Global hop marketA local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms.
Hop Market in RussiaGermany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.
10+1 trends of Russian beer market 2015-2017Despite of the moderately negative prognoses for 2017, the beer market can be stabilized soon. Yet the years of the negative dynamics have resulted in marketing being limited just to “optimization” and the art of balancing between price and volumes. Bigger supermarkets share means stronger trade marketing. These processes are connected to the majority of the described trends. At the same time, the federal brands inflation leads to searching for new tastes, sales channels and contact formats that expand the product range and diversify the beer market, but do not imply a substantial volume increase. Let us enumerate and further discuss the ten trends of the beer market we can see in 2015-2017 as well as the major event of 2017.
Beer market of Ukraine 2017In the first half of 2017, the Ukrainian beer market goes on decreasing slowly. Yet, the companies manage to compensate their lost volumes by raising prices and improving the sales structures. This results in the mid price market segment reduction while the sales of premium brands are rising. These processes are connected to position strengthening of companies Carlsberg Group and Oasis and the market share reduction of Obolon. Most of the novelties by the market leaders belong to craft or hard lemon categories.
Beer market of Russia 2016: PET goes to draftThe beer market of Russia was warmed up by the hot summer, but the preparation for large volume PET prohibition has already impacted it negatively. The year was successful for Efes, MBC and regional producers; Carlsberg’s positions were virtually stable but AB InBev and Heineken lost a part of market share having focused on the sales profitability. The dynamics of big brands was determined by how much the companies were willing to keep the prices down or by their promotional activity. In this context the economy segment of the beer market and sales of inexpensive draft beer were increasing. The premium segment started shrinking due to license brands migrating to the mainstream segment.
Japan. It’s Miller time for Asahi
That's why Amazon is planning to enter the logistics and bricks-and-mortar businesses and also explains Asahi's decision to spend $2.9 billion picking up the Peroni and Grolsch brands that SABMiller is shedding ahead of its takeover by Anheuser-Busch InBev.
Japan's largest brewer has a great brand in its home market, but struggles for traction elsewhere. Meanwhile, Japan's increasingly cosmopolitan nightlife is stoking demand for exciting new beverages. By placing leading European and Asian beer brands under one corporate umbrella, Asahi wants to give each side more prominence in its respective export markets.
That's the theory, anyway. Pulling it off will be a lot harder.
The globalization of Asahi beer is certainly in need of a kick. Overseas sales volumes rose about 36 percent from 2011 to 2014, according to the company's 2014 annual report. That sounds healthy until you consider that Carlsberg, an equivalent brewer focused on a single core brand, added 64 percent to its Asian sales volumes alone over the same period:
A telling fact buried in Asahi's takeover-talks announcement Wednesday night is that the real crown jewel of the businesses it's picking up isn't the Peroni or Grolsch brands. Nearly half the earnings come from Miller Brands, a beer distributor SABMiller uses to bring European and American commercial labels into the U.K.:
That makes a lot of sense. Beer, especially mass-produced lager like Asahi's Super Dry, is a fairly commoditized product. Modern contract breweries can typically turn out a range of different brands more or less at the flick of a switch. Distribution, on the other hand, is based on relationships. It's bespoke, and hard to replicate. Even the mighty AB InBev, which commands more than a fifth of the global beer market, hasn't been able to reduce its delivery costs to much less than 10 percent of revenues:
Asahi looks to be paying a high but not excessive price for this sales channel. The multiple of about 30 times Ebit is nearly double the median 15.5 times from 20 brewery takeovers worth more than $1 billion, according to data compiled by Bloomberg. Then again, it's only a shade ahead of what AB InBev is offering SABMiller, and a rather smaller multiple than the one SABMiller gave Grolsch back in 2007. Set against book value, the 4.6 multiple is almost bang on the 4.7 median of 21 deals, the data show.
The bigger issue is not really the price, but the question of whether this deal will do the job. Sales revenues have been falling for two years at Peroni and are static at Grolsch; Ebit at each brand declined about 27 percent last year. Miller Brands has been delivering a captive portfolio of SABMiller labels to date, and may not be quite so profitable if it has to compete on more arms-length commercial terms or loses its remaining SABMiller brands altogether.
Distribution of physical goods can also resemble the virtual supply chains assembled by tech companies: if you're an Apple or a Google you have some muscle, but second place is first loser. And Asahi's not buying itself anything so strong as a second-place label: neither Grolsch or Peroni are even in the top 10 European brands by volume.
If the acquisition can help Asahi cement its place as a global brewer, it has promise. But it's not a deal investors should drink to just yet.
11 Feb. 2016