CMC Markets | Dec 23, 2015 16:16
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.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Written By: CMC Markets
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.
More content, faster quotes and charts, and a smoother experience is available only on the App.