AB InBev, SABMiller merger, likely to trigger higher beer prices, says analysts

beer

The $108bn merger of AB InBev and SABMiller is likely to trigger higher beer prices for consumers around the world. That is the assessment of industry analysts with knowledge of the internal workings of the company.

Assuming AB InBev is able to overcome regulatory hurdles it faces in some countries, the merger would give the company a foot hold in nearly every major market in the world with a 28.4 percent market share (after accounting for expected divestitures), which would be nearly three times its closest rival, Heineken NV, according to Plato Logic, a beer industry tracker. The combined companies would generate $64bn in revenue.

The new company’s share of major markets would be – U.S. (46%), Mexico (57%), Africa (33%), Brazil (63%) and the rest of Latin America (62%), according to Plato Logic.

According to Euromonitor, a market research firm, the combined companies will have six of the top 10 brands globally, including brands like Bud light, Budweiser, Skol, Harbin, Brahma, Snow, Pilsner Urquell and Peroni, among others.

These brands would be added to the portfolio of three global brands – Budweiser, Corona and Stella Artois – that AB InBev has been pushing into all corners of the world, often at higher prices than they get in their home markets.

A-B-InBev-SABMiller-Brands-1

According to CLSA analyst, Caroline Levy, AB InBev has a history of using acquisitions to boost profitability by cutting costs and steering consumers towards more expensive brands. In the past, AB InBev has bought regional brewers in China, eliminated the regional beers, and then guided consumers towards Budweiser, which cost about three times more than the Chinese beer and AB InBev’s own Chinese brand, Harbin.

Levy says AB InBev’s strategy rests on trying “to move everyone up the value chain” to more expensive beers. The effort has been so effective that more Budweiser is now consumed outside the United States than in the home country of the beer.

Similarly, SABMiller has a history of doing the same in Africa. Castle Lager and Castle Milk Stout, which are leading brands in South Africa and considered by South Africans as the best beer on the continent, are sold in every market, where SABMiller has a presence on the continent.

The merger relieves AB InBev of its most pressing problems, what to do about the slow-growth in its major markets, with contracting beer volumes. In the U.S. and Brazil, which account for half of the company’s sales, beer volumes fell 3.9 percent over the first half of 2015 to 80.5 million barrels, from 83.7 million barrels.

Analysts don’t expect much to change. Beer consumption in developed markets is on the wane and expected to shrink this year by 0.1 percent for the first time in 30 years.

Global growth in beer volumes are expected to come from Africa, with a 2.6 percent rise this year, in a continent, where SABMiller has 34 percent market share.

You may also like:

Leave a Reply

Your email address will not be published. Required fields are marked *