The end of the BRIC hype

With Brazil and Russia in recession and India not yet living up to its promises, is the fall of China a timely reminder that emerging markets are, well, a risky investment? Many wonder these days: is China going to be the new Russia for global brewers? In retrospect, will 2013 be the last year before things took a turn to the worse? In 2014, China’s beer market shrank to 492 million hl. This translates into a loss of 14 million hl over 2013, says the beer economist Germain Hansmaennel.

In the first half of this year, consumption was down 4.5 percent, AB-InBev reported. But this was before China’s economy took a hit. All things considered, including the recent stock-market crash, beer consumption will probably decline further.

Contrary to market research company Mintel, which forecasts a 1 percent drop for 2015, Mr Hansmaennel predicts that beer consumption will shrink even more in the second half of 2015 as a consequence of China’s wobbly economy. He fears that the decline could amount to a total of 20 to 25 million hl beer this year over 2014.

From what we have heard, brewers desperate to maintain volumes are engaging in price wars, which will hit China’s beer profit pool badly. Average profit per hl is only USD 3.

German brewers already feel the heat. Last year German beer exports to China stood at an estimated 1.5 million hl. Selective evidence suggests that export volumes have risen to 1.2 million hl for the first six months 2015 but prices, especially for beer in cans, are much under pressure.

As wrote the Economist the other week: The great fall of China - some fears are overdone and others misplaced, but investors are right to be nervous. Same for the brewers.