The Global Brewing Industry

"The beer market will change more in the next 5 years than it has in the last 15." 1

Up to now, half of the predicted 5 years are over!

So, what has happened? And even more exciting: how will the years to come look

like?

Interested? Then please turn the page!

1 Stewart Gilliland, Sales & Marketing Director of Whitbread PLC (today part of the Interbrew group), reported in The Grocer, 6ht May 2000, in Key Note on "Premium Lagers, Beers & Ciders", Markt Report Plus 2000

TABLE OF CONTENTS

1  Industry Definition  1

2  The Industry s Current Position  1

2.1  The Markets  1

2.2  The Players  2

3  The Industry Structure  3

3.1  The Macro-environmental Influence  4

3.2  The Micro-environmental Influence  5

4  Globalisation Potential of the Beer Industry  7

4.1  Relevant Globalisation Drivers  7

4.2  Outlook on Future Industry Development  9

  BIBLIOGRAPHY  11

  APPENDICES INDEX  14

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1 Industry Definition 2

For the purpose of this business report the global brewing industry is defined as the group of those companies, that are producing beer and operate on a national or a global scale. For diversified companies the report focuses on the beer brewing activities of those respective firms.

2 The Industry's Current Position 3

As already predicted by Stewart Gilliland 4 of Whitbread PLC as well as many other industry experts, during the last two years crucial developments have taken place. First, in terms of industry concentration and global expansion of dominant players. Second in terms of consumer taste and behaviour which again had an impact on company's strategies and product portfolios.

2.1 The Markets

The industry's main markets are Western Europe, Eastern Europe, America including North- and South America, Africa and Asia including China and India. In each of those regions the industry is in a completely different stage of the industry lifecycle. 5 Moreover population and per capita consumption indicate growth opportunities and hence potential attractiveness of the respective markets. 6 (See: Appendix A and B) 2 "If industries are defined by competitive relationships among firms (…)" Grant, Robert M. (1998), Contemporary Strategic Analysis, p. 85 3 For the purpose of this report the "position of an industry" is defined as the stage of the industry within the industry life cycle.

4 "The beer market will change more in the next 5 years than it has in the last 15.", Stewart Gilliland, Sales & Marketing Director of Whitbread PLC (today part of the Interbrew group), quoted by The Grocer, 6ht May 2000, in Key Note on "Premium Lagers, Beers & Ciders", Market Report Plus 2000 5 Heineken, Annual Report 2001, Report of the Executive Board, p. 15 6 Saul Klein (2000), "South African Breweries: Achieving Growth in the Global Beer Market", ECCH-Collection, p. 6

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According to this data, the world's beer market can be divided in regions with stable or declining consumption and regions where the demand for beer is growing. The latter is mostly the case in underdeveloped countries, where beer has a relatively short history and where the economic conditions have restricted consumption for the majority of the population. Stable or declining markets are predominantly developed countries with a long brewing tradition, such as Germany or the UK. Here per capita consumption has already achieved saturate levels and shifting consumer behaviour favours increasingly substitute products. 7

2.2 The Players

The industry's players can be distinguished in terms of their market coverage: regional and global players.(See: Appendix C)

Especially in traditional markets beer consumption is based on regional preferences, thus for example in Germany 1300 breweries provide a variety of 5000 brands. 8 Most of them are only distributed locally. Nevertheless, global players try to enter new markets by acquiring existing brands. However, those brewers rather maintain the variety of beer brands instead of just selling one or two international beers. 9 The slogan of the world's third largest brewer Interbrew: "The world's local brewer" 10 shows that those global players are aware of the importance of local preferences.

During the last few years two crucial processes can be identified. On the one hand a rapid concentration of breweries within mature markets such as Western Europe and America took place. On the other hand most global players expanded into emerging markets 11 such as Asia, Latin America, and Eastern Europe by forming 7 BBC, "Bad Times for Beer", http://news.bbc.co.uk/1/hi/business/1468932.stm 8 News.de: "Die Biervielfalt in Deutschland bleibt", http://www.news.de/346/13Die_Biervielfalt_in_Deutschland_bleibt.html 9 News.de: "Die Biervielfalt in Deutschland bleibt", http://www.news.de/346/13Die_Biervielfalt_in_Deutschland_bleibt.html 10 Interbrew: http://www.interbrew.com/ 11 Although broadly defined as emerging markets the various regions show huge heterogeneity from country to country.

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strategic partnerships with existing local breweries or simply by acquisition of the latter. 12 (See: Appendix D)

These substantial developments have completely changed the industry structure over the recent years. (See: Appendix E) Thus the list of the top breweries, in terms of production volume, is still led by the American giant Anheuser Bush, followed by the eager SAB Miller, which some say will be the future number one. 13 Interbrew and Heineken recently changed position with Interbrew being placed number three and Heineken number four.

3 The Industry Structure 14

As outlined in part 1 the present industry can be described as a battlefield in which acquisitions and takeovers lead to an enormous increase in industry concentration and pace of globalisation. By early 2000, the top two or three brewers in a country often held more than 80 percent market share of the national market. 15 (See: Appendix F). Today, Canadean, the leading global beverage research company, claims that the top ten brewers take a 45.7 per cent stake in the worldwide beer production. 16

To explain and to evaluate the present industry structure the Business environment 17 must be analysed.

12 Ian Bickerton (24/9/2002), "Heineken taps emerging markets", Financial Times, p. 26 13 Business Week, "This Brewer Has an Unquenchable Thirst", http://www.businessweek.com/magazine/content/02_23/b3786137.htm, 14 For the purpose of this report, the industry structure is defined as the stage of industry concentration and the industry's exposure to international competition. 15 Saul Klein (2000), "South African Breweries: Achieving Growth in the Global Beer Market", ECCH-Collection, p. 5 16 Canadean: "Top ten producers now produce almost half of world's beer", http://www.canadean.com/ba_feb.html, 17 The business environment comprises macro-environment and micro-environment.