Brewers thirsty for expansion as taste for beer grows in emerging markets

Industry's major players continue with mergers and acquisitions amid rising consumption in Latin America, China and Africa

If the financial crisis put an end to the golden age of company takeovers, no one bothered to tell the beer industry – the world's biggest breweries continue to have an insatiable thirst for empire expansion.

Heineken has just taken a big step towards completing the latest money-spinning deal as it gained the approval it needs to buy Asia Pacific Breweries, makers of Tiger beer, for up to £4.1bn. It comes two years after it bought Femsa Cerveza, makers of Sol beer, in Mexico for $7.6bn (£4.8bn).

The Dutch brewer is not alone – last year rival SABMiller, which makes Peroni and Grolsch and Pilsner Urquell among others – snapped up Foster's for a cool £7.5bn.

And in 2008 a £33bn merger created the world's biggest brewer by putting together Anheuser-Busch and InBev – a megadeal that united Budweiser, Beck's, Stella Artois and Hoegaarden.

Heineken's new-found taste for Asian and Mexican beer is not hard to understand. As people get richer in the emerging markets of Latin America, China and Africa, the drinkers of Europe and North America become increasingly irrelevant to the global brewers.

In Africa some in the industry believe the continent could soon outgrow both North America and Europe. Only last week SABMiller opened a multimillion-pound brewery in Nigeria.

But the biggest cash cow, as in so many industries, could be in China, where the popularity of beer has increased rapidly alongside the traditional desire for spirits. The country already accounts for one in four pints sold worldwide, double that of the US, and could account for 40% of total worldwide sales by 2016.

Twenty years ago the Chinese barely touched beer, drinking an average of just 12 pints per person each year. By 2001 that consumption had nearly trebled to 32 pints; last year it was 63. By 2021 the number of pints consumer per head is expected to increase to 93.

Ian Shackleton, from Japanese bank Nomura, said recently: "Historically, China has had a strong 'spirits culture', with consumption skewed towards the Chinese traditional spirit baijiu. Beer, as a proportion of total alcohol, increased from 21% in 1997 to 51% in 2011, with the beer category growing at the expense of local, cheap spirits."

AB InBev is expected to generate 6% of its group profits by 2021 from China, compared with just 1% last year, while SABMiller – which owns a 50% stake in China's most popular beer, Snow – will take 19% of its profits from the country. It currently takes 2%.

The Heineken deal for Asia Pacific Breweries is important enough that the Dutch firm has increased its initial offer to buy out its joint venture partner Fraser and Neave (F&N), after ThaiBev's billionaire owner, Charoen Sirivadhanabhakdi, made a counter bid.

Heineken and F&N formed a partnership in 1931 and jointly control a majority stake in Singapore-based Asia Pacific. The Dutch brewer wants to buy out F&N's 40% stake to increase its far east business interests and eventually take full control of the company. It currently has a 42% stake.

An offer of S$53 (£26) a share has been approved by F&N's board and will be put to shareholders. However, 40% of those shareholders are rivals ThaiBev and Kirin, with the latter already trying to derail the bid by offering S$55 a share, causing Heineken to increase its initial S$50 a share bid.

ThaiBev – maker of Chang beer – knows how important the deal is for Heineken, which needs the new markets to reduce its reliance on a poor-performing European region.

Analyst John Mullane, from Dolmen Stockbrokers, explained: "This deal is a positive development for Heineken because they have been overexposed in a weak European market, and behind the curve in exploiting growth opportunities in emerging markets.

"The fact they are willing to pay such a high premium shows how keen they are to expand in these markets and how important it is for them."

Alcoholic drinks analyst at Euromonitor International, Zsuzsa Szilagyi, agreed.

She said: "There are very few targets left to acquire, which is why it is very important for Heineken, because it doesn't have its own presence in the region.

"The leading players are building their presence very smartly. There is sluggish growth in mature markets at the moment, so companies have to find growth prospects elsewhere."

Despite their fast-growing appetite for beer, Chinese and African drinkers do have some catching up to do if they are to drink their European counterparts under the table. Admittedly, the Chinese do have some catching up to do if they are to be anywhere near the same league for drinking compared to their European counterparts.

In terms of consumption per person, nine of the top 10 nations are in Europe – and the 10th is Australia.

Topping the list is the Czech Republic, where an unnerving 244 pints are drunk each year on average by individuals. Ireland comes second with 195, followed by Germany with 186 pints.

But drinking habits in Europe are changing. John Mullane from Dolmen said: "Consumers are becoming more discerning and want higher quality and craft beers. Big breweries are recognising this and are likely to be looking at craft beers for expansion."

In the US, sales of craft beers brewed usually by independent breweries on very small scales, have had double digit percentage increases, with Europe catching up.

James Watt, co-founder of the Scottish craft beer firm BrewDog, said companies such as his are tapping into an area that drinkers feel has been missing.

He said: "I think there has been a lack of choice in the UK for the last 30 to 40 years from industrial beers from monolithic brewers and we're trying to fill that gap.

"There has been an explosion in craft beers in the US and I think that will happen over here. People want to know how their beer is made and what's gone into it."

But Watt is clear that Aberdeenshire-based BrewDog, which was started in 2007 and now has more than 60 employees and a turnover of £12m, is not for sale. "I'd sooner shoot myself in the head than sell to the big breweries. It would be like the Clash selling out to the Spice Girls."

However, it won't stop the likes of Heineken, SABMiller and AB InBev continuing to reshape the beer-brewing landscape and with combined revenues of nearly £50bn a year don't expect them to stop spending any time soon.

Contributor

Simon Neville

The GuardianTramp

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