Copenhagen/Brussels | Reuters — The prospect of a new competitor that produces one third of an entire industry’s output would normally terrify rival companies, but brewing is different.
The very local nature of lagers and ales, and the fact that a price war is seen as unlikely, mean global market leader Anheuser-Busch InBev’s imminent takeover of SABMiller, the world’s second-largest brewer, should not destroy the competition.
“It’s been rumoured for a long time, so it’s not like we haven’t had time to think about it,” Laurence Debroux, chief financial officer of world No. 3 Heineken, told a conference at the end of September.
Debroux said rival brewers should not underestimate the strength of the “animal” that AB InBev would become after the takeover, but beer battles are fought market-by-market rather than globally.
“If I look at our three main contributors today, Mexico, Nigeria and Vietnam, those are countries where we were competing with one or other of those two so the fact that they would get together doesn’t really change our position on those markets,” she said.
World No. 4 Carlsberg’s CEO, Cees ‘t Hart, also does not expect much impact in his company’s core markets, where the new brewing giant will have a limited presence.
AB InBev, the owner of Canada’s Labatt Brewing, has been clear in its strategy in the past decade: buy up competitors, strip out costs, push up prices at least in line with inflation, and try to persuade consumers to upgrade from cheaper brands to mainstream or premium alternatives.
At the top of the chain are the higher-priced and higher-margin international premium or “super-premium” brands, led by Heineken and followed by AB InBev’s Budweiser.
The quintessential U.S. lager has suffered at home, but made great strides in Brazil and China and is now drunk more outside than inside the U.S.
AB InBev’s takeover bid is set to be comfortably above US$100 billion and the need to recoup its investment means a beer price war is not expected.
AB InBev’s greater muscle may allow it to push its global brands harder in new emerging markets, notably in Africa, and it could ramp up investment, but brewing will remain a largely local business.
“Beer doesn’t travel that well over borders. It’s not like you’re selling Snickers bars all over the world,” said a banker.
In Mexico, Heineken’s Dos Equis and Tecate brands dominate the north and AB InBev’s Corona the centre and south, and both companies have enjoyed volume growth, higher prices and improved profit margins.
“There is a lot of growth around,” said Exane BNP Paribas analyst Eamonn Ferry, referring particularly to Africa. “There will be competition in pockets, but it’s good news for the industry’s profits.”
Not the end for consolidation
Observers have called the “megabrew” merger the end phase of consolidation in the brewing industry, with likely disposals required by antitrust authorities in the U.S. and China presenting growth opportunities for smaller players.
In each case though, there is a clear favourite to buy, with Molson Coors expected to take SABMiller’s 58 per cent stake in their MillerCoors U.S. joint venture, and China Resources Enterprise the remainder of the CR Snow Chinese brewing business.
However, Japanese brewers Asahi, Kirin and Suntory Holdings are interested in snapping up assets outside their saturated home market, sources have told Reuters.
Carlsberg has said it will look at buying any assets put up for sale, although the Danish brewer faces problems in Russia — tighter alcohol regulation and a slowing economy there — and might not have the financial muscle, even though a change in its charter two years ago gives it more scope to issue shares.
Heineken’s Debroux said her company did not see any “white spaces” which it felt the need to occupy, but one person familiar with the Dutch brewer’s thinking believed it would halt investments for now and look into raising money.
An AB InBev-SABMiller merger would give it the opportunity to operate breweries in the U.S., where it already sells imported Heineken and Mexican brands. Last month it bought a 50 per cent stake in U.S. craft brewer Lagunitas.
In addition to the asset sales resulting directly from the mega-merger, analysts say Guinness-maker Diageo could eventually sell its beer business and they also see potential takeovers of brewers in Thailand and the Philippines, albeit at a hefty price.
Deals are getting done. Almost under the radar, Heineken last week swapped assets with Diageo, taking control of businesses in Jamaica, Malaysia and Singapore and selling a minority stake in Guinness Ghana Breweries at a cost of US$780.5 million.
“Our pipeline of add-on M+A is pretty full. We have a small but very efficient M+A team and they are looking at a lot of things, none of them really significant or material, but all of them adding something if we do it on a market-by-market basis,” Debroux said.
— Teis Jensen and Philip Blenkinsop report for Reuters from Copenhagen and Brussels respectively. Additional reporting for Reuters by Martinne Geller in London.