Beer Industry Margins Determined by Market Share – Rabobank
Major brewers’ operating margins have not suffered from the economic downturn. On the contrary, restructuring, better pricing and lower production costs have helped margins and cash flows, says Rabobank beverage analyst Cyrille Filott.
1 Oct 2009 --- In the beer industry, superior market share leads to superior margins, says a new Rabobank report on the largest global brewers. In the next five years, market share will become increasingly important for all the major brewers.
Major brewers’ operating margins have not suffered from the economic downturn. On the contrary, restructuring, better pricing and lower production costs have helped margins and cash flows, says Rabobank beverage analyst Cyrille Filott.
“The downturn has lead to lower beer consumption, both at home and in restaurants and bars. This decline in consumption volumes has been mostly offset by an increase in prices. Most brewers raised prices last year and have not felt the urge to drive volumes higher in the current downturn by lowering prices,” says Filott.
In the near future, Rabobank does not expect brewers to lower prices in order to increase volumes. All four of the major brewers have a broad portfolio of beer offerings from premium to cheaper brands.
“Brewers would rather accept a switch by the consumer to a cheaper brand, also owned by the brewer, than to lower the price of their premium brand,” says Filott. “Possible price reductions by premium brands are likely to hurt the brand image, and therefore potential long-term sales and margin opportunities.”
No immediate global volume recovery is expected due to the prolonged economic downturn. Regional volume trends are likely to continue, says the report.
“In the second quarter of 2009, Eastern Europe performed poorly with a volume decline of nearly 10 percent compared to last year. Africa and some parts of Asia did relatively well during the same period, a trend that is likely to continue in the second half of 2009,” says Filott.
The report also shows that a high market share for a brewer in a region often provides a high margin for the brewer. “Given the focus on margins by the brewers, further consolidation to achieve better market share is very likely,” says Filott. “However, first the major brewers have to repay some of the debt that was raised for the recent wave of consolidation.”
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