Global Brewers’ 2013 Performance: Champions and Disappointments
According to Euromonitor International, global beer value and volume sales grew by 7% and 2% respectively in 2013, reflecting a trend towards net revenue outstripping volume sales. However, the growth in global volumes was not reflected in the performance of the top four brewers, as much of the growth was derived from the low-base development of smaller brewers, and growing demand in China. Global Brewers’ performance in 2013 was mixed, as A-B InBev observed strong margins and revenue sales growth, albeit with some volume decline. Conversely, Heineken NV slumped in some of its key performance indicators. Across the board, there was a decline in global volumes for the big four brewers.
A-B InBev’s global beer performance in 2013 was strong relative to the next three top brewers. However, the company’s performance in volume terms was drastically affected by regulatory changes in Russia and political instability in the Ukraine, resulting in a consolidated 16% decline in these two markets. In addition, two of its key markets, the US and Brazil, witnessed weak economic conditions, which placed pressure on disposable incomes, witnessing a decline of around 3% each in volume sales. Despite all of this, such drastic declines were reduced by a 9% volume sales gain in China during 2013.
Of the top four global brewers, A-B InBev showed the highest gain in margins in 2013, with 8.1% growth in EBITDA, followed by Carlsberg with 5.0% growth. Heineken NV was the worst performer of the top four, witnessing a decline in its net revenue, consolidated operating profit and volume sales. The latter company’s slump was due to the declining performance of the Heineken brand in France, volume sales falling by a low double-digit figure, following a significant tax rise. Also, globally, the company faced stiff competition from A-B InBev’s brands, which collectively grew by 5% in 2013 in volume terms. Furthermore, Heineken NV’s performance was affected by a 6% decline in volume sales in Central and Eastern Europe.
A-B InBev reported one of the highest EBITDAs in 2013 due to significant cost-cutting initiatives in Latin America, which kept cost growth well below revenue sales growth. According to Euromonitor International, beer value sales are systematically outgrowing volume sales in Latin America, where A-B InBev held a 35% volume share in 2013 and where the company is reported to source 91% of its 2013 EBITDA gain. This trend is expected to continue over 2014-2017, and A-B InBev will be able to stave off any inflationary pressures placed on its margins in the region.
Asia Pacific is another region of importance for A-B InBev, with its repurchase of Oriental Breweries Co in South Korea in January 2014. The company’s intention to return to the South Korean market and capture regional volume demand for beer is justified by the significant growth rates the region is observing. Euromonitor International forecasts that beer volume sales in Asia Pacific will grow by around 5% over 2014-2017; this is regardless of the 2-3% growth in volume sales in the South Korean market.
With the completion of the acquisition of Grupo Modelo, A-B InBev is looking towards expansion in Mexico, a market with a forecast CAGR of 2% in volume sales between 2013 and 2017. The relevance of such developing markets to A-B InBev is highlighted in these markets company share of volume and value shares reaching 64% and 53%, respectively, in 2013. Euromonitor International predicts that the collective markets of China, Mexico, Argentina and Brazil will see beer volume sales increase at a CAGR of 4% in volume terms between 2013 and 2017, mostly due to China’s relative size, thus showing a healthy outlook for the company’s future performance.
Carlsberg A/S and Molson Coors both saw significant growth in their net sales and profits in 2013, driven by a price/mix strategy, with the former mostly driven by Asia Pacific’s performance and the latter by performances in Canada and the US. A combination of price/mix strategy also helped both MillerCoors’ profits and value sales to grow, despite a decline in US volumes. SABMiller’s performance later in 2013 was almost unchanged from its first-half year performance; the company is expecting to derive most of its gains in net sales, volume, and profit in 2014 from Africa, Latin America, and China.
In Japan, rising raw material costs in parallel with a weakened yen imposed increased costs on the performance of Kirin and Asahi. The former witnessed a 10% decline in profits in 2013, regardless of value and volume growth, whereas the latter witnessed a stagnant performance in terms of value and volume sales leading to almost no growth in profits. This performance is again giving emphasis to expansion strategies by Japanese companies, seeking growth beyond an already saturated domestic market.
All in all, the forecast performance for 2014 is highlighting the increased importance of value gains over volume gains. This will be pushed by companies’ involvement in premium hybrid beer categories, such as flavoured beers, malt-based soft drinks, and premium craft beers. A slowdown in volume declines in Europe and North America is unlikely to happen any time soon, with companies opting for a global shift in marketing and investment toward developing markets, such as China and those in Latin America. There will also be a shift towards Africa as SABMiller is the only one of the top four brewers witnessing growth in volume sales; this is due to its expansionary strategy in the African economy beer market, with the proliferation of sorghum- and cassava-based beer brands.