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

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 for October 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’s 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%. During the same period, MillerCoors’ sales to retailers were down 1.7% in the second quarter.

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

News Briefs:

•Healdsburg-based Seghesio Family Vineyards—part of the Crimson Wine Group portfolio—has unveiled Defiant, a new red blend. Made with Zinfandel, Cabernet Sauvignon, Alicante, Barbera and Syrah, Defiant will be available on- and off-premise starting next month, retail priced at around $38 a 750-ml. The blend joins Seghesio’s portfolio of flagship Zinfandels and red and white Italian varietal wines sourced from across the Alexander, Dry Creek and Russian River Valley regions.

•Heaven Hill Brands is introducing a major re-design for its flagship Elijah Craig Small Batch Bourbon. The brand’s new bottles are taller, with cleaner lines and feature “1789,” the year of the distillery’s founding, embossed on the glass. Additionally, a dark-brown stained wood closure now crowns the bottles. The initiative comes as Heaven Hill looks to boost Elijah Craig’s availability amid the current Bourbon craze. “We’re renewing our commitment to crafting Elijah Craig Small Batch so we can have it more broadly available in the market, rather than always on allocation or simply out of stock,” noted Heaven Hill president Max Shapira. Earlier this year, Heaven Hill revealed plans to invest $15.5 million in its Bernheim distillery, where Evan Williams, Elijah Craig, Larceny, Old Fitzgerald and other whiskies are produced.

•Boston Beer Co. has extended its Truly Spiked & Sparkling range with a new Sicilian Blood Orange offering. Rolling out nationwide, the 5%-abv entry will be available in six-packs of 12-ounce bottles ($10-$11 each). Sicilian Blood Orange marks the fourth flavor in Truly Spiked & Sparkling’s stable, joining existing Colima Lime, Grapefruit & Pomelo and Pomegranate expressions. Launched earlier this year, the Truly Spiked & Sparkling hard seltzers tout 100 calories per serving, with Boston Beer positioning the brand as a lighter alternative to wine, beer and cocktails.

•Technology company Drync is launching new iOS ordering and marketing apps for beverage alcohol retailers. Debuting in Massachusetts, New York and Minnesota, the platform allows consumers to browse real-time inventories via local retailers’ Drync-powered mobile apps and order for local delivery, in-store pickup or shipment. Retailers aligned with Drync on the new apps include Manhattan’s 67 Wines, St. Paul/Minneapolis’ Sunfish Cellars, and Boston’s Bauer Wines & Spirits and Blanchards Wine & Spirits, among others. Earlier this year, Drync partnered with e-commerce retailer eBay for the launch of eBay Wines, a portal for wine sales.

•San Francisco-based importer Maritime Wine Trading Co. has added Chile’s Viña Undurraga to its portfolio. Maritime will serve as exclusive U.S. importer for the winery’s Undurraga, Sibaris, Terroir Hunter and U labels, which collectively comprise vintage Brut and Brut rosé sparkling, Carmènére, Cabernet Sauvignon, Pinot Noir and Sauvignon Blanc offerings. Maritime—which also handles the Graham Beck, Jules Taylor, Mont-Ferrant and Quinta Nova brands, among others, in the U.S.—is part of the Bacchus Capital Management portfolio.

•The fourth annual “Cocktails for Comfort” fundraiser benefiting Breast Cancer Awareness will be held in New York October 7-16. Created by two-time breast cancer survivor Anne Marie Paolucci and her Chemo Comfort organization, the event will see 22 establishments across New York City and Westchester create signature cocktails, with proceeds donated to Chemo Comfort, which provides cancer patients kits to help manage chemotherapy’s side effects. Participating venues can be found on Chemo Comfort’s website.

Craft Brewing and Distilling News:

•Seattle-based Elysian Brewing Co. is releasing Saison Elysee as the latest entry in its specialty saison series. Originally brewed as a limited edition, draft-only offering in 2003, Saison Elysee is made with German Northern Brewer and Czech Saaz hops and Munich, Caravienne, Wheat, Caramunich and Premium 2-Row malts. The 6.4%-abv expression will be available in 22-ounce bottles and on draft in select U.S. markets for a limited time. Saison Elysee marks the second specialty saison launched by Elysian this year, following the rollout of Saison Poivre in May.

•A new brewery called On Tour Brewing is slated to open in mid-November on Chicago’s north side. The owner is Mark Legenza, a homebrewer who made it to the finals of the 2013 and 2015 National Homebrew Competition. The head brewer is Mark Poffenberger, who’s worked at Fat Head’s Brewery in Portland, Oregon, and Sun King Brewing in Indianapolis. On Tour’s 4,600-square-foot facility will include a 75-seat tasting room with a dozen rotating taps and space for a barrel-aging program. Poffenberger’s goal is to age stouts in heavily-charred Bourbon barrels and his IPAs and saisons in gin and Tequila barrels. Belgian-style dark ales, in turn, will be treated to red wine barrels.

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