World: Premium beer seen as key route back to profitability

Premium beer offers ‘a key route back to profitability’, according to Rabobank, as new figures show a decline of 1.8% in global consumption of beer.

The Dutch bank said brewers must encourage consumers to trade up in order to weather a sustained dip in sales. Figures show that decline in beer consumption is worsening – down 1.8% last year, compared to an average decline of 0.6% since 2013.

Brewers have been hit by headwinds including more health-conscious consumers, sluggish wage growth in many countries, and government measures including increased taxation and advertising bans. The number of drinking-age consumers is also slowing, as the demographics of the beer market shift.

Rabobank also pointed to beer-and-food pairings, as well as further industry consolidation, as solutions to the sector’s downward spiral.

Francois Sonneville, senior beverage industry analyst for Rabobank, said: “Global brewers have had it tough since 2013. Much of the previous decade’s volume growth can be traced back to an increase of almost 2% per year in the legal drinking age population. But this is forecast to decline to just 1% over the next 10 years, so the focus needs to be on enhancing the product, not just pushing volumes.”

Rabobank has outlined three strategies to improve consumption and profits, centring on the theme of premiumisation. The agribusiness bank says there is a clear opportunity for brewers to partner with restaurants, offering international beers to complement different cuisines. Cobra has successfully grown volumes by being offered by Indian restaurants and Asahi, which last year acquired Peroni from Anheuser-Busch, is looking to push the beer into Italian eateries.

It said that brewers can also premiumise their portfolios by encouraging consumers to trade up from mainstream to more expensive craft beers. In the US, a super-premium craft beer costs 80% more than a mainstream beer, and is around twice as profitable per unit, Rabobank said. Over the past 15 years, the super-premium segment has increased its value share of the market from 6.6% to 13.5%, with further growth expected.

And brewers can continue to buy growth through consolidation, with Anheuser-Busch increasing its market share through its merger with SABMiller and Heineken consolidating its position with several craft investments.

“While smaller firms are unlikely to be able to compete on price, they can nevertheless generate efficiencies from consolidating,” Rabobank said.

Sonneville added: “With the popularity of the super-premium and foreign beer segments, it would be wise for brewers to consider mergers with smaller makers to benefit from access to different markets and lower their costs per hectolitre.

“While we expect consumption to continue to slow over the coming years, there will still be opportunities for brewers to thrive, though a change of tack is needed. Consumer experience will be key. Brewers must be ready to adapt to the new landscape.”

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