Beer: From Global Brands to Craft Brewers

Developments in Agri, Food & Beverages
Industry report, November 2016

The Consolidation of Global Leaders

The beer production faces a high level of producer concentration. Each country has its «local champion», like Heineken in the Netherlands, Carlsberg in Denmark, Guinness in Ireland, Budweiser in the USA, or Corona in Mexico.

The beer market has been owned and is currently dominated by big groups, the three most important being AB InBev, Heineken and Carlsberg. These ones keep on increasing, in particular with the acquisition of SAB Miller, the former second world leader, by AB InBev in September 2015, at an acquisition price of EUR 96 billion. AB InBev now controls more than one-third of the beer worldwide market, boasts a market capitalization of close to EUR 265 billion and generates EUR 23 billion EBITDA (36% of revenue) and EUR 63 billion revenue.

 

The Birth of Craft Brewers

Notwithstanding, the beer market has faced a reversal in the last two years. In this capsizing trend, the “craft brewers” phenomenon – small, independent and traditional brewer – made in the USA, took a central place. The craft brewers are growing, sometimes in the very heart of cities. So this beer industry has to adapt to this market evolution characterized by the atomization of the beer players and recipe research.

In the USA, the craft beer sales increased by 22% in 2014 while the beer market stagnated (+1%). The craft beer market share has reached 11% of total beer market (sources: Brewers Association). In the European Union, the number of craft breweries increased by 106% between 2008 and 2013. There are now 800 craft breweries in France, versus 700 in 2015. Craft beers represent only 5% to 6% of the French beer market, but they face an exponential growth. Finally, innovation steers growth against sales decrease.

 

The Response of the World Leaders

In the context of revenues going down, the craft beer activity is the only one evidencing growth. This is why the market leaders developed superpremium brands. The global players created new range of beers like “Cubanisto” by AB InBev, “Mort Subite” by Heineken or “Grimbergen” by Carlsberg.

They also achieved external growth. AB InBev owns 7 craft breweries. This is after various acquisitions in 5 years (Goose Island in 2011, Golden Road Brewing in 2015 and Karmeliet & Kwak in 2016). Heineken isn’t outdone with the acquisition of the American brewery Lagunitas in 2015. Africa is also an important growth platform. The main players are settled there: AB InBev/SAB Miller established their African center in Johannesburg, and Heineken and Carlsberg settled in Africa as well.

The external growth strategy is to acquire dynamic craft breweries but not operations and production. Nevertheless, this strategy imposes rules and concessions by the buyer. For example, the globalization imposes some craft beers retrocession: the European competition authority has determined that the merger of AB InBev and SAB Miller required sales of assets. The Japanese beer leader Asahi bought on this occasion Peroni, Grolsch and Mentime in 2016 for EUR 2,55 billion. The craft brewer trend has a promising future, because of few entry barriers when a craft beer is sold another one is created. On the whole, there are many acquisition opportunities in the beer market, both in large brands and in craft breweries.

Craft brewers’ growth happens in all countries, but mainly in Europe and in the Americas. Numerous local craft brewers have reached significant size (more than EUR 10 million) and are becoming potential targets for global players. Craft beers have renewed the beer market through quality, product innovation and value growth.

 

Cheers!
Nicolas Bonnel
Managing Partner
MBA Capital – France