Investment bankers, lawyers and accountants will all be saying cheers to the mega-merger taking place in the brewing industry but investors and beer drinkers could be left crying over a spilt pint.
Demand for commercial beer and lager is slowing in the western world and giant brewers are looking for the quickest way to tap into what is still growing demand in emerging markets. Rather than developing its own African and South American beer brands organically, Anheuser-Busch Inbev (L:0O1Z) is taking the quick and dirty approach of buying its nearest rival’s instead.
Of course SABMiller PLC (L:SAB) wouldn’t have sold off its fastest growing assets so AB Inbev has to buy the whole company to get the emerging market beers it wants. As the two largest brewers in the world there is significant overlap across markets, which brings with it associated competition concerns for regulators. The mix of merger and asset stripping makes the AB Inbev / SAB deal very complicated.
Belgium-based Anheuser-Busch InBev, London-listed SABMiller (L:SAB), Heineken (L:0O26), and Denmark's Carlsberg (CO:CARLa) already dominate the global beer market. If the merger clears, the beer industry is looking at going from the ‘big four’ to the ‘big three’. It’s precisely this false choice of hundreds of beers produced by the same companies that is spurring a craft beer revolution in the US, UK and Europe.
Specifically in the UK, the multi-year trend of falling numbers of British pubs is likely to continue. The Campaign for Real Ale (CAMRA) says 29 pubs close each week. Drinking culture is shifting away from pubs for multiple reasons including a preference for drinking at home and the social drinking of coffee instead of beer and wine.
An 18% rise in first half profits from brewer and pub operator Greene King (L:GNK) suggest that although pubs are closing there is still demand for beer in the UK, supported by wages rising above inflation. Trading results from Premier Inn and Costa coffee-owner Whitbread (L:WTB) on December 10 show there is still strong demand from British consumers for eating and drinking out at establishments that offer quality products and service.
While large brewers and pub-chains are consolidating, the overall number of breweries is increasing rapidly thanks to growth of micro-breweries. Accountancy firm UHY Hacker Young says 361 new breweries opened in 2014-15, triple the number from 2009-10.
The big brewers coupled with the supermarkets have been the biggest beneficiaries of the trend for drinking beer at home instead of the pub. The brewers can’t rely on monopolising beer choice anymore because every major supermarket offers independent bottled micro-brewed beer and the government has pledged to scrap the beer tie.
SAB Miller’s purchase of London Lager-maker Meantime has been one of the clearest recognitions of the importance of real beer by the large brewers. It has also been an example of how big brewers can get it wrong after it emerged London Lager, which it was believed was brewed at its Greenwich micro-brewery, is sometimes made at the Grolsch factory in Holland.
Instead of spending billions of dollars on cumbersome mergers, big international brewing companies would do better by investing in their own emerging market brands while recognising the growing demand for craft ale in developed markets. The purchase of craft brewers needs to be accompanied by investment into infrastructure and technology that would allow craft-brewing at lower costs while still maintaining quality.
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