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From its marginal presence even as late as the 1960s, lager has become the mainstay of the British drunkard, accounting for 65% of the market in 2001 and being the only sector to report positive growth. Paradoxically, the very popularity of foreign lager in the UK has led to a large proportion of it being brewed domestically as opposed to being imported.
While purists may argue that this compromises quality, the essence of the beer still reflects the centuries of tradition that have gone into developing it – much in the same way that Guinness brewed in Malaysia for the Asian market is still the quintessential Irish beverage.
For consumers it means cheaper, fresher beer and a greater choice. For manufacturers the decision to brew lager outside its country of origin is a purely commercial one, in an industry driven by consolidation and the need to manage costs across wider brand portfolios and geographic areas.
Traditionally the beer industry has developed on a regional basis, with brewers tending to focus on domestic markets. But as major players increasingly look to international markets to drive their businesses and increase market share, the industry, and its production, is being defined by a series of acquisitions. Acquisitions accelerate global expansion giving companies immediate market share in target markets, as well as the potential for cost synergies based on producing and distributing their own brands through the acquired facilities. Adolph Coors’ acquisition of the Carling in 2002, which primarily gives it the leading UK lager brand, also offers it a platform to extend its own Coors brand throughout the UK.
While lager imports are still a significant feature of many markets across Europe, the high costs of transporting beer across borders means that bigger players are keen to evaluate the benefits of domestic production. Building production facilities is also costly, and if volume sales do not support this there are other options. Strategic alliances are very important for the internationalisation of the beer industry, with domestic producers happy to reduce overheads by using their excess capacity to produce foreign brands under license. In the case of Interbrew just such a relationship evolved still further with it eventually buying Whitbread in the UK in 2000.
On a larger scale similar factors drove the acquisition of Miller by South African Breweries to form SABMiller Plc, which was completed just yesterday. Both companies traditionally operated in their respective regions of North America and Africa. SAB had already looked to break out of this mould by making key acquisitions and partnerships in Eastern Europe and China. It realised to compete on a global level and to secure its position it needed to gain a greater presence in more developed markets. This acquisition not only secures its position by making it the world’s second largest brewer, but offers strong brand synergies, giving Miller access to more diverse markets notably Africa and Eastern Europe, whilst Castle and Pilsner Urquell will look to penetrate the lucrative US market.
To a large extent consolidation leads to consolidation, as companies become threatened by such large scale acquisitions as Miller, and look to expand their own operations to compete more effectively. Despite the acceleration in M&A activity in recent years, beer still remains a relatively diverse industry, with the top 4 brewers accounting for approximately 25% of the market, compared to soft drinks where the top 4 account for 45%. This diversity is derived from its heritage, with different countries and regions traditionally developing their own unique styles of beer. But while the beer industry will not consolidate to the same extent as soft drinks, the Miller deal shows there is still room for further take-overs.
This process will increasingly focus on less developed markets. Brewers, such as SAB, Heineken and Interbrew have already made key acquisitions and partnerships in Eastern Europe and Asia, to which they will surely look to add. Latin America could be the next major battlefield for consolidation. Traditionally individual markets have been dominated by one or two domestic producers, but with the advent of greater free trade these brewers are beginning to look beyond their own borders. This was a major motivation behind the creation of AmBev and has heightened foreign interest with the acquisition of Kaiser by Molson. The major international players have also begun to align themselves in this region, with Anheuser-Bush following up its 50% stake in Grupo Modelo, with the acquisition of 18.5% in Chilean-based CCU, whilst Interbrew holds 30% of FEMSA and Heineken has stakes in both Quilmes and Kaiser.
With industry consolidation set to continue apace, consumers are guaranteed access to an even wider choice of international beers.
Antarctica and Brahma Merged to form AmBev
Interbrew NV SA Acquired Whitbread Brewing
Scottish & Newcastle Plc Acquired Kronenbourg
Carlsberg A/S and Orkla ASA Completed merger of brewing operations to form Carlsberg Breweries A/S
Interbrew NV SA Completed the acquisition of Brauerei Beck & Co
Adolph Coors Acquires the Carling business of Bass Brewers from Interbrew SA
Molson Inc Acquired Brazilian brewer Kaiser
Acquired Miller to form SABMiller Plc