Written by Clementine Fletcher for Bloomberg
Faced with an armada of smaller competitors, the world’s biggest brewers are getting bigger.
Molson Coors Brewing Co. (TAP) (TAP) yesterday joined international rivals such as SABMiller Plc and Heineken NV (HEIA) 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, (SAB) 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, people with knowledge of the plans said in February. CVC, which manages a 10.8 billion-euro European buyout fund, purchased the operations from Anheuser-Busch InBev NV (ABI) in 2009 for 1.5 billion euros.
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.
Miller Lite’s U.S. market share dropped 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, said 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 NV after January’s introduction by the industry leader of Bud Light Platinum, he said.
Light beer — a Molson Coors staple that represents four out of five of the best-selling beers in the country — is falling out of favor, leading the company to boost advertising to try to revive the Miller Lite brand.
Buying StarBev, the Amsterdam and Prague-based maker of Staropramen, from CVC Capital Partners Ltd. will help ease the burden of declining markets in both North America and the U.K. 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.
StarBev 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 central and eastern Europe 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.
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, (CARLB) 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.
“Beer consumption in these new markets has exhibited volatility in past recessions, so with higher growth may come some greater fluctuation in financial results,” Moody’s Investors Service said in a statement yesterday as it lowered the credit rating (TAP) on Molson Coors one level to Baa2.