AB-InBev’s push into craft beer not limited to United States
Because of the deafening outcry among craft beer lovers in the U.S. over AB-InBev’s recent purchases of U.S. craft brewers, AmBev’s purchase of Brazilian craft brewer Wäls barely registered on the takeover “excitetometer”.
When AmBev, a subsidiary of AB-InBev, acquired control of Wäls in early February 2015 for an undisclosed sum, it was reported that the Brazilian beer and soft drink behemoth was setting its sights on a growing segment of the industry that has already generated over USD 700 million a year in sales and expanded by double-digit percentages each year. AmBev’s stake in Brazil’s beer market is about 70 percent.
Founded in 1999 in the city of Belo Horizonte, Wäls had revenues of USD 3.16 million last year on sales of about 6,000 hl beer. However, the company has managed to become one of the top players in Brazil’s craft beer market, which consists of more than 300 small breweries whose products sell for as much as three times the price of industrial beer brands.
The deal works both ways, as AB-InBev’s CEO Carlos Brito explained at the brewer’s 2014 results presentation on 26 February: While AB-InBev can expand its portfolio to better appeal to a diverse range of consumers, thereby making them stay within AB-InBev’s fold, the acquired craft brewers get a chance to make their brands better known outside their regional core markets.
Whereas in the U.S. the craft beer industry already accounts for a sizeable share of the total beer market, in Brazil these small breweries represent just about 0.15 percent of total beer sales. Brazil is considered the third-largest beer market in the world.
The room for growth is enormous. The retailer Grupo Pao de Acucar, which sells 150 brands of craft beer, has reportedly seen sales grow by an outstanding 80 percent annually. They are expected to rise to 2 percent of the Brazilian beer market within the next 10 years, media say.
However, the mind-blowing growth prospects for craft beer in Brazil should not blind us to the fact that Brazilian craft brewers suffer from what they call an unfair tax regime. For every beer they sell, nearly two-thirds of the price is consumed by the government. The remainder is split between producer, distributor, and seller. That makes the economics of craft beer hard to swallow.
Given that Brazil’s beer production fell 11 percent in the third quarter of 2014 due to the recession, while the price of beer rose 6 percent with inflation, this could be an auspicious time for AmBev to make further inroads into the craft beer segment. Facing an uncertain economic future many more craft brewers might be willing to sell.
AmBev said that it will control Wäls through its Bohemia Brewery division. Bohemia will take over the assets and portfolio of Wäls and the two breweries will work together to develop new beers. The former owners of Wäls, Tiago Carneiro and Jose Felipe Carneiro, will stay on board.
On 26 February 2014 AB-InBev also reported that total volumes for the year 2014 grew 0.6 percent with beer volumes up 0.5 percent and non-beer volumes up 1.3 percent. Total beer sales in 2014 were 410 million hl.
Focus brands grew by 2.2 percent with global brands, Budweiser, Corona and Stella Artois, growing by 5.4 percent. Already 60 percent of Budweiser’s world-wide volume is sold outside the United States.
AB-InBev’s revenues were up 5.9 percent to USD 47 billion. EBITDA rose 6.6 percent to USD 18.5 billion. EBITDA margin increased 25 basis points to reach 39.4 percent.
AB-InBev further announced a sharply higher dividend and a USD 1.0 billion share buyback over the course of 2015, many of them used to cover employee stock ownership schemes.
The world’s number one brewer also forecast improved beer sales in most of its major markets this year, particularly with the growth in emerging markets of higher priced premium brands such as Budweiser.
