Hit hard by the crisis?
SABMiller posted a surprise drop in beer volumes on 15 January 2009 when it announced its third quarter figures (ended 31 December 2008). Third-quarter lager volumes fell 1 percent on an organic basis, compared with expectations of a rise of up to 3 percent.
The world’s number two brewer cited the global economic slowdown as the reason for weakening demand in many of its markets.
Danish brewer Carlsberg meanwhile was forced to cut a further 274 jobs in Denmark and the Baltic region in response to tougher market conditions. The Copenhagen-based company, which has around 40,000 employees worldwide, already announced 80 job cuts in November.
Brewing is traditionally seen as a defensive industry during a recession but SABMiller’s numbers suggest this may not be the case, especially in emerging economies.
While SABMiller’s volumes in the U.S. dropped 2.3 percent and actually rose by one percent in its home South African market, newer beer markets like Russia and Columbia saw sharp declines, with volumes down 22 percent and 6 percent respectively.
Even in China – one of SABMiller’s key growth markets in recent years – volumes were no more than flat.
Brewers like SABMiller, Carlsberg and AB-InBev have invested heavily in the emerging markets of South America, Eastern Europe and Asia in recent years, where sales growth has dwarfed that of traditional beer drinking countries of Western Europe and North America.
SABMiller’s declining volumes in Russia are of particular concern to Carlsberg’s investors. The Danish brewer, through its majority-stake in Baltic Beverages Holding, is the largest operator in Russia. Hence Carlsberg was quick to point out that it did not do as badly as SABMiller. On 15 January 2009, it reported that its beer sales in Russia were flat during the fourth quarter 2008.
The Russian beer market – with its double digit annual growth rates – has long held an appeal for Carlsberg. That’s why Carlsberg was prepared to take a big risk when it bought Scottish & Newcastle (S&N) in January 2008 in a GBP 7.8 billion joint bid with Heineken. Scottish & Newcastle held another big stake in Baltic Beverages Holding.
Since the acquisition, however, the Russian economy has gone into steep decline and this growth has evaporated.
Carlsberg now generates more than 50 percent of its sales in Russia and has a strong presence in the Baltic states – where the global economic downturn has hit particularly hard.
Heineken is unlikely to have fared much better from the deal. The S&N deal made Heineken the largest player in the U.K. market – a market equally in steep decline.
Heineken, which will announce its full year results on 18 February, had expected that 2008 would be another year of good organic growth in net profit, based on a further improvement in sales mix, better prices, higher beer volume and savings in fixed costs.
So much for crystal ball gazing and predicting the future.
