This case is centred on the Western European brewing industry and examines how brewers have responded to increasing competitive pressure by consolidation through acquisitions, alliances and internationalisation. By 2013, the question is: how much further can these strategies go?
In the second decade of the twenty-first century, European brewers faced a surprising paradox. The traditional centre of the beer industry worldwide and home to some of the world’s largest brewers, Europe, was turning off beer. Western European beer consumption had fallen by nearly 10% between 2006 and 2011, while burgeoning in emerging markets worldwide (see Table 1). In 2011, Europe’s largest market, Germany, ranked only fifth in the world with 5% of world consumption, behind China (24%), the USA (13%), Brazil (7%) and Russia (5%). China and Brazil are expected to grow at 5.5% a year between 2011 and 2016.
Table 2 details the long-term trends in Western European beer consumption. A decline in traditional key markets is due to several factors. Governments are campaigning strongly against drinking and driving, affecting the propensity to drink beer in restaurants, pubs and bars. There is increasing awareness of the effects of alcohol on health and fitness. Particularly in the United Kingdom, there is growing hostility to so-called ‘binge drinking’: excessive alcohol consumption in pubs and clubs. Wines have also become increasingly popular in Northern European markets. However, beer consumption per capita varies widely between countries, being four times higher in Germany than in Italy, for example. Some traditionally low-consumption West European markets have been showing good growth.
The drive against drinking and driving and binge drinking has helped shift sales from the ‘on-trade’ (beer consumed on the premises, as in pubs or restaurants) to the ‘off-trade’ (retail). The Western European off-trade increased from 46% of volume in 2006 to 59% in 2011. The off-trade is increasingly dominated by large supermarket chains such as Tesco and Carrefour, which often use cut-price offers on beer in order to lure people into their shops. More than one-fifth of beer volume is now sold through supermarkets. German retailers such as Aldi and Lidl have had considerable success with their own ‘private-label’ (rather than brewery-branded) beers.
Pubs have suffered – in the United Kingdom, an estimated 18 pubs closed per week during 2012. However,
Table 1 World beer consumption, 2006-11 (million litres)
|Middle East and Africa||9,928.1||10,362.0||11,091.2||11,683.7||12,382.4||13,121.6|
Source: Euromonitor, 2012
An earlier version of this case was written by Mike Blee. It has been substantially updated by Richard Whittington. It is intended as a basis for class discussion, not as an illustration of good or bad practice. Not to be reproduced or quoted without permission. © Richard Whittington 2013.
GLOBAL FORCES AND THE WESTERN EUROPEAN BREWING INDUSTRY
Table 2 European beer consumption by country and year (hundreds of litres)
1 1980 excludes GDR; figures adjusted
2 Non-EU countries
Source: based on information from www.Brewersofeurope.org
although on-trade volumes are falling in Europe, the sales values are generally rising, as brewers introduce higher-priced premium products such as non-alcoholic beers, craft beers and fruit-flavoured beers. On the other hand, a good deal of this increasing demand for premium products is being satisfied by the import of apparently exotic beers from overseas (see Table 3). Imports are further encouraged by international supermarket chains.
Table 3 Imports of beer by country
|Country||Imports 2002 (% of consumption)||Imports 2011 (% of consumption)|
Note: Import figures do not include beers brewed under licence in the home country; also countries vary in measuring per cent of consumption.
Source: based on information from www.Brewersofeurope.org
Brewers’ main purchasing costs are packaging (accounting for around half of non-labour costs), raw materials (such as barley) and energy. The European packaging industry is highly concentrated, dominated by international companies such as Crown (in cans) and Owens-Illinois (in glass bottles). In the United Kingdom, for example, there are just three can makers: Ball Packaging Europe, Crown Bevcan and REXAM.
Acquisition, licensing and strategic alliances have all occurred as the leading brewers battle to control the market. There are global pressures for consolidation due to over-capacity within the industry, the need to contain costs and benefits of leveraging strong brands. For example, the world’s largest brewer, A-B InBev, originates from the 2004 merger of Belgian brewer Interbrew with AmBev, the Brazilian brewery group, and the 2008 acquisition of the American brewer Anheuser-Busch. In 2002, South African Breweries acquired the Miller Group (USA) and Pilsner Urquell in the Czech Republic, becoming SABMiller, SABMiller in turn bought Dutch specialist Grolsch in 2007, formed a joint venture with Molson Coors in the USA in 2008, and bought the Australian brewery Fosters in 2011, Players in the fast-growing Chinese and Latin American markets are being snapped up by the large international brewers too: Dutch Heineken bought Mexico’s second-largest brewery, FEMSA, in 2010 and the Asia Pacific Brewery of Singapore in 2012.
Table 4 lists the world’s top 10 brewing companies, which accounted for more than 60% of world beer volumes in 2011. However, there are still many specialist, regional and microbreweries. Germany, with its pub-brewing tradition (the Brauhaus), still had 1,341 separate breweries in 2011, owned by 1,315 separate brewing companies. Nonetheless, market concentration has increased in Western Europe: in 2000 the top two players (Heineken and Interbrew) had 19.3% of the market, while in 2011 the top two players (Heineken and Carlsberg) held 27.4% of the market, with A-B InBev accounting for a further 9.8%.
Concentration in the industry has led to concerns about anti-competitive practices. The European Commission fined Heineken and Kronenbourg in 2004 for price-fixing in France, and Heineken, Grolsch and Bavaria in 2007 for a price-fixing cartel in the Dutch market. In the United Kingdom, half of pubs are still tied to major brewers for their supply and it is alleged that these so-called ‘beer ties’ add around 6-7% to pub beer prices: in 2009 the UK competition regulator officially rejected a complaint of anticompetitive practices, but encouraged brewers to allow its tied pubs to feature independent beers. In 2013, the US Department of Justice forced A-B InBev to sell the American assets of its Mexican acquisition Modelo, which would have taken the world’s largest brewer from 40% to 46% of the American market (Molson Coors controlled another 30%).
GLOBAL FORCES AND THE WESTERN EUROPEAN BREWING INDUSTRY 569
Table 4 The world’s top 10 brewery companies by volume, 2000 and 2011
|Company||Share global volume (%)||Company||Share global volume (%)|
|Anheuser-Busch (US)||8.8||A-B InBev (Belgium)||18.2|
|Heineken (The Netherlands)||4.3||Heineken (The Netherlands)||8.8|
|Interbrew (Belgium)||4.0||Carlsberg (Denmark)||5.5|
|Miller (US)||3.6||China Resources (China)||5.4|
|SAB (South Africa)||3.3||Tsingtao (China)||3.6|
|Modelo (Mexico)||2.7||Modelo (Mexico)||3.0|
|Coors (US)||2.0||Beijing Yanjing (China)||2.9|
|Asahi (Japan)||2.0||Molson Coors (US)||2.7|
|Kirin (J apan)||1.9||Kirin (Japan)||2.6|
Source-. Euromonitor International, 2012
Three brewing companies
The European market contains many very different kinds of competitor: this section introduces the world’s largest brewer and two outliers.
Anheuser-Busch InBev (Belgium)
A-B InBev has roots going back to 1366, but has transformed itself in the last decade with a series of spectacular mergers. First, InBev was created in 2004 from the merger of Belgian InterBrew and Brazilian AmBev. As well as making it the second-largest brewing company in the world, this merger gave it a significant position in the Latin American soft drinks market. Then in 2008 InBev acquired the leading American brewer Anheuser-Busch for $52bn (£36.4bn),1 making the company indisputably the world leader. The company has 40% share of the US market, and in 2013 took over Mexico’s leading brewer, Modelo, famous for its global Corona brand. The company now has over 200 beer brands, led by such well-known international beers as Beck’s, Budweiser and Stella Artois. A-B InBev has the number one position in 19 national markets globally. However, in 2009 the company sold its Central and Eastern European beer operations to help raise funds to pay for the Anheuser-Busch acquisition. It also sold its minority stake in the second-largest Chinese brewery Tsingtao, though it has since acquired majority control of several Chinese regional breweries.
The company is frank about its strategy: to transform itself from the biggest brewing company in the world to the best. It aims to do this by building strong global brands and increasing efficiency. Efficiency gains will come from more central coordination of purchasing, including media and IT; from the optimisation of its inherited network of breweries; and from the sharing of best practice across sites internationally. A-B InBev is increasingly emphasising internally generated growth and improved margins from its existing business. Its declared intention is to be ‘The Best Beer Company in a Better World’.
Greene King (United Kingdom)
Established in 1799, Greene King is now the largest domestic British brewer, owner of famous brands such as Abbot, IPA and Old Speckled Hen. It has expanded through a series of acquisitions including Ruddles (1995), Morland (1999) and Hardys and Hansons (2006). Acquisition is typically followed by the closure of the acquired brewery, the termination of minor brands and the transfer of major brand production to its main brewery in Bury St Edmunds. This strategy has led to critics calling the company ‘Greedy King’. IPA is the UK’s top cask ale, with over 20% of the on-trade market, and Old Speckled Hen is the top premium UK ale with more than one-eighth of the multiple retailer market. Greene King is unusual amongst contemporary breweries in operating many of its own pubs, having added to its original chain several acquisitions (notably Laurels with 432 pubs and Belhaven with 271). In 2007, it also bought the Loch Fyne restaurant chain and the company has invested in offering good casual eating in its pubs as well. Greene King now operates nearly 2000 pubs across the United Kingdom, with a particularly dominant position in its home region of East Anglia. Greene King explains its success formula in brewing thus: ‘The Brewing Company’s continued cut-performance is driven by a consistent, focused strategy: most importantly, we brew high quality beer from an efficient, single-site brewery; [and] we have a focused brand portfolio, minimising the complexity and cost of a multibrand strategy.’2
Tsingtao Brewery was founded in 1903 by German settlers in China. After state ownership under communism, Tsingtao was privatised in the early 1990s and listed on the Hong Kong Stock Exchange in 1993. In 2009, the Japanese Asahi Breweries held 19.9% of the shares, purchased from A-B InBev (which also sold the remainder of its original stake – 7% – to a Chinese private investor).
GLOBAL FORCES AND THE WESTERN EUROPEAN BREWING INDUSTRY
Tsingtao has 14% market share of its home market but has long had an export orientation, accounting for more than 50% of China’s beer exports. Tsingtao Beer was introduced to the USA in 1972 and is the Chinese brand-leader in the US market. A bottle of Tsingtao appeared in the 1982 science fiction film Blade Runner. Tsingtao set up its European office in 1992 and its beer is now sold in 62 countries. Tsingtao’s priority, for now, is adjacent Asian markets, with a new brewery announced in Thailand in 2012. However, it has described its ambition thus: ‘To promote the continuous growth of the sales volume and income to step forward (sic) the target of becoming an international great company’.