There is a global battle brewing that has nothing to do with politics, oil, microchips, religion or any of the other root causes of conflict around the world - it is all about beer.
Elsevier Food International, Vol. 6, Number 2, May 2003
Len Lewis

The global beer market came to about $345 billion in 2001, according to the latest figures from London-based Euromonitor. This was a relatively flat 1.5 per cent gain over the previous year, but still the best performance by the industry in the past five years, three of which showed a decline.

SABMiller's Castle beer has captured the tastes of young South Africans with an active lifestyle. A Castle 'small drop' delivery truck piles the coast in Cape Town.

North America and Western Europe accounted for the bulk of the volume. However, both are fairly mature markets and beer sales in many other countries are flat or declining. This set off a spate of mergers and acquisitions and a race among major brewers to get a foothold in lucrative emerging markets such as China and Russia, Brazil, Mexico and Eastern Europe, where privatisation is opening up opportunities for acquisition. There is still considerable government ownership in the former eastern European bloc. Yet, this is starting to change in places like Lithuania and the Czech Republic. The common denominators for all these markets are big populations and a relatively low per capita consumption.
Looking at the global beer market in 2001, Euromonitor estimated that Anheuser Busch led the industry with an 8.9 per cent share, followed by lnterbrew at 5.9 per cent; Heineken, 5.1 per cent; Arnbev, 4.3 per cent; South African Breweries, 3.8 per cent; Philip Morris (Miller), 3.5 per cent; Modelo SA de CV, 2.7 per cent; Carlsberg, 2.3 per cent; Asahi Breweries 2.1 per cent; and Coors, 2.0 per cent.

Takeovers, mergers and partnerships
Merger and acquisition activity is expected to continue, albeit at a somewhat slower pace than in previous years. "As far as I can see, there aren't many major countries left that don't have a monopoly or duopoly," said Anne Nugent, account manager, Euromonitor Plc, London.
The biggest and most talked about acquisition in the industry was South African Breweries' purchase of Miller Brewing in the US, which significantly changed global market share figures. "SAB has grown from a regional company in Africa to one of the biggest international players by acquiring many different companies in different regions," noted Nugent. "In 1998, they were ranked in third place. With Miller they are in second place and a lot closer to A-B (in production)."
They were one of the early entrants into Eastern Europe and stuck by their investments at a time when political and social turmoil made doing business a costly and questionable investment. As these markets improve and move away from being price sensitive to quality oriented, the company has taken over the top slot in the Czech Republic and is the second largest brewer in Hungary, Slovakia and Romania.
Additionally, SAB continues to gain strength on its home continent, another important emerging market. At present, the company has equity interests and alliances with breweries in 12 African countries, including, Angola, Botswana, Ghana, Kenya, Lesotho, Mozambique, Swaziland and Tanzania, according to New York-based research and consulting firm Beverage Marketing Corp. These deals range from a contract to manage the government-owned Lubango Brewery in Angola to a majority interest in Swaziland Breweries, the country's only brewer, which also manufactures soft drinks.
Partnerships are changing the dynamics of the beer industry as much as outright acquisitions, and major brewers are striking deals to expand their portfolios through strategic alliances in virtually all emerging markets.
This was underscored by Anheuser Busch, which has struck a potentially lucrative partnership with Chinese brewer Tsingtao. "They haven't been very active in acquisitions of late," said Nugent. "But A-B has taken a 4.5 per cent interest in Tsingtao that will increase to 27 per cent over the next seven years." "China has shown a consistent seven per cent growth rate in the past five years. In absolute terms, it remains one of the biggest markets for beer, even though per capita consumption

Interbrew's Stella Artois is popular among Asian drinkers. Western brewers are in a race to geet a foothold in emerging markets such as Brazil, Russia and China.

is small," she said.
BBAG, the market leader in Austria with various interests in Eastern Europe, is also looking for a strategic partner to expand in Central Europe. The ultimate goal is to be the market leader in that region, said Nugent. At the same time, BBAG has not ruled out the possibility of being taken over, with Interbrew, Heineken and Scottish & Newcastle being among the most likely suitors.
In a move to solidify the South American market, Brazilian-based Ambev completed its merger with Quilmes, the largest beer company in Argentina, and a deal valued at about $596 million. It involves operations in Bolivia, Uruguay and Paraguay. It took ten months for the deal to be approved by the Argentinean government.
On the other side of the coin, Interbrew SA and Heineken Italia decided to call it quits on their licensing and distribution agreements which have been in effect since 1995. The deal gave Heineken the right to distribute Interbrew's Belgian brands and LaBatt in Italy.

Major beer markets

China is an increasingly important market. Sales grew around seven per cent in 2002, while consumption has skyrocketed 40 per cent over the last six years.

Overall, consolidation activity seems to have had little impact on the relationship between brewers and retailers since the latter has undergone its own consolidations. "I'm not sure about the impact in global terms. But in the UK retailers are very powerful," said Nugent, noting that for years, brewers owned or controlled most of the country's pubs. "But many of them have been sold off. It wasn't a question of the pubs not being profitable, just a matter of trying to govern too many areas of the business. And selling off these establishments gave brewers access to more cash for acquisitions," she said. Euromonitor estimated that the retail market for beer in the UK came to approximately £3.6 billion in 2001 (the latest available figure), representing a meagre 1.6 per cent growth over the previous year. This is the result of declining per capita consumption. Lagers continued to dominate the market with Scottish Courage maintaining its leadership with a 29 per cent share. The country's three largest brewers, which continue to operate the pubs and off-licence store chains, hold sway over two-thirds of the UK's retail beer market. These outlets, along with supermarkets, accounted for over 60 per cent of all beer sales.
The French beer market, which has grown by 2.4 per cent since 2000, has reached €2.3 billion, or $2.1 billion. The market is forecast to grow eight per cent between 2002 and 2006. The gains will come largely from retail since beer is typically bought during the weekly shopping trip. Together, supermarkets and hypermarkets account for nearly three-quarters of all beer volume. The top company, with 45 per cent of the total market is Brasseries Kronenbourg. One of the reasons for its success is that it continues to produce most of its product in France and only imports smaller brands such as Grubs, Grimbergen, Beamish and Fosters.
The German beer market is still very fragmented and no one brewer holds a share of more than ten per cent, according to 2001 figures from Euromonitor. However, beer consumption has dropped slightly since 2000 and sales are expected to continue declining between now and 2006. Again, supermarkets and hypermarkets are the most important retail outlets, accounting for nearly half of total beer sales, a figure which has remained virtually unchanged since 1997.
In Japan, overall beer volume was up two per cent in 2001, largely the result of Happoshu, a low malt 'quasi' beer, which is cheaper than traditional beers. An advertising war between Kirin and Asahi helped boost awareness and consumption. However, similar introductions in 2002 by Kirin and Suntory failed to attract the same level of interest.
As noted earlier, China is an increasingly important outlet and its entry into the World Trade Organization is reducing duties on imports and opening up the market. Sales grew an estimated seven per cent in 2002 and, sparked by demand for economy brands, consumption has skyrocketed 40 per cent over the past six years.
At present, local manufacturers dominate the market. This kind of protectionism had gone so far that it was illegal for retailers to sell beer outside the province of origin. As such, Tsingtao, the country's largest brewer only had an 11 per cent market share, according to Euromonitor. However, entry into the WTO should help rescind all types of protectionism over the long term.
Outside alliances have already changed the Chinese landscape. In addition to the Anheuser Busch deal with Tsingtao, SAB has invested in local companies that produce low priced brands. Consequently, SAB holds a 49 per cent stake in China Resources Enterprises, China's third largest brewer with a market share of six per cent.
Interbrew acquired a 70 per cent stake in KK Brewery in the Zhejiang province and a 24 per cent stake in Zhejiang Joint Stock Company. Japan's Kirin Brewery has also identified China as the most important market for future development.
In the US, the beer market is highly concentrated, with the three largest brewers accounting for more than 80 per cent of volume. Anheuser Busch, alone, accounts for nearly 50 per cent of the market followed by SABMiller with nearly 12 per cent.