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ABI Cements Its Dominance With SABMiller Deal, But Faces Challenges Ahead

September 29, 2016

The news that Anheuser-Busch InBev (ABI) has finally corralled longtime takeover target SABMiller signals a watershed event in the global beer industry’s long-term consolidation movement. Once the combination of the two companies is complete—with the date set forOctober 10—AB InBev will control just over 30% of the global beer market, according to Impact Databank, up from 22% prior to the deal. Its closest competitor, Heineken, has a global market share of about 10%. Denmark-based Carlsberg, China Resources Enterprise and Canada/U.S.-based Molson Coors—each with a global share of 5%-7%—will now round out the world’s top five brewers.

While ABI is toasting the successful completion of one of the drinks business’s most anticipated deals, the newly enlarged company will have a short honeymoon. Growth opportunities across the global brewing landscape have been difficult to find lately. After expanding by more than 250 million hectoliters—or nearly 17%—from 2005 to 2010, global beer consumption has barely budged over the past half-decade. It’s up by only around 30 million hectoliters since 2010, or less than 2%. That tepid performance includes a 1% decline to 1.86 billion hectoliters last year.

Many emerging markets that were growth engines a few years ago have now slowed markedly. These include China—the world’s largest beer market by far—Brazil (ranked third), Russia (fifth) and Poland (10th). Meanwhile, beer’s established markets are mired in long-term decline. The U.S. (second), Germany (fourth), Japan (seventh) and the U.K. (eighth) have all contracted over the past decade, with each enduring consumption declines of at least 8 million hectoliters.

Still, there are markets with considerable upside around the globe, such as Sub-Saharan Africa and parts of Latin America. It’s SABMiller’s strength in these areas that made it an attractive target for ABI. Africa will account for around 10% of ABI’s business following the deal, rising from a minimal market presence, and ABI projects that the continent’s beer market will grow roughly three times faster than the global industry over the next decade. SABMiller’s Africa sales increased by 10 million hectoliters over the past four years, while its Latin America unit tacked on 6 million hectoliters.

Meanwhile, the $100-billion mega-merger’s main effect in the U.S. market appears to be the strengthening of Molson Coors’ position. ABI has pledged to sell SABMiller’s 58% stake in U.S.-based MillerCoors to joint venture partner Molson Coors for about $12 billion, to satisfy competition authorities (ABI and MillerCoors collectively control nearly three-quarters of the U.S. beer market). But like ABI, Molson Coors faces significant challenges ahead in the U.S., as craft brewers continue to eat into the share of the dominant mainstream players. In the six months through June, ABI’s U.S. sales to retailers fell 0.7%, while the overall beer market grew about 0.2%. MillerCoors’ sales to retailers were down 1.7% in the second quarter. —Daniel Marsteller and Peter Zwiebach

Top Five Brewers Worldwide, Pro Forma1
(millions of hectoliters)
Rank Brewer Headquarters 2014 2015 Percent
Change4
Global Share4
2014
2015
1 Anheuser-Busch InBev2 Belgium 557.1 563.8 1.2% 29.7% 30.3%
2 Heineken NV Netherlands 181.3 188.3 3.9 9.7 10.1
3 Carlsberg Group Denmark 122.8 120.3 -2.0 6.5 6.5
4 China Resources Enterprise Ltd. China 118.4 116.8 -1.3 6.3 6.3
5 Molson Coors Brewing Co.2 Canada/U.S. 96.2 94.3 -2.0 5.1 5.1
Total Top Five3 1,075.8 1,083.5 0.7% 57.3% 58.3%
1 Includes agency/license/non-alcoholic brands and equity interests in other brewers.
2 Adjusted to include 2016 acquisition of SABMiller interests. Deal expected to be complete October 10.
3 Addition of columns may not agree due to rounding.
4 Based on unrounded data.Source: IMPACT DATABANK
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