The European brewing industry in transition - · PDF fileThe European brewing industry in...

The European brewing industry in transition

Dr Ina Verstl

Herbert Latz-Weber

EFFAT ConferenceBlankenberge June 2010

No part of this report may be reproduced without permission

Project carried out

with the financial support of the European Commission

Agenda

I. The consolidation of retailing

II. Globalisation and the imperative of growth

III. Brewers in search of growthIV. Europe‟s “big four” brewersV. The global contextVI. Europe - The challenges

The European Brewing Industry in Transition

From gentlemen brewers to … FMCG giants


“Carlsberg is the world‟s fourth largest brewery group. Our ambition is based on one important principle: creating value for our shareholders and all other stakeholders by• Building the fastest growing global beer company• Being a significant player in the markets where we choose to

compete.”

Carlsberg Group “Strategy“ 2010


“The goal of Heineken is to grow the business in a sustainable and consistent manner, while constantly improving profitability. The four priorities for action include:1. to accelerate sustainable top-line growth. 2. to accelerate efficiency and cost reduction. 3. to speed up implementation: we commit to faster decision making

and execution.4. to focus on those markets where we believe we can win.”

Heineken “Strategy & Goals“ 2010


“SABMiller‟s strategic focus is centred on four priorities:1. Creating a balanced and attractive global spread of businesses 2. Developing strong, relevant brand portfolios in the local market3. Constantly raising the performance of local businesses4. Leveraging our global scale.“

SABMiller “Strategic Priorities” 2010


“AB-InBev‟s shared dream energizes everyone to work in the same direction: to be the Best Beer Company in a Better World. The three long-term objectives of our business are:1. To deliver volume growth ahead of industry growth.2. To grow revenue ahead of volumes. 3. To maintain strong financial discipline and ensure that costsremain below inflation.”

AB-InBev “Our Dream“ 2010


“Major brewers hand the future of beer to FMCG experts:There are signs that the future of beer is being handed to a new breed of professional managers with roots not in traditional brewing.”

Canadean‟s International Beer Strategy Conference, Amsterdam, May 2010


I. The consolidation of retailing


99.472

80.300

66.034

63.747

55.374

50.000

43.232

41.358

36.758

30.990

26.350

25.035

Nestle

P&G

JT

J&J

Unilever

Kraft

PepsiCo

Imp Tobacco

InBev

Coca-Cola Co.

SAB Miller

Tyson

While there are some sizeable FMCG companies…Global FMCG Sales, 2009 (USD million)

Source: Planet Retail


405.000

119.300

99.472

91.100

88.800

81.900

80.300

76.700

69.900

68.700

66.034

63.500

Walmart

Carrefour

Nestle

Metro

Tesco

Schwarz

P&G

Kroger

Costco

Aldi

JT

Target

…the power is very much with the retailersGlobal FMCG/retail Sales, 2009 ( USD million)

Source: Planet Retail


Brewers try to keep up with the retailersBut where are the big brands?

Share of Top 10 beer brands (global beer vol)


Share of Top 10 beer brands



Rabobank

… call that “global brands”?

Top 10 global brands 2008

Source: Heineken 2009The European Brewing Industry in Transition

II. Globalisation and the imperative of growth

- Obeying the whims of finance- Increasing market share - Searching the economies of scale- Cutting costs- Improving the bottom line- Providing shareholder value


Globalisation and consolidation of thebrewing industry

1990 – 2010

-The spectre of coca-cola-colonisation has not materialised yet



Rabobank

III. Brewers in search of growth

- Volume- Profits

Ideal: acquire market dominance in countries with population growth and robust economic prospects


South Africa

Mexico

South Korea

Australia

Canada

Japan

France

United States

Spain

Netherlands

Poland

Italy

Czech Republic

United Kingdom

Russia

China

Germany

Share OthersShare Top 3 Brewers

0 % 20 % 100 %40 % 60 % 80 %

1. Market dominance secures profits


2. Growth markets please the analysts

Source: Heineken 2009


… but there is growth and GROWTH

Source: Heineken 2009

Source: SABMiller 2010


3. Seeking premium brand growth

Source: Company data

Volumes2005 mio hl

CAGR 2000-2005

CAGR 2005-2010E

Total market 1580 2.7% 2.0%

Non premium 1436 2.6% 1.7%

All premium 144 4.1% 4.8%

International premium

107 6.4% 5.8%


… but where are the big profits?

Source: IVR


IV. Europe‟s “big four” brewers

Carlsberg - A Russian brewer with European subsidiariesHeineken - The last MohicansSABMiller - The Graham showAB-InBev - The bankers that sell beer


Carlsberg – a Russian brewer with European subsidiaries

- 1999: The fear of getting sidelined


Carlsberg – Going east

- Joint venture with Norway‟s Orkla 2001- Takeover of Scottish & Newcastle 2007/2008


Dependency on Russia for profits and Asia for volume growth


Carlsberg Germany – Transformation into a FMCG company

Focus on 5 brands

Source: Carlsberg Germany 2010The European Brewing Industry in Transition


Focus on core market



Focus on risk-free on-trade


Heineken – the last Mohicans

After relying on beer exports for growth, Heineken changed track

- 2003: BBAG - 2008: S&N- 2010: FEMSA Cerveza


Heineken still depends on mature western European markets for profits

Source: Heineken 2009The European Brewing Industry in Transition

SABMiller – the Graham show

Graham Mackay: longest serving CEO in the brewing industry

SAB in 1994: one market, no international exports, no global brand


SABMiller – the Graham show- 1994: First free elections in South Africa- 1994: Tanzania, Zambia, Mozambique, China- 1995: Poland- 1996: Romania- 1998: Russia (build Kaluga Brewery)- 1999: Czech Republic (Pilsner Urquell) + LSE listing- 2000: India- 2002: USA (Miller Brewing)- 2003: Italy (Birra Peroni)- 2005: Colombia (Bavaria)- 2008: USA (MillerCoors joint venture)- 2008: Netherlands (Grolsch)


In less than 18 years SABMiller became a global force

Source: SABMiller 2010The European Brewing Industry in Transition

SABMiller earns 51 % of profits in only two markets (South Africa and Latin America)



AB-InBev – The bankers that sell beer

The “old” Interbrew


The “old” Interbrew

- 1996: Labatt (Canada)- 2000: Bass/Whitbred (UK)- 2001: Beck‟s/Diebels (Germany)- 2003: Combination with AmBev (Brazil)


The transformation to AB-InBev – The bankers that sell beer

-2008: Anheuser-Busch (USA)

With AmBev and Anheuser-Busch: AB-InBev dominates the world‟s two most profitable beer markets


AB-InBev – The Brazilians‟ mind-set

Source: AmBev 2009The European Brewing Industry in Transition

AB-InBev – the Brazilians‟ mindset

Source: AmBev 2009


Brazil – Market shares (%)

Source: AB-InBev/Plato Logic 2009

Brewer 2008

AmBev 67.7

Schincariol 12.5

Petropolis 9.3

Kaiser/FEMSA (Heineken) 7.8

Others 2.7

100.0


Market dominance secures profitability

Source: AmBev 2009


V. The global context

Global top 10 countriesBeer production 1999 – 2008 (mio hl)‏

Source: Hansmaennel/Barth Report 2009

3326Spain10

3622Poland9

4958UK8

6171Japan7

8257Mexico6

103113Germany5

10680Brazil4

11445Russia3

232232USA2

410205China1

20081999


Global top 10 countries

% share of world beer production


1.82.1Spain10

1.91.8Poland9

2.64.3UK8

3.15.2Japan7

3.83.7Mexico6

5.87.5Germany5

5.96.0Brazil4

6.24.0Russia3

13.317.1USA2

21.616.2China1

20081999


North & Central America



The U.S. beer market – Mature yet highly profitable

- Beer profit pool (EBIT): USD 4.3 bn (2007)- MillerCoors + AB-InBev: 80 percent market share- 1500 craft brewers but only 5 percent market share- Highly regulated: Three Tier System- 2850 beer wholesalers- Wholesaling profit pool (op. profit): USD 2.7 bn


Asia – Home to two BRIC markets (China and India)



Japan„s top brewers and market stalemate

Brewers„ market share January – June 2009

Source: e-malt.com 2009

Company %

Kirin Brewery Co 37.5

Asahi Breweries 36.9

Suntory Holdings 12.7

Sapporo Breweries 12.1

Orion Breweries 0.8


Japan – Overcrowded beverage sector

- Market characteristics: shrinking beer market (61 million hl/ 52 litres PCC) and a rapidly aging population (127 million)

- 2009: merger between Kirin and Suntory failed

- For now: Break out from the domestic stalemate through overseas expansion


Extracting growth – Africa has different challenges


Source: The Economist

… but monopolies rule



… and offer solid growth



The BRIC countries- China, Russia and Brazil lived up to expectations- India: much hyped but only 1 litre PCC

Source: Barth ReportThe European Brewing Industry in Transition

Russia – Beer wins over vodka

Source: Barth Report


China„s rise to the world„s major beer market

Source: Barth Report


Europe



Top 10 European countriesBeer production 1999 – 2008 (mio hl)‏


1815Belgium10

2018Czech Republic9

2111Romania8

2725Netherlands7

329Ukraine6

3326Spain5

3623Poland4

5058United Kingdom3

103113Germany2

11445Russia1

20081999


Western Europe – A shrinking market

Source: Canadean


Europe – Further consolidation likely

Source: Hansmaennel/Barth Report


Europe – a tale of two markets ‏W-Europe – consumption decline

Source: Canadean estimates

PCC 2008 PCC 2014 (est) Demographics2014

Austria 114 106 s

Belgium 84 79 s

Denmark 79 66 s

France 29 26 r

Germany 109 102 t

Ireland 120 93 r

Italy 30 32 t

Netherlands 77 70 s

Spain 83 76 s

UK 86 77 s


Europe – a tale of two marketsCEE – consumption growth

Source: Canadean estimates

PCC 2008 PCC 2014 Demographics2014

Bulgaria 76 83 t

Croatia 83 85 t

Czech Republic 161 160 t

Hungary 72 74 t

Poland 95 99 t

Romania 97 103 t

Russia 81 84 t

Serbia 57 61 s

Slovak Republic 81 82 s

Ukraine 63 80 t


Western Europe versus CEE



W-Europe and CEE: one shared fate -declining on-trade


EU – brewing industry

www.brauweltinternational.com

Source: Brewers of Europe 2009


Employment by country

Source: Brewers of Europe 2009

Country Breweries Employees2006

Employees2008

Production2008 (m hl)

Germany 1,300 32,600 29,600 103.0

UK 667 21,000 15,000 49.5

Poland 70 15,000 15,000 36.9

Netherlands 72 7,500 6,750 27.2

Spain 20 7,037 8,180 33.4

Belgium 135 6,000 5,600 18.5

Czech Republic

128 5,500 7,400 19.8

Denmark 120 4,820 3,880 7.8

France 132 4,500 3,550 15.2

Austria 173 4,000 3,900 8.9


VI. Europe - The challenges

External

- Retailer consolidation – category consolidation- Geiz ist geil/thrifty is nifty – the role ofdiscounters

Internal

- World Class Manufacturing


Hypers & supers - main route to the consumer

Source: Planet Retail 2010

35

8

33

8

15

7

59

52

51

47

5

45

1

24

6

81

71

68

0

100

200

300

400

500

600

Hypermarkets & Superstores

Supermarkets & Neighbourhood

stores

Discounters Cash & Carry Convenience Drug

2009 2014

Europe: Sales by Channel, 2009-2014 (EUR billion)


Aldi, Lidl & Co - Cheapscating and food retailingThe rise of discounters in Germany

Source: ACNielsen


Discounters‟ share of beer market much lower than in many other categories

Oettinger – what you see is what you get


Oettinger – “A transport company with breweries attached”

Source: Company infoThe European Brewing Industry in Transition

Oettinger – Growth against the market trend

Source: HLWThe European Brewing Industry in Transition

The “Beer Aldis”

-Oettinger (Germany)5 Breweries

- Martens (Belgium)1 Brewery

- TCB Beverages (Germany)2 Breweries (Brauhaus Frankfurt/Oder andBrasserie Champigneulles (France)

- Birra Castello (Italy)2 Breweries


Retailers seek to - Centralise global buying- Rationalise ranges

Source: Planet Retail 2010The European Brewing Industry in Transition

Challenges to Europe„s brewers

- Need to serve discounters

- Need to have private labels

- Need to be “global“ to fulfill the retailers„ global purchasing requirements

- Need to have full range of beers in all categories as retailers seek to rationalise ranges


The off-trade – serious questions for Europe‟s brewers

- Has there been unnecessary proliferation in beer?

- Are there now simply too many choices in terms of brands, pack sizes, strengths, flavours etc?

- Would retailers prefer greater simplicity, lower costs, better availability and higher private label sales?


Is this the future look of the beer shelf?

Source: Planet Retail 2010


The globalisation of the brewing industry The need for World Class Manufacturing

- A de-centralised organisation. Breweries took ownership of business processes; no formal mechanisms existed for sharing information or learning from diverse company experiences;

- Variations in technology, but identical equipment/similar processes.

- Value-adding information was not being harnessed – Pockets of excellence could be found across the breweries without any processes or mechanisms to leverage it.


World Class Manufacturing

- Low total cost of quality, including prevention, detection, and appraisal, basically getting it right the first time

- Minimal inventories- Automation to reduce overhead- Organisational coordination among marketing, manufacturing,

product, and process design- Integrated manufacturing systems linked to other functional areas- Benchmarking compared to external competition, not internal

historical performance- Low-cost production


How?

- Manufacturing design to reduce complexity via standardization of equipment, packaging elements, process, and formulation differences; elimination of unprofitable brand SKUs;and rationalization of unused plant capacity.

- Quality at source to shift the responsibility for quality to the supplier; selection of suppliers whowill sustain superior quality, competitive costs.

- Balance capacity and just-in-time material flow to provide adequate time for preventive maintenance and avoid inventory stockpiling.

- Reduce set-up times during changeovers between brand SKUs. Facilitate better Just In Time material flow, reduce downtime, and increase flexibility.

- Preventive maintenance to minimize unplanned downtime and maintain process capability.- Employee training and involvement.- Simple management systems encompass standard operating procedures, clear performance-driven reward systems,and accountability for specific results to drive “continuousimprovement” to focus on the causes and elimination of deficiencies.

- Sustainable use of resources and minimal environmental footprint.- Leadership and commitment at the CEO level


Source: First KeyConsulting, MBAA 2007


Conclusions

- The consolidation of the European brewing industry is far from over

- Challenges from supermarkets and discounters will rise

- The fragmented on-trade sector continues to suffer from brewers„ neglect


About the authors

Dr Ina Verstl and Herbert Latz-Weber are journalists and live in Germany

Herbert Latz-Weber can be contacted at [email protected]

Dr Ina Verstl can be contacted at www.beermonopoly.net

This report was commissioned by EFFAT

Project carried out with the financial support of the European Commission

June 2010


The European brewing industry in transition - · PDF fileThe European brewing industry in...

Documents

Transcript of The European brewing industry in transition - · PDF fileThe European brewing industry in...