Big Beer Brands Looking Abroad for Growth

Emerging and frontier markets are beer makers' newest targets

   

Molson Coors Brewing Company (NYSE:TAP) recently closed on its purchase of Central European brewer StarBev for $3.54 billion, a couple of months after the deal was first announced.

The division, to be renamed Molson Coors Central Europe, has breweries in the Czech Republic, Serbia, Croatia, Romania, Bulgaria, Hungary, Montenegro, Bosnia-Herzegovina and Slovakia — quite an expansion from its usual markets of the U.K, Ireland, Canada and the U.S.

Overall, Molson Coors’ net income was down in its most recent quarter. While this was blamed on the cost of the buyout, other companies — like the world’s second-largest brewer, SABMiller (PINK:SBMRY) — have struggled in the mature markets of Western Europe and North America.

Tough times in established markets means spending less while bar-hopping and drinking less beer at home — which translates to less cash in the pockets of beer makers. And so, producers are instead heading to places where growth is high and beer sales aren’t as turbulent, putting their money into emerging and frontier markets.

While Molson is starting with Central Europe, SABMiller has been focusing on Africa.

SABMiller plans to continue its expansion across the continent, where beer volumes were up 10% year-over-year, not including the mature South African market. The company will invest anywhere from $400 million to $500 million a year for up to five years to build new breweries and update existing ones in Africa.

Never mind that, according to Reuters, it takes a worker in Africa an average of three hours of wages to afford a beer — 15 times longer than a worker in Europe.

Africa has other things going for it, though: Namely an exploding population that is set to double by 2050, above-average economic performance with annual GDP growth of 5% and strong mining and energy industries. Even in the promising markets of Latin America and Asia, population growth hovers around 1%.

Also, the International Monetary Fund forecasts that seven of the 10 fastest-growing economies through 2015 will be in Africa (Asia has two countries that rank in the top five).

Heineken (PINK:HINKY) and spirits maker Diageo (NYSE:DEO) also have stakes in Africa. Heineken, for example, has almost 70% of the market share in Nigeria, according to Reuters. The country is not only Africa’s most populous nation and second biggest beer market, but is one of the company’s most profitable markets as well, second only to Mexico. Meanwhile, Johnnie Walker maker Diageo recently announced it was investing $1.5 billion to increase production of its scotches, which is popular not only in traditional emerging markets, but Africa, too.

SABMiller has been rewarded by its forays in African and Latin American markets, which made up 70% of the company’s profit as it boasted a 12% rise in full-year earnings. So it’s definitely no surprise that other alcohol makers are looking to find regions with similar potential.

The same old markets just aren’t cutting it anymore. Luckily, the demand for a tall, cold beer after a long day of work is growing globally.


Article printed from InvestorPlace Media, http://investorplace.com/2012/06/big-beer-brands-looking-abroad-for-growth/.

©2014 InvestorPlace Media, LLC

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