At the turn of the century, the top 10 brewers accounted for just over one-third of global beer sales volumes. The past decade has seen a rapid consolidation, resulting in the top four brewers – Anheuser-Busch InBev, SABMiller, Heineken and Carlsberg – accounting for almost 50% of beer sales volumes and up to 75% of the global profit pool2. Consolidation has continued in the past 12 months with further transactions in Mexico and China.
As the pace of consolidation slows in the future, organic volume growth is expected to come from developing markets along with value creation opportunities in developed markets. Alcohol trends Category trends show a dichotomy between developing and developed beer markets. With incomes rising in emerging markets, consumers have shifted from informal, often commoditised, unregulated forms of alcohol to aspirational, attractively branded and safer beer products. The period from 1999 to 2008 saw commercially produced beer increasing its share of total alcohol consumption in emerging markets by over 800 bps from 32. 8% in 1999 to 41. % in 2008 on a pure alcohol basis. The same period saw a moderate decline in developed markets to 35. 2% in 2008. The economic crisis caused an overall downturn in 2009 – one that was further exacerbated by government fiscal pressures leading to increases in beer excise and other taxation in order to raise funds. The consequent consumer price increases have constrained beer volume growth while favouring unregulated forms of alcohol. As the global economy improves, rising incomes continue to be a significant factor in developing beer markets as the category grows at the expense of illicit, high-alcohol spirits.
In Africa, Latin America and Asia in particular, the rise in consumption is closely correlated to population and income growth3. Beer growth trends Over the past five years the beer category has maintained a compound average growth rate (CAGR) of 3. 5% globally. However, this reflects two very different pictures in emerging and developed markets with emerging markets growing at an average rate of 6. 8% while developed markets declined by 3. 4%. The largest contributors to this growth have been China (now the world’s largest beer market), Africa and Eastern Europe.
Given the economic pressures, total global beer consumption grew by less than 1% in 2009. That said, strong growth trends continued in some key emerging markets. China recorded an increase of over 7%, despite being hampered by heavy snow and wet weather that affected consumer demand. Africa experienced robust growth of 4%, driven by Angola, DR Congo, Mozambique and Nigeria. In Eastern Europe, certain beer markets contracted in 2009 as rising unemployment and declining on-premise consumption halted growth.
Regulatory challenges created further headwinds in markets such as Russia and the beer market there declined 6% as a result. Macroeconomic indicators improved in some markets in the last three months of 2009. However, the drivers of beer consumption such as falling unemployment and rising consumption expenditure are expected to lag behind the recoveries in GDP. North America, hit hard in 2009 by high unemployment, particularly among men of beer-drinking age, is expected to see only slight growth. Globally, the beer market is expected to grow by 1. % in 2010, led by a continuing strong performance in Asia, Africa and Latin America. China is expected to grow by 6. 5%, Africa by 3. 1% and Latin America by almost 3%. Western Europe is expected to continue the trend of declining beer volumes, driven by a shift in consumption to other beverages and the decline of on-premise consumption. Looking further ahead to 2014, the top 15 growth markets are forecast to deliver compounded annual growth of 3%. China is expected to account for more than 45% of this growth with the USA, Vietnam, Brazil, Ukraine, Russia, Mexico and Peru making up most of the balance.
Beer segment trends Across consumer goods sectors in general, the trend towards premiumisation accelerated in the past decade but slowed in the last 18 months as economic conditions worsened and consumers reverted to mainstream and economy segments. As economies improve, the trend towards premium will resume as consumers become more willing to pay for authentic, more image-oriented brands that reflect their socio-economic and lifestyle aspirations. The premiumisation trend has not altered the fact that beer remains very much a local beverage in terms of both production and consumer brand preferences.
International brands account for just over 6% of the world’s beer consumption and this proportion has changed little over the last 10 years. Rather, what has happened is that urbanisation and a growing middle class in emerging markets have led to the growth of local premium brands. These offer premium packaging, positioning and variety, but are sold at a price accessible to many more consumers than international imported products. The resulting scale and higher profit margins make this a very attractive industry segment. 1.
All data sourced from Canadean unless otherwise noted. 2. BofAMerrilLynch report: Investing in Global Brewers 19 April 2010. Canadean, Internal analysis. Principal risks The principal risks facing the group, which have been considered by the board, are detailed below. The group’s well-developed risk management process is detailed in the corporate governance section of the Annual Report and our financial risks are discussed in the Chief Financial Officer’s review and in note 22 to the consolidated financial statements. Risk: Industry consolidation Context?
The global brewing industry is expected to continue to consolidate, albeit more slowly, creating opportunities to enter attractive growth markets and realise synergy benefits from integration and to leverage global scale. Risk? Failure to participate in value-adding transactions; overpaying for a transaction; and failure to implement integration plans successfully after transactions are completed. Possible impact? Lower growth rate, profitability and financial returns. Mitigation 3. Potential transactions are subject to rigorous analysis. Only opportunities with potential to create value are pursued. . Proven integration processes, procedures and practices are applied to deliver expected returns. 5. Activities to deliver synergies and leverage scale are in place, monitored closely and continuously enhanced. Associated strategic priorities * Creating a balanced and attractive global spread of businesses. * Constantly raising the profitability of local businesses, sustainably Risk: Change in consumer preferences Context? Consumer tastes and behaviours are constantly evolving and competitor activity is increasing and becoming more sophisticated.
Strong brand portfolios together with excellence in marketing and sales execution are required if we are to meet consumer, shopper and customer needs. Risk? Failure to ensure the attractiveness of our brands; failure to continuously improve our marketing and related sales capability to deliver consumer relevant propositions. Possible impact? Market positions come under pressure, lower volume growth rates and profitability. Mitigation 6. Ongoing focus on building our marketing and sales capabilities through continued roll-out and enhancement of the SABMiller Marketing Way. 7.
Ensuring that our brand equities remain strong through relevant innovation and compelling marketing programmes. 8. Ongoing evaluation of our brand portfolios in every market to ensure that they target current and future opportunities for profitable growth. Associated strategic priorities * Developing strong, relevant brand portfolios that win in the local market. * Constantly raising the profitability of local businesses, sustainably. * Leveraging our skills and global scale. Risk: Management capability impairment Context? We believe that our people are our enduring advantage.
It is essential therefore that we identify, develop and retain global management capability. Risk? Failure to develop and maintain a sufficient cadre of talented management. Possible impact? Potential lower long-term profitable growth. Mitigation 9. Effective and well-developed strategic people resourcing and talent management processes. 10. A strong culture of accountability, empowerment and personal development. 11. Standardisation of key processes and best practices across the group through the roll-out of the SABMiller Ways. Associated strategic priorities Developing strong, relevant brand portfolios that win in the local market. * Constantly raising the profitability of local businesses, sustainably. * Leveraging our skills and global scale. Risk: Regulatory changes Context ? The alcohol industry is coming under increasing pressure from regulators, NGOs and tax authorities as the debate over alcohol consumption continues in many markets. Risk? Regulation places increasing restrictions on pricing (including tax), availability and marketing of beer and drives changes in consumption behaviour. Possible impact?
Lower profitability growth and reduced contribution to local communities in some countries. Mitigation 12. Rigorous adherence to the principle of self-regulation backed by appropriate policies and management review. 13. Constructive engagement with government and all external stakeholders on alcohol-related issues. 14. Investment to improve the economic and social impact of our businesses in local communities and working in partnership with governments and NGOs. Associated strategic priorities * Creating a balanced and attractive global spread of businesses. Developing strong, relevant brand portfolios that win in the local market. * Constantly raising the profitability of local businesses, sustainably. * Risk: Raw material volatility * Context ? Recent volatility in the supply and pricing in some of our key raw materials. * Risk? Failure to obtain an adequate supply of brewing and packaging raw materials at competitive prices. * Possible impact? Lower profitability and occasional supply disruption. Mitigation
15. Contractual agreements with suppliers covering multiple time horizons, combined with an active hedging programme. 6. Programmes to support development of local sourcing for certain key commodities, such as barley, in Africa, India and Latin America. Associated strategic priorities * Constantly raising the profitability of local businesses, sustainably. * Leveraging our skills and global scale. * Risk: Economic environment * Context ? Recent global recession with weak GDP growth projected in 2010. Uncertain economic growth and rising unemployment have resulted in weak consumer demand which has, in some cases, been compounded by currency weakness. Risk? Our marketing, operating and financial responses may not be timely or adequate to respond to changing consumer demand. * Possible impact? Lower short-term growth rates and profitability. Mitigation 17. Actions to restructure operations in certain countries to reflect current or expected deterioration in local economic conditions. 18. Maintaining and extending our local industry leadership positions through appropriate investments in our brands, focus on local execution and development of commercial capability. 19.
Increased emphasis on cash flow management. Associated strategic priorities * Creating a balanced and attractive global spread of businesses. * Developing strong, relevant brand portfolios that win in the local market. * Constantly raising the profitability of local businesses, sustainably. * Risk: Delivering transformation * Context ? The group has begun executing a major business capability programme that will simplify processes, reduce costs and allow local management teams to enhance focus on their markets. * Risk?
Failure to execute and derive benefits from the projects currently under way. Mitigation 20. Senior leadership closely involved in monitoring progress and in making key decisions. 21. Rigorous programme management and governance processes with dedicated resources. Associated strategic priorities * Constantly raising the profitability of local businesses, sustainably. * Leveraging our skills and global scale. * * Possible impact? Increased project costs, business disruption and reduced competitive advantage in the medium term.