in several markets. Soft drinks already make up 16 percent of Carlsberg’s volumes.
The Danish brewer insisted the deal will deliver a number of benefits, including cost and efficiency savings worth GBP 100 million (USD 128 million) over five years, as it takes advantage of common procurement, production, and distribution networks.
A tie-up with a soft drinks firm will be quite a radical departure for an alcoholic drinks supplier. At least in the UK. But there is a certain logic to the two sectors joining forces in terms of shared supply chains and customer bases.
Nevertheless, in the case of Britvic, is the rationale sufficiently compelling to warrant the heavy debt burden Carlsberg would need to take on? Its share price dropped 8 percent when the approach become public on 21 June.
This suggests that Carlsberg’s shareholders are far from enthusiastic about the deal. They seem to believe that Carlsberg will fail to extract any meaningful synergies to justify the top-up.
Marston’s exits brewing and sells its 40 percent stake in its UK joint venture with Carlsberg for GBP 206 million (USD 262 million).
Marston’s said the sale would “significantly” reduce its debt, which stood at GBP 1.16 billion (USD 1.5 billion) at the end of its last quarter (30 March 2024). The group will now focus on running about 1,370 pubs, which it operates across England, Scotland, and Wales.
The Daily Telegraph commented: “Marston’s exit from brewing will leave the real ale aficionados at Campaign for Real Ale (CAMRA) weeping into their tankards. In abandoning its [Marston’s] roots … Carlsberg, a company best known for its forgettable lager, will become the biggest cask ale producer in Britain.”
Corona brewed in Germany. The newscame as a shock to German brewers, when at the beginning of June, AB-InBev obtained an exemption to brew its Mexican label Corona Extra at its Hasseröder brewery for the German market and beyond. It was previously brewed in Belgium.
This is the first time that an international brewer was given official permission to “violate” the German beer purity law, which has been in force for more than five centuries. The brand’s recipe includes maize, an ingredient that is not listed in the world’s oldest food regulation.
Secretly, many brewers fear that the German purity law is being jeopardised and could be on the way out, once cheap copycat products hit the market. Since AB-InBev obtained an exemption, what is there to stop others from applying for one too?
In view of the 400,000 hl of Corona Extra that AB-InBev is seeking to brew in Germany annually, this is no small issue.
What seems to irk German brewers is that AB-InBev has all the best arguments on its side. By brewing Corona Extra at the Hasseröder brewery, AB-InBev is protecting jobs, which might have been lost due to the brewery’s rising overcapacity. It is also protecting the environment by shortening food miles between the brewery and its consumers.
The fundamental question is, though: Do German consumers still care as much about the purity law as German brewers do?
Austrians will call me a snotty Piefke (their unflattering term for a German), but after the Austrian trust-buster had already taken more than two years to investigate Brau Union’s alleged dominance abuses, I was beginning to suspect that the probe had been buried quietly due to a lack of political will.
To my surprise, on 14 June, the competition authority submitted a 260-page application for an “appropriate fine” to the cartel court. The court now has to decide if the anti-trust watchdog’s findings are substantial and substantiated to warrant a fine, which could range between 1 and 10 percent of Heineken’s 2023 turnover of EUR 36 billion.
The whole affair sent Austrian media into a frenzy. Der Standard, a leading newspaper, even wondered (27 June): Could Brau Union be broken up if found guilty? No, it cannot, the answer was, because Austrian law did not provide for this. German anti-trust law, on the other hand, did include such options, Der Standard explained to its readers. “If the German Cartel Office determines that there is a ‘serious and persistent distortion of competition’, a firm can be broken up as a last resort, even if there is no evidence of a breach of anti-trust law.”
The lack of a nuclear option notwithstanding, the Austrian anti-trust law does not seem to be a toothless tiger either.
Austria’s trust-busters accuse Heineken unit Brau Union of market power abuses. The Federal Competition Authority (BWB) seeks to fine Dutch Heineken and its Austrian subsidiary Brau Union potentially billions of euros for market abuse and violations of the anti-trust ban. The watchdog claims to have found evidence that the beer market leader Brau Union “cemented” its dominant position by using unlawful methods. The investigation lasted for two years and included a search of Brau Union’s headquarters in Linz in April 2022.
The head of BWB, Natalie Harsdorf-Borsch, explained that they had received anonymous complaints since October 2021, which triggered the investigation.
Brau Union responded on 18 June, feigning “surprise” and calling BWB’s findings a “fundamental misunderstanding”. The firm added that it had always “shown itself to be extremely cooperative” in the proceedings and had provided the authorities with a comprehensive written statement.
There were some 340 breweries in Austria in 2022. Brau Union, with 15 beer brands, controls two thirds of the beer market overall. In some parts of the country, however, its market share is around 80 percent. Its beer volume sales are 5 million hl.
Second-ranked is privately-owned Stiegl from Salzburg with a share of 11 percent, followed by Vienna’s brewer Ottakringer with 6 percent. The numbers alone suggest that the Austrian beer market is highly concentrated, which already raises the possibility of anti-competitive impacts.