Buz Investors Microbrewery Competition An explosion in craft beers and microbrewery options is negatively affecting industry pricing and profitability.
AB InBev has dramatically increased its debt position with the SABMiller acquisition in late 2016.
Future challenges for the alcoholic beverage industry include a rising U.S. Dollar value, trade protectionism risks, and spiking interest costs on debt.
Anheuser-Busch InBev SA/NV (NYSE:BUD) is the world’s largest brewer. Headquartered in Belgium, AB InBev became even bigger this past October when it completed the acquisition of SABMiller assets. Buying mostly African and Latin American properties and revenues, the company now claims 7 of the 10 most valuable beer brands on planet earth. A result of stagnating volumes and sales in America and Europe, AB InBev figures its best chance to grow shareholder value is through cost-cutting in SABMiller‘s supply chain. Another desirable side effect is the elimination of an important competitor and related pricing pressures on its core product offerings. The main profit restraining issue the entire “established” liquor and beer industry faces today is the rise of microbreweries and craft beer acceptance globally by drinkers.
Craft Beer and Microbrewery Competition
Craft beers and smaller breweries have exploded in numbers starting in the 1980s. Below is a good chart to ponder, showing the number of companies making beer the last century. Falling from 2000 in the late 1800s to just 89 during 1979, several large beer companies like Anheuser-Busch had tight control over U.S. price competition. However, the number of beer production businesses in America has exploded above 3000 into 2017, according to the Brewers Associatio
Millennials and younger consumers are gravitating toward local beer options as a first choice, hurting alcohol demand at the big boys like AB InBev. The existing company before the SABMiller purchase actually witnessed a drop in volumes sold across much of the world in 2016 vs. 2015, as new entries take market share. This trend of stagnation in demand has been going on for many years at the large beer and spirits corporations. They have been raising profitability levels basically by controlling costs and trying to push through price increases whenever possible. However, price increases are not easy to hold as competition from local brewers heats up. Here is a Goldman Sachs video on the growth of craft beers, and their expectation of such spreading globally, at the same time as wineries and spirits production/competition seems to be headed into overdrive.
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