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CASE EXAMPLE

Global forces and the European brewing industry

Mike Blee and Richard Whittington

This case is centred on the European brewing industry

and examines how the increasingly competitive
pressure of operating within global markets is causing
consolidation through acquisitions, alliances and
closures within the industry. This has resulted in the
growth of the brewers’ reliance upon super brands.
In the first decade of the twenty-first century,
European brewers faced a surprising paradox. The
traditional centre of the beer industry worldwide, and
still the largest regional market, Europe, was turning
off beer. Beer consumption was falling in the largest

Photo: Picturesbyrob/Alamy
markets of Germany and the United Kingdom, while
burgeoning in emerging markets around the world.
China, with 7 per cent annual growth, had become
the largest single market by volume, while Brazilian
volumes had overtaken Germany in 2005
(Euromonitor, 2006).
Table 1 details the overall decline of European beer
consumption. Decline in traditional key markets is due such as Tesco or Carrefour, which often use cut-price
to several factors. Governments are campaigning offers on beer in order to lure people into their shops.
strongly against drunken driving, affecting the More than one-fifth of beer volume is now sold
propensity to drink beer in restaurants, pubs and through supermarkets. German retailers such as
bars. There is increasing awareness of the effects of Aldi and Lidl have had considerable success with
alcohol on health and fitness. Particularly In the United their own ‘private-label’ (rather than brewery-branded)
Kingdom, there is growing hostility towards so-called beers. However, although on-trade volumes are falling
‘binge drinking’, excessive alcohol consumption in in Europe, the sales values are rising, as brewers
pubs and clubs. Wines have also become increasingly introduce higher-priced premium products such
popular in Northern European markets. However, as extra-cold lagers or fruit-flavoured beers. On the
beer consumption per capita varies widely between other hand, a good deal of this increasing demand
countries, being four times higher in Germany than for premium products is being satisfied by the
in Italy, for example. Some traditionally low- import of apparently exotic beers from overseas
consumption European markets have been (see Table 2).
showing good growth. Brewers’ main purchasing costs are packaging
The drive against drunken driving and binge (accounting for around half of non-labour costs), raw
drinking has helped shift sales from the ‘on-trade’ material such as barley, and energy. The European
(beer consumed on the premises, as in pubs or packaging industry is highly concentrated, dominated
restaurants) to the off-trade (retail). Worldwide, the by international companies such as Crown in cans
off-trade increased from 63 per cent of volume in and Owens-Illinois in glass bottles. During 2006,
2000 to 66 per cent in 2005. The off-trade is Dutch brewer Heineken complained of an 11 per cent
increasingly dominated by large supermarket chains rise in packaging costs.
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GLOBAL FORCES AND THE EUROPEAN BREWING INDUSTRY 89

Table 1 European beer consumption by country and year (000 hectolitres)

Country 1980 2000 2001 2002 2003 2004 2005

Austria 7651 8762 8627 8734 8979 8881 8970

Belgium 12945 10064 9986 9901 9935 9703 N/A
Denmark 6698 5452 5282 5202 5181 4862 N/A
Finland 2738 4024 4085 4136 4179 4370 N/A
France 23745 21420 21331 20629 21168 20200 N/A
Germany† 89820 103105 100904 100385 97107 95639 94994
Greece N/A 4288 4181 4247 3905 N/A N/A
Ireland 4174 5594 5625 5536 5315 5206 N/A
Italy 9539 16289 16694 16340 17452 17194 17340
Luxembourg 417 472 445 440 373 N/A N/A
Netherlands 12213 13129 12922 11985 12771 12687 12747
Norway* 7651 2327 2290 2420 2270 2490 N/A
Portugal 3534 6453 6276 5948 6008 6266 6224
Spain 20065 29151 31126 30715 33451 N/A N/A
Sweden 3935 5011 4932 4998 4969 4635 4566
Switzerland* 4433 4194 4141 4127 4334 4262 N/A
UK 65490 57007 58234 59384 60302 59195 N/A

* Non-EU countries; †1980 excludes GDR. Figures adjusted.

Source: www.Brewersofeurope.org.

Table 2 Imports of beer by country Acquisition, licensing and strategic alliances

have all occurred as the leading brewers battle to
Country Imports 2002 Imports 2004
(% of consumption (% of consumption control the market. There are global pressures for
or production*) or production) consolidation due to overcapacity within the industry,
the need to contain costs and benefits of leveraging
Austria 5.1 6.4
strong brands. For example, Belgian brewer Interbrew
Belgium 4.74 10.2
Denmark 2.6 N/A purchased parts of the old Bass Empire, Becks and
Finland 2.3 7.3 Whitbread in 2001 and in 2004 announced a merger
France 23 31 with Am Bev, the Brazilian brewery group, to create
Germany 3.1 4 the largest brewer in the world, InBev. The second
Greece 4.1 N/A
largest brewer, the American Anheuser-Busch, has
Ireland N/A N/A
Italy 27.15 37
been investing in China, Mexico and Europe. In
Luxembourg N/A 38.4 2002, South African Breweries acquired the Miller
Netherlands 3.2 14.4 Group (USA) and Pilsner Urquell in the Czech
Norway 5.4 N/A Republic, becoming SABMiller. Smaller players in
Portugal 1.1 N/A fast-growing Chinese and South American markets
Spain 11.7 N/A
are being snapped up by the large international
Sweden N/A 18
Switzerland 15.4 15.6 brewers too. Medium-sized Australian brewer Fosters
UK 10.9 12.3 is withdrawing from direct participation in many
international markets, for example selling its European
* Import figures do not include beers brewed under licence in home
country; countries vary in measuring % of production or consumption.
brand-rights to Scottish & Newcastle. Table 3 lists
Source: www.brewersofeurope.org. the world’s top 10 brewing companies, which
accounted for around half of world beer volumes.
There remain many small specialist and regional
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90 CHAPTER 2 THE ENVIRONMENT

Table 3 The world’s top 10 brewery companies by sales in 2005 of A313m, it is less than a twentieth
volume: 2005 of the size of Heineken. Its key products include
Grolsch premium lager and new flavoured beers
Company Share global Country of origin
(Grolsch lemon and Grolsch pink grapefruit). In The
volume (%)
Netherlands Grolsch holds the rights for the sale and
InBev 10.8 Brazil–Belgium distribution of the valued US Miller brand. About half
Anheuser-Busch 9.4 USA
its sales are obtained overseas, either through export
SABMiller 7.3 South Africa
(relocated to UK)
or licensing of production: the United Kingdom is its
Heineken 5.7 Netherlands second largest market. In 2005, Grolsch centralised
Morelo 2.9 Mexico its own production on a single new Dutch brewery
Carlsberg 2.9 Denmark to increase efficiency and volume, and opened a
Coors 2.6 USA small additional ‘trial’ brewery in order to support
TsingTao 2.4 China
innovation.
Baltic Brewery Holdings 2.2 Denmark/UK
Asahi 2.1 Japan Innovation and branding are core to the company’s
strategy. The company believes that its strong and
Source: Euromonitor International, The World Brewing Industry. distinctive beers can succeed in a market of increased
homogenisation. Its brand is reinforced by its striking
green bottles and its unique swing-tops.
brewers, such as the Dutch company Grolsch (see
below) or the British Cobra Beer, originating in the
InBev (Belgium/Brazil)
Indian restaurant market.
InBev was created in 2004 from the merger of Belgian
InterBrew and Brazilian AmBev. With a turnover of
Four brewing companies A13.3bn in 2006, it is the largest brewer in the world,
holding number one or number two positions in 20
Heineken (The Netherlands) different countries. Its well-known international brands
Heineken is the biggest of the European brewery include Beck’s and Stella Artois. Through a series of
businesses, and has three-quarters of its sales in acquisitions, InBev has become the second largest
the region. Total sales in 2006 were A11.8bn (£8bn). brewer in China.
About 5 per cent of sales are in Asia–Pacific and The company is frank about its strategy: to
17 per cent of sales are in the Americas. The transform itself from the biggest brewing company in
company’s biggest brands are Heineken itself and the world to the best. It aims to do this by building
Amstel. The company remains a family-controlled strong global brands and increasing efficiency.
business, which it claims gives it the stability and Efficiency gains will come from more central
independence to pursue steady growth internationally. coordination of purchasing, including media and IT;
Heineken’s strategy overseas is to use locally from the optimisation of its inherited network of
acquired companies as a means of introducing the breweries; and from the sharing of best practice
Heineken brand to new markets. It aims to strengthen across sites internationally. Although acquisitions
local companies by transferring expertise and continue, InBev is now emphasising organic growth
technology. The result is to create economies of scale and improved margins from its existing businesses.
for both the local beers and Heineken. Heineken’s four
priorities for action are to accelerate revenue growth, Scottish and Newcastle (UK)
to improve efficiency and cost reduction, to speed Scottish and Newcastle is a European-focused
up strategy implementation and to focus on those brewing group based in Edinburgh. In 2005, its
markets where the company believes it can win. turnover was £3.9bn (A5.5bn). Its key brands include
John Smiths, Kronenbourg, Kanterbrau, Baltika and
Grolsch (The Netherlands) (in Europe) Fosters. It is the fourth largest brewer in
Royal Grolsch NV is a medium-size international Europe in volume terms, and market leader in the UK,
brewing group, established in 1615. With overall France and Russia. The company has made many
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GLOBAL FORCES AND THE EUROPEAN BREWING INDUSTRY 91

acquisitions in the UK (including Bulmer’s cider),

France, Greece and Finland. The group’s 50 per cent Questions
investment in Baltic Beverages has given it exposure 1 Using the data from the case (and any other
to the fast-growing markets of Russia, Ukraine and sources available), carry out for the European
the Baltic countries. In China, Scottish and Newcastle brewing industry (i) a PESTEL analysis and
has a 20 per cent stake in CBC, the country’s fifth (ii) a five forces analysis. What do you
conclude?
largest brewery. In India, the company’s United
Breweries is the country’s largest brewer, with the 2 For the four breweries outlined above (or
Kingfisher brand. In the USA, Scottish and Newcastle breweries of your own choice) explain:
(a) how these trends will impact differently on
is the second largest importer of foreign beers. The
these different companies; and
company emphasises the development of innovative
(b) the relative strengths and weaknesses of
and premium beers, and is closing down its more
each company.
inefficient breweries.