If there was a theme for the beer industry in 2003, it was "More of the same." More of the consolidation and acquisitions that have been the growing trend in recent years as the major brewers pursue growth outside of their own backyards. Facing low prospects for volume growth in mature, developed markets and increased competition, brewers continue to seek growth through acquisitions of other brewers or by aggressive participation in developing markets.
There were no "mega deals" this year similar to the acquisition by South African Breweries of The Miller Brewing Company in 2002, but, Brian Sudano, senior vice president of consulting services for Beverage Marketing Corporation (BMC), points out that in 2003 the acquisitions were more strategic among the industry leaders.
Examples can be seen in Anheuser-Busch's accelerated investments in Tsingtao in China and Grupo Modelo in Mexico, Coors' acquisition of Carling in the United Kingdom, Heineken's purchase of Austria's BBAG and Interbrew's partnership with Germany's Spaten.
The top 10 brewers worldwide now account for more than half of the entire world's beer, which is an industry first.
2003 also saw the continuation of the growth of developing regions. Asia and Eastern Europe, in particular, continue to be the leaders in growth trends, says Sudano.
China is now considered the undisputed leader in the global beer industry. It surpassed the United States as the world's largest beer producer in 2002 with 239 hectoliters, a 3.7-percent increase, according to BMC.
SABMiller aggressively sought to enhance its position as a global brewer in 2003 through its strategy of driving volume and productivity through both its existing businesses and acquisitions.
According to the brewer, its acquisition of the Dojlidy Brewer in Poland provided a strategically significant presence in the eastern half of that country and the announcement of a new joint venture with Shaw Wallace Breweries in India now positions SABMiller as the second largest brewer in that country.
Stephen J. Burrows, president and CEO of Anheuser-Busch International, Inc., says the company's global business strategy in 2003 focused on two fronts—developing Budweiser into a leading international brand and building a diversified international business through equity investments in brewers that have leading brands in high-growth beer markets.
Developing Markets
Many major brewers increased their participation in emerging markets in 2003, particularly Russia and China, where the potential for volume growth is high.
"Remarkably, China and Russia added more than 20 million hectoliters of volume to the global market in 2003. Other developed markets, such as Thailand and Vietnam, also posted excellent growth in 2003," remarks Glen Steinman, president of the Hong Kong-based Seema International, a specialist in beer industry development in Asia and North America.
Consumption in Russia grew by 11.4 percent in 2002 after achieving double-digit growth in the five years prior, according to BMC.
Central and Eastern Europe in particular are receiving increased attention from major brewers due to growing volumes and per-capita consumption.
SABMiller reported strong organic growth in Russia and also began local production of Pilsner Urquell in Poland to meet demand there.
In China, beer consumption grew by 5.6 percent in 2002, although per-capita consumption remains low at only 16.6 liters. A-B's Burrows contends that brewers continue to see economic benefits from China's entry into the World Trade Organization two years ago.
"We believe that China has the greatest potential in the beer industry in the world outside of the United States. China per-capita consumption is relatively low, creating growth opportunities in the beer category," he says.
A-B achieved record Budweiser sales in China in 2003, exceeding 2 million barrels, according to Burrows, which marked the fourth consecutive year of double-digit volume growth in the country. In addition, A-B increased its stake in Tsingtao to 9.9 percent this year and an agreement between the two companies will take it to 27 percent in the next six years.
Steinman believes A-B is a good example of a winning global strategy—the brewer improved profitability in the US market while strengthening its China position.
SABMiller, Heineken and Interbrew were each active with acquisitions in 2003 as well.
Interbrew completed two major deals in China this past year, where it previously had a relatively small presence, Steinman notes. And in January, the brewer announced that its Asian subsidiary acquired a stake in Guangdong Brewery Holdings Limited.
SABMiller announced a joint venture with Harbin, China's oldest beer brand.
According to the brewer, this consolidates SABMiller's position as the largest brewer in North Eastern China and a leading brewer in the world's largest beer market.
Steinman says he sees some improvement on the profitability front in China, driven by increased consumer purchasing power.
The gross domestic product in China rose 9.1 percent in 2003, which supports moderate increases in prices—good news to brewers who have invested in the market and stayed the course, claims Sudano.
However, the biggest challenge to major brewers investing in China continues to be the absence of infrastructure outside of urban areas. In answer to this, many brewers are buying small breweries in each of the individual provinces to service those particular communities.
Sudano contends SABMiller has been the most successful brewer in China to date, mostly due to the brewer's ability to operate in countries with weak infrastructure.
"(SABMiller) figures out how to get to market effectively and how to get around these infrastructure issues," he remarks.
Mature Markets: US and Europe
Growth in the Western European beer market remained relatively flat, although the region got a boost in beer consumption due to unseasonably hot temperatures in the summer.
SABMiller says the company anticipates further growth across its global businesses, especially in Europe, as a number of its markets enter the European Union and it completes the integration of Italy's Birra Peroni, which it purchased a majority stake in earlier last year.
Another development in Italy was the announcement of a new Budweiser license partnership between A-B International and Heineken Italia.
"Heineken Italia is the No. 1 brewer in Italy, and its excellent sales force and wholesaler network will provide strong distribution and marketing support for Budweiser," says Burrows.
The US saw another sluggish year in beer sales, with the overall US beer market having a slight growth spurt of 0.7 percent. Analysts have pointed to the war in Iraq, a cold, wet spring and a down economy for the slow growth in the US beer market this past year.
While acknowledging these as major drivers, Sudano also points to the strengthening of the spirits market and the low price of wine as having an impact and perhaps stealing beer's share of the market. On a per-capita basis, beer consumption in the US has been steadily declining.
An SABMiller spokesman acknowledges it was a tough year in the US beer market but the popularity of the low-carbohydrate beer segment provided a bright spot.
Recently, the brewery repositioned and highlighted Miller Lite's already low-carb attributes, which some analysts contend is responsible for increased sales volume for the Lite brand.
Hopping on the low carb bandwagon, Coors is coming out with a low-carb brand, Aspen Edge, later in 2004.
A-B achieved record US beer sales volume in 2003 with domestic beer shipments to wholesalers growing to an all-time high of 102.6 million barrels. A-B credits the achievement to the success of Michelob Ultra and increased Bud Light sales.
What to expect in 2004
Sudano predicts a return to growth in the US beer market, but perhaps not as robust as others are expecting. Some analysts are waiting to see if the low-carb beer category in the US will have staying power in 2004.
On the global front, most brewers see consolidation and globalization of the industry as an ongoing trend as well as continued volume growth in less developed markets.
"Developing markets will dominate volume growth and leading global brewers will continue their regional acquisition strategies," predicts Steinman. "A mega-deal between global leaders seems unlikely in the immediate future, but that could change quickly. And when it does, the global competitive landscape will change irreversibly."
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