Something’s Brewing

Our Outlook on the global beer industry

Something’s Brewing

Today’s highly concentrated alcoholic drinks industry surpasses $1 trillion in annual sales, and its total market volume is predicted to reach almost 210 billion liters in 2015, a 10 per cent increase in the last five years. Most of the value in the sector is captured by a small group of multinationals like Diageo, Bacardi, and Brown-Forman. They dominate production and inform tastes through extensive and well-funded marketing.

Something's Brewing

Something’s Brewing

But we have also seen a wave of new, high-end alcoholic products going global very quickly, potentially threatening the market share of multinationals’ established products. Because of changing values, a globalizing culture, and tougher regulations, the industry is opening itself up to new entrants who use unconventional marketing techniques.

We can see these trends in the beer segment in particular. Beer accounts for the vast majority of global volume sales of branded alcoholic drinks: most of the top 10 alcohol producers by volume are brewers. However, some of the most successful brewers of the past decade have been young, smaller producers like Brooklyn Brewery. Increasingly their acquisition by multinational brewers (AB-InBev’s acquisition of Chicago craft brewery Goose Island in 2011) reflects these smaller producers’ advantages in reaching an affluent demographic of consumers.

Global Demand for Beer

The United States dominates demand for beer globally, accounting for $60 billion in annual sales (followed by Russia and Japan). In per capita consumption terms the 2014 leader is Australia.

The post-financial crisis recovery in alcoholic drink sales appears to have peaked in 2011. Since then volume growth has decelerated. A combination of factors are likely responsible. Economic growth in emerging economies like Brazil, China, and especially Russia has slowed, dampening disposable income for affordable luxuries like alcohol. In the developed world, where almost twice as much alcohol is purchased out of the home in value terms, Europe’s economic stagnation has diminished the number of consumers going out regularly to enjoy beer.

Something's Brewing

Something’s Brewing

While Australia leads the world in terms of US dollar per capita beer consumption its preferences appear to be shifting away from beer and more towards wine. In the United States and Europe, craft beer appears to be making major gains amid total declines in beer volume. Beer consumption in Asia – especially in China, India, and Malaysia – has grown strongly over the past five and ten years, and it is expected to be strong in the near to medium term as well. Dramatic consumption growth in Latin American countries like Brazil and Argentina has stalled, largely due to slowing growth in commodity-exporting countries like Brazil.

Feeling Crafty? The Microbrewery Revolution

Independent brewers are making a small but measurable dent in the market share of mass-market beers in the US and Europe. Because the US dominates global beer consumption, the trend in that country is noteworthy and representative of the trend across developed countries.

Until the 1980s very few US breweries made beer that had European qualities of richness, hoppiness, and high alcohol content. That has changed in the past 20 years. There were 537 US craft breweries in 1994 but by 2013 there were 2,700, according to The Craft Beer Revolution by Steve Hindy, founder of Brooklyn Brewery.

The explosion of US microbreweries is firmly consumer-driven, showing the limitations of the power of big brewing companies to dictate taste through marketing and distribution. Over 1,500 new craft breweries were in the planning stages in 2014, adding to the thousands already in operation from California to Maine.

Figure 1:  Average Growth Rate in Constant  2014 Prices  (Euromonitor)

Figure 1: Average Growth Rate in Constant 2014 Prices (Euromonitor)

Craft beer production was up 9.6 per cent in 2014 while overall beer production fell 1.4 percent in the US, according to a Technomics report. The continued popularity of specialty beers is driving a new crop of beer makers. “Over the last couple of years the number of new brewery openings has been at nearly unprecedented levels,” said Bart Watson, an industry specialist, in the report. “We’re seeing breweries open at about a rate of 1.2 per day.”

Beer Consumer Expenditure per capita (2014)

Beer Consumer Expenditure per capita (2014)

This trend is not constrained to the United States. Although Europeans are drinking 8.5 per cent less beer than they were before the recession, the number of breweries has grown by 73 per cent. Introduction of microbreweries is the reason for the jump. In the UK the number of breweries has doubled since 2010 (even though more than 30 pubs close every week), according to industry trade body Campaign for Real Ale. Furthermore, exports are booming as increasing international demand for craft products coincides with a growing thirst for British beer.

Beer - Consumption Growth (local currency, constant prices, 2014)

Beer – Consumption Growth (local currency, constant prices, 2014)

In sharp contrast to the exponential growth of craft beers the multinational brewers are suffering. Anheuser-Busch InBev, the world’s largest brewer, reported falling sales in all parts of the world with one exception: Latin America. Hoping to emulate the performance of Converse and Levi’s, long established retail brands that have reconnected with youth, the company announced plans to engage with younger customers. But is it too late?

In For a Hangover?

In the next five years developed markets are expected to see beer demand fall, while emerging markets are predicted to counterbalance this decline, according to Euromonitor. Demand for beer is set to decrease in the EU in particular, but it seems poised for growth in Asia, Latin America, Africa, and to some extent the Middle East.

However, with a less-than-favorable environment in some of the largest emerging markets in the 2015-2018 period, the alcoholic drinks industry’s resilience is being put to the test. After three years of recovering consumption volumes worldwide, the market appears to be reversing.

Global beer companies who want to grow their earnings will need to not only accelerate their expansion to emerging markets but also climb to higher-value niches in developed countries, competing for market share with the craft brewers.

Fairwell 18th Amendment!

Fairwell 18th Amendment!

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