Rabobank: Local Brewers May No Longer be Able to Compete With Global Giants

Over the last decade, the global brewing sector has gone through a consolidation process. Recent activity suggests that this process is continuing. Rabobank’s research shows that as the top four brewers grew through acquisitions, many of the smaller local brewers stood on the side lines and are now finding themselves competing with global giants rather than with other local niche players.

22 Jan 2013 --- Until recently, local brewers have been able to stand their ground, but there is no guarantee this will remain the case. As the economic crisis is causing unprecedented volume declines in mature markets, local brewers are about to find out whether they can maintain their position or whether they need to adapt to a changing playing field.

The brewing sector has seen a lot of M&A activity in recent years. The leading four brewers — AB Inbev, SABMiller, Heineken and Carlsberg — which had a market share of just 16% in 2001, today account for nearly half the global beer volume. As a result, many local brewers are now facing competition from these brewing ‘giants’, rather than from other local players.

The brewing giants have undertaken M&A programs to increase their scale, by entering new markets, or adding differentiating products to their portfolio. The local brewers’ market share has remained fairly stable over time, with local brewers selling 100 billion litres and having a 53 percent market share in 2011 (2001:56 percent), meaning that –organically- local brewers have not lost significant market share to acquisitive giants.
 
“Despite the considerable M&A activities, the giants have not seen an acceleration in volume growth because their increased economies of scale have not been passed on to consumers. However, the giants have improved their margins at a faster rate than the beer market in general” says Rabobank analyst Francois Sonneville. “Our research implies that in 2011, local brewers made up just 25 percent of the profit pool, declining from a 45 percent share in 2002. Brewing giants have been able to increase their share of profits through efficiency gains and implementation of a premiumisation strategy in emerging markets where premium beer brands are more profitable.”
 
In absolute terms, local brewers have also benefited from the growth of the profit pool as their operating profits have increased over the years. This should give local brewers some peace of mind at a time when mature market conditions are deteriorating, driven by the recession and reductions in disposable income.
 
However, it is no guarantee for the future because the giants might decide to change their strategy and focus on volume rather than profit. In order to compete, Rabobank advises local brewers to evaluate their cost structure and consider alternatives, such as joint purchasing or co-manufacturing, which could give them greater economies of scale.

Source: Rabobank