A storm is brewing

27 June, 2008

Fasten your seatbelts and expect some turbulence as the behemoths of the beer world get ready for a major shake-up. Nigel Huddleston investigates the possible outcomes of the current negotiations

If Inbev's attempted acquisition of Anheuser-Busch comes off it will set in chain the biggest upheaval the take-home beer category has seen in modern times.

Should the $46 billion deal survive Busch family reluctance, the probings of anti-trust regulators and animosity from both consumer and business lobbies in the US, it will create the world's biggest brewer and the fifth biggest consumer products business on the globe.

At the micro level of the UK off-trade, it could see a fundamental shift in

power of today's

beer brands, with market-leading Stella Artois backed by a powerful running mate in the form of Budweiser.

In his letter outlining the offer to Anheuser president August Busch IV, Inbev chief executive Carlos Brito said: "We would position Budweiser as our global flagship brand, leveraging our international footprint to enhance the brand's image and exposure."

As many commentators have noticed, Brito's letter was a flattering - if not fawning - seduction tool, so whether Bud would be allowed to usurp market-leading Stella in the UK is questionable.

What seems certain is that the two would become comfortable stablemates given the complementary nature of their market positions in the UK: Bud is strong in bottles, Stella in cans and on draught.

"There's a judgement

to be made as to what fits where in the market," says one senior industry analyst, "because Inbev has clearly been trying to reposition Stella Artois as a premium brand again and get rid of its lower cost image in the off-trade. Bud would fit in well at Inbev in the premium packaged lager sector, but less so in draught."

When coupled with the Heineken acquisition of Scottish & Newcastle UK, retail buyers would be faced

with two national account teams controlling more than half

the top 20 off-trade

beer brands.

Providing Anheuser-Busch and Mexico's Grupo Modelo don't come together to pull the rug from under Inbev , the Belgian giant would potentially have a grip on Corona - the second biggest beer brand in the world and almost certain to enter the UK top 20 this year - as

it would acquire Anheuser's current 50% stake in Modelo.

Gerard Rijk, of Dutch analysts ING Groep, has described Modelo as "not a poison pill" as some see it for Inbev, but "a big opportunity".

Corona is arguably a bigger prize in the sunny Latino beer stakes than Inbev's own Brahma, which has failed to convert a high-profile launch into sustained growth in the UK. With Inbev's Beck's and Leffe both also outselling Brahma, the latter increasingly looks like a lower priority in the UK market post-takeover.

The big two brewers could easily become a

big three if SAB Miller

can extricate Grolsch from what is thought to be a long-term contract with Coors Brewers in the UK market.

SAB's UK operation already has three brands in the top 25 in the UK and - despite a recent underwhelming performance for the brand - Grolsch would instantly give it a volume premium lager to bolster its portfolio.

Since buying Grolsch late last year, SAB Miller has

launched

it into South Africa and taken back the US distribution rights from Anheuser, showing that it's in no mood to hang about.

That leaves Coors' position in the UK beer category looking most vulnerable. While its rivals in the world

market are busy snapping up the big acquisition targets, the US company has been tied down securing a domestic distribution deal with SAB Miller - key to its future in North America, but seemingly of limited relevance on the wider stage.

The combined clout of Foster's

in the Heineken/S&N stable and a

Stella and Budweiser dream ticket make Carling's long-standing hold on the off-trade 's number two beer spot less than certain.

Coors must be favourite to pick up any fallout brands - particularly in premium lager - from the two big acquisitions.

Kronenbourg has been hotly tipped for the exit door at S&N despite being tied into a 50-year brewery contract and being publicly

named by Heineken top brass as a core brand in the UK.

As one industry insider put it: "Clearly Kronenbourg and Heineken in the same portfolio appears a premium mismatch and, at some point, something will have to give, despite the 50-year brewing contract, which could mean that contract being assigned to another brewer."

Another analyst, who didn't want to be named, said: "Why would Heineken, keen to assert its own brand in Britain, brew a major competitor's premium lager in the long-term? It pulled out from Inbev, which was brewing Heineken in the UK only a short time ago, for the same reason."

San Miguel is arguably a more attractive long-term proposition than Kronenbourg for Coors. While Kronenbourg outsells San Miguel

in the UK, the latter brand is in growth while the former is declining, and San Miguel is known to want out of

Heineken-controlled S&N as the Dutch brewer is its main rival in Spain.

One industry observer says: "When you get deals of this size there is fall out of brands and it is usually very attractive for everyone else who's waiting. San Miguel is a

well-established brand in the British psyche because people go to Spain and drink it there, and S&N has done a very good job in marketing it at the top end."

Whatever the detail, the beer market of tomorrow is sure to look very different

to that of today.

Top 10 off-trade beers and their suppliers today ...

1 Stella Artois Inbev UK

2 Carling Coors

3 Foster's S&N/Heineken

4 Carlsberg Carlsberg UK

5 Budweiser Anheuser-Busch

6 Carlsberg Export Carlsberg UK

7 Kronenboug 1664 S&N/Heineken

8 Grolsch Coors

9 John Smith's Extra

Smooth S&N/Heineken

10 Beck's Inbev UK

Source: Nielsen/OLN Beer Report 2007

... and how they might look in five years' time

1 Stella Artois Inbev-Anheuser

2 Budweiser Inbev-Anheuser

3 Foster's Heineken UK

4 Carlsberg Carlsberg UK

5 Carling Coors

6 Heineken Heineken UK

7 Corona Inbev-Anheuser

8 Grolsch Miller Brands UK

9 Beck's Inbev-Anheuser

10 San Miguel or

Kronenbourg 1664 Coors

Source: OLN's own predictions




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