Faced with an armada of smaller competitors, the world’s biggest brewers are getting bigger.
Molson Coors Brewing Co. yesterday joined international rivals such as SABMiller Plc and Heineken NV in expanding beyond their main territories as craft beers and imported brands seek to invade their traditional strongholds. The 2.65 billion-euro ($3.5 billion) purchase of StarBev LP will take Denver-based Molson into the Czech Republic, Hungary, Romania and Bulgaria.
“I can understand why they’d want to expand outside the U.S. and why they’d want to get into growth markets,” said Trevor Stirling, an analyst at Sanford C. Bernstein in London. The maker of Carling lager has “low penetration of craft and imports, which are the fastest-growing parts of the market.”
American lagers, which dominate the U.S. beer industry, have been on a steady decline as rising unemployment depresses spending and drinkers turn to everything from craft beer to wine and spirits. U.S. beer volumes have fallen for three straight years, including a 1.5 percent decline in 2011, according to researcher Beverage Information Group. That has led the world’s biggest brewers to look to other parts of the world for growth.
SABMiller, which has the biggest emerging-market exposure of the major brewers, last year gained a stake in Turkey’s Anadolu Efes Biracilik & Malt Sanayii AS and splashed out $11 billion buying Foster’s Group Ltd. in Australia. Japan’s Kirin Holdings Co. bought Brazil’s Schincariol Participacoes e Representacoes for $3.6 billion, while Amsterdam-based Heineken acquired Mexico’s Fomento Economico Mexicano SAB’s brewing unit in a 2010 transaction that Femsa valued at $7.35 billion.
Brewers including Kirin, Asahi Group Holdings Ltd. and Suntory Holdings Ltd. of Japan had expressed interest in buying StarBev from CVC Capital Partners Ltd., people with knowledge of the plans said in February. CVC, which manages a 10.8 billion-euro European buyout fund, purchased the Amsterdam and Prague-based brewer from Anheuser-Busch InBev NV for 1.5 billion euros in 2009.
Molson Coors plans to accelerate its expansion in emerging markets “to maintain the long-term health of our business,” Chief Executive Officer Peter Swinburn said on an analyst call.
The brewer’s Miller Lite brand saw its U.S. market share decline to 7.7 percent in 2010 from 8.6 percent in 2007, according to data compiled by Bloomberg Industries, while Coors Light and Natural Light increased share. Meanwhile, craft beers and imported brews have boosted their share of the U.S. market, the world’s most profitable, to 18 percent and are growing fast, according to Bernstein’s Stirling.
Flagging Light Beer
“For the past six months, Miller Lite has declined even further and faster,” Stirling said. The brand lost market share to Anheuser-Busch InBev after January’s introduction by the industry leader of Bud Light Platinum, he said.
Buying StarBev will help ease the burden of declining markets in both North America and the U.K. The maker of Staropramen gives Molson Coors access to nine breweries in central and eastern Europe and local brands such as Borsodi, Kamenitza and Niksicko, as well as distribution of lines such as Stella Artois, Beck’s and Leffe. Heineken said in February that beer volume in that region increased 6.5 percent in 2011, the fastest improvement of all the Dutch brewer’s units. That compared with a 0.2 percent increase in western Europe.
Molson Coors expects the percentage of revenue from markets outside the U.S., Canada and Britain to increase to “mid-teens,” it said on the call with analysts yesterday.
Still, the acquisition may not prove a panacea for Molson Coors. Central and eastern Europe “has gone from being a high-growth region to a low-growth region,” according to Bernstein’s Stirling, with a “significant increase in competitive intensity” from brewers including Heineken, Carlsberg AS, and SABMiller. It’s “the least attractive of the comparable emerging-market areas,” such as Africa, Asia and Latin America.
The region already has a high level of beer consumption per person, with little potential to increase volume, according to Melissa Earlam, an analyst at UBS AG. The Czech Republic has the highest per-capita consumption in the world, according to data from market research company Mintel International.
Amid the wave of brewing consolidation, the biggest deal of all may still be to come. The fact that AB InBev didn’t exercise a right to reacquire StarBev suggests that the industry leader is waiting for better opportunities, analysts at Societe Generale SA said in a note today, speculating that one of those may be a bid for SABMiller, the company’s nearest competitor with a market value of about 41 billion pounds ($65 billion).