15_Laughing all the way to the bank - Brigl & Bergmeister

Laughing all the way to the bank - the globalisation of the brewing industry
Once the takeover of the Foster's Group is completed (December 2011), the
globalisation of the brewing industry will be well and truly over. Not only is
there hardly anything left to buy when it comes to regional market leaders, in
2009 the big four brewers – AB-InBev, SABMiller, Heineken and Carlsberg –
already controlled about 50 percent of global beer output and 77 percent of the
beer profit pool. This is a numerical way of expressing the plain truth that the
process of globalisation, the emphasis on expanding your territory through
mergers and acquisitions (M&A), has reached its geographical limits.
In retrospect, it seems that the globalisation of the brewing industry is a bit of a
misnomer, really. After all, two thirds of global beer output are produced in ten
markets. There are over 200 countries in this world, but only 40 of them account
for over 90 percent of world beer production.
It would be a mistake, however, to view the process of globalisation in purely
volume terms. Those stock market-listed brewers which set out to become
global players knew only too well that in order to achieve their ambition they
had to follow the money: in other words, they had to buy into markets which had
high shares of the global beer profit pool.
In effect, if you wanted to get ahead in the worldbeermonopoly (a term coined
by Germain Hansmaennel), you did not have to clinch many deals. You had to
do the right ones. As AB-InBev's growth track shows, their ascent to global
leadership depended on merely three deals: the 1996 takeover of Labatt in
Canada by Interbrew, the 2004 merger between Interbrew and Brazil's AmBev,
which resulted in InBev and the 2008 takeover of Anheuser-Busch.
If in 2011 AB-InBev has number one positions in Canada, the U.S., Brazil and
Mexico (through their stake in Grupo Modelo) – four markets, which alone
account for over 40 percent of the global beer profit pool – it's because they
have diligently observed the following imperatives:
- reduce your dependency on Europe (Europe is ultimately a declining market);
- buy into growth markets, preferably emerging markets for growth prospects;
- buy into profitable markets to keep the dollars rolling;
- gain market dominance (made easy by the fact that outside Europe duopolistic
or even monopolistic market structures prevailed);
- grow market share;
- cut costs;
- reduce debt;
- introduce global brands;

In thus doing AB-InBev have managed to raise both their sales and profit
margins.
It will be interesting to watch, now that we have entered the age of globality in
the brewing industry, how global brewers will live up to investors' expectations
and drive their margins up to new heights.
The jury is still out if there will be any more deals any time soon, despite
persistent rumours. A few scenarios have been widely speculated upon, both
extra-category (ie brewers tying up with other beverage producers, thus moving
beyond the realm of beer) or intra-category (brewers buying other brewers).
Even if global brewers decide to abstain from M&A activity for the time being
and reduce their debt load, they still seem to have plenty of opportunity to
squeeze out fixed and variable costs to deliver earnings and cash returns growth.
Let’s bear in mind that global growth for beer is estimated to be 2.8 percent per
annum between 2009 and 2015 according to Canadean market research.
International premium beers are expected to grow nearly three times as fast as
mainstream and economy brands globally. International premium brands
generate profits per unit often double that of non-premium.
Given that global brewers have only just started pushing their iconic brands into
their geographies, chances have almost certainly never been better for brewers to
keep their investors sweet and happy.
Isn’t that what brewing beer is all about?
Ina Verstl