Nick Petrillo, beer and spirits analyst, IBISWorld, says the resulting expansion of popular brands is good news for the beer market as a whole, offering consumers more choice and shaking up a stagnant market.
In particular, gaining access to SABMiller’s distribution network in Africa is an ‘enormous strategy victory’ for AB InBev, he adds.
The prize: Africa
A deal between AB InBev and SABMiller to create the world’s largest brewer has been agreed in principle this week.
With South Africa and Mozambique showing impressive growth, these countries are likely to be particular focus points for the new entity, said Petrillo.
“Since SABMiller’s brand portfolio already contains a significant number of local African brands, the most likely strategy will be for SABMiller to stay the course with their current offerings in the region, but to complement these brands with AB InBev brands that have demonstrated success elsewhere throughout Latin America and North America.
“SABMiller centralizes its brewing operations in Botswana, Mozambique, Nigeria, South Africa, Tanzania, Uganda and Zambia. Among those countries, look for South Africa (net producer revenue growth of 9.0% in 2015) and Mozambique (NPR growth of 22.0% in 2015) to be areas of intense interest going forward.”
Global beer market
A tie-up between AB InBev and SABMiller is ‘a new high’ for the global beer industry: shaking up a stagnant market and widening consumer choice, said Petrillo.
The backdrop to the deal is a market has struggled with declining per capita beer consumption and relatively flat volume growth for some time in North America and Europe.
For consumers, the deal will mean better access to more popular brands – meeting a demand for choice. The combination of the two beer giants’ distribution networks (AB InBev and SABMiller are currently the biggest and second biggest brewers in the world respectively) will mean popular brands can reach new regions.
“This additional outreach is good for the beer market as a whole, specifically because it will give consumers greater choice in brands,” said Petrillo.
Antitrust issues
AB InBev already has a strong presence in North and South America. But both AB InBev and SABMiller only see minimum growth potential in the US: it is other regions that are the attraction.
SABMiller’s distribution network will give AB InBev far better brand manufacturing and distribution access in the untapped areas of Africa and Asia, said Petrillo. SABMiller has already been expanding presence in Central Europe, alongside its coverage of Africa.
“The merger will fill in the two companies’ respective geographic gaps in distribution and combine to make a massive global brand portfolio that includes the likes of Budweiser, Stella Artois, Beck’s, Hoegaarden, Michelob, Foster’s, Cascade, Grolsch, Indus Pride, Leinenkugel’s, Mercury, Miller High Life, Milwaukee’s Best, Peroni, Olde English, Pilsenm Pilsner Urquell, Redd’s and many more.”
But what about antitrust issues? Petrillo notes MillerCoors as an area that has already attracted much attention.
“The US poses some initial concern, since AB InBev and SABMiller’s MillerCoors joint venture with Molson Coors currently represent a substantial portion of US premium beer sales.
"Expect the two companies to pre-empt US Department of Justice investigations through an agreement on behalf of SABMiller to sell their stake in the MillerCoors joint venture as a proactive measure.
“Elsewhere, expect similar antitrust issues in China, where SABMiller operates another joint venture with China Resources Enterprise to produce the company’s popular Snow beer brand.”