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Mobile background image of freshly poured beer

Group Created with Sketch. What’s on tap for the global beer market? The beer industry: Pouring both pints and profits away from the sector August 14, 2018

As one of the oldest and most widely consumed beverages, beer remains in the thick of a challenging era. Over the last several years, the global beer industry has experienced a roughly stagnant if not decelerated market with various factors impacting consumption. Having to face structural challenges, tighter regulation, higher competition, and a change in consumer habits, brewers are focusing on innovative strategies and distribution channel developments to maintain their returns and margins. This report from J.P. Morgan’s Global Research team analyzes the state of the global beer market, the rise in premiumization and the growing complexities companies have been challenged with.

The Beer Olympics: Who’s in First Place?

Although global consumption has been leveling off, some regions have been roughly stable and withstood increasing portfolio complexity and stricter retail access. Traditional markets such as North America have been flat while developing markets are experiencing growth. Latin America (LatAm) accounts for 17% of world consumption, and demand has been growing at a compound annual growth rate (CAGR) of 1.2%, led by Mexico, where demand is expanding at a 3.4% CAGR, the fastest in the region.

Global Beer Consumption Created with Sketch. Global Beer Consumption Last 5Y CAGR Source: Kirin Beer, J.P. Morgan, CAGR for the 2011-2016 period Europe Japan -1.7% -1.3% -1.0% -0.4% 0.1% 0.1% 0.5% 1.2% 4.3% Middle East Oceania Central and South America Africa Asia (ex- Japan) North America Global Total

In terms of global consumption, China takes the gold as the largest beer market with 22.4%, followed by the U.S., which accounts for 13%, and Brazil with 6.8%.

World's Largest Beer Markets Created with Sketch. China United States Brazil Germany Russia Mexico Japan United Kingdom Vietnam Spain Poland South Africa India Columbia South Korea Canada France Czech Republic Thailand Romania Argentina Italy Ukraine Australia Philippines World’s Largest Beer Markets Source: Kirin Beer, J.P. Morgan 41.8% 24.2% 12.7% 8.4% 8.4% 8.0% 5.3% 4.4% 4.1% 3.9% 3.9% 3.1% 2.7% 2.4% 2.2% 2.1% 2.1% 2.0% 1.9% 1.8% 1.8% 1.7% 1.7% 1.7% 1.6%

Away from China, beer sales are declining in other traditionally large markets such as Australia and Germany. Various factors explain this change in consumption, including tougher retail access, a shift in consumer preference towards craft beer and other alcoholic beverages such as spirits. In other countries such as the U.S., consumption has also decelerated. However, even with the rise in competition from other beverages, consumption continues to expand in emerging economies such as India, Thailand, South Africa, Mexico and Vietnam, where demographics and income per capita have boosted consumption.

5 Yr Beer Consumption Created with Sketch. Ukraine Russia Canada Australia China Japan Germany United Kingdom Argentina World Total Brazil United States Czech Republic France South Korea South Africa Romania Poland Colombia Thailand Mexico Spain India Vietnam -9.2% -4.6% -1.8% -1.6% -1.4% -1.3% -0.8% -0.5% -0.5% 0.1% 0.1% 0.3% 0.8% 0.9% 1.1% 1.4% 1.4% 1.6% 2.2% 2.7% 3.4% 3.6% 7.9% 8.0% 5Y Beer Consumption CAGR by Country Source: Kirin Beer, J.P. Morgan, CAGR for the 2011-2016 period

Drinking Less, but Drinking Better

Premiumization is far from a new trend, but has played significant importance in shaping the global beverage industry. Consumers are willing to pay more for better quality products, exclusivity and a more enjoyable consuming experience. Over the years, large markets such as U.S. and Australia have trended towards premium beer with high growth emerging markets following suit. In LatAm, the penetration of premium brands has increased 3-4 percentage points above mainstream and value brands, while the number of micro and independent brewers has also increased (from a low base).

Source: US Brewers Association link

When it comes to launching a premium product, brands can only do so much, as real premiumization is actually determined by the customer according to Asahi Europe’s CEO Hector Gorosabel.

“Premiumization is an outcome rather than an objective,” Gorosabel said. “It’s what happens when you’re at your best; when you can bring unique and interesting stories to the customer. Ultimately, premiumization depends on whether your customer or consumer thinks you deserve it. You might think you deserve it because the cost of making it was higher, but ultimately you've got to deserve it in the eyes of the customer.”1

1The future of the beer market: “You can’t talk about growth without talking about premiumization,” 15-May-2017, by Rachel Arthur.

So What’s Brewing?

In an age of premiumization and shift in customer preferences, brewers and brands must recognize that traditional plans for growth might not align with their target audience or cultural trends. To overcome such challenges, companies are focusing on new strategies including increasing portfolio and channel complexity, reducing the lead times of product innovation and understanding consumer needs and aspirations.

ABI is the Leading Global Brewer with Roughly 27% of Global Volumes

2008 2009 2010 2011 2012 2013 2014 2015 2016
ABI 26.2% 26.2% 26.5% 26.4% 26.2% 25.9% 26.2% 26.8% 27.3%
Heineken 9.2% 8.9% 8.7% 8.8% 9.0% 9.0% 9.1% 9.4% 9.7%
China Resources 4.3% 4.9% 5.4% 5.8% 5.8% 6.2% 6.0% 6.0% 6.1%
Carlsberg 6.7% 6.7% 6.4% 6.4% 6.4% 6.3% 6.1% 5.9% 5.9%
Molson Coors 6.0% 5.8% 5.6% 5.4% 5.2% 5.1% 5.0% 5.0% 4.9%
Tsing Tao 3.1% 3.4% 3.6% 3.7% 4.0% 4.4% 4.6% 4.4% 4.1%
Asahi 3.8% 3.7% 3.5% 3.4% 3.4% 3.2% 3.3% 3.3% 3.4%
Beijing Yanjing 2.3% 2.5% 2.7% 2.9% 2.8% 2.9% 2.7% 2.5% 2.2%
Kirin 2.7% 2.7% 2.7% 2.5% 2.5% 2.4% 2.3% 2.3% 2.2%
Constellation 0.9% 0.9% 0.9% 0.9% 1.0% 1.0% 1.1% 1.2% 1.3%
Others 34.8% 34.3% 34.1% 33.9% 33.7% 33.6% 33.6% 33.3% 32.9%

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Source: Bloomberg Intelligence Primer

In an effort to build an expanded portfolio and provide more choice for consumers globally, Anheuser-Busch InBev (ABI) solidified its leadership position in global beer volumes with the acquisition of SABMiller in 2015-16. Following the acquisition, ABI had around 27% market share globally in 2016 followed by Heineken with 9.7% and China Resources with 6.1%. Although still facing distribution headwinds after their acquisition of Brasil Kirin, Heineken has enjoyed above average accelerated sales in the latter half of 2017 and in early 2018. Keeping a solid expansion pace and consolidating its position, the company grew double digits in Q4 2017 and Q1 2018. At the same time, total beer demand (based on taxable shipments) declined 3.6% industrywide in the first two quarters of 2018. While demand fell about 9% for Asahi and Sapporo and about 1% for Suntory, Kirin rose 3.3%.

As the beer market continues to become more saturated, focusing on value over volume and understanding the fast-changing consumer is more important than ever. In addition to testing different strategies and releasing diverse products, several leading brands have begun experimenting with news forms of technology, such as using artificial intelligence to help brewers efficiently test different taste combinations. While beer may be one of the oldest and most popular drinks in the world, even tradition needs innovation.

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