Published on 22/07/2016 by Punchmedia

Why the Business of Beer is Back

Australians appear to have fallen back in love with beer with local sales and revenue picking up for global beer giant SABMiller.

The country's second-largest beer supplier says increased sales and and higher prices have helped it report "good growth" in Australia.

SABMiller owns Carlton & United Breweries (CUB), it's biggest local brands including Victoria Bitter, Carlton and Crown Lager.

The Beer Manufacturing industry has recorded low revenue growth over the past five years due to declining beer consumption and increasing internal and external competition but it appears that is changing. Industry revenue is expected to increase at an annualised 0.2% over the five years through 2015-16, to $4.3 billion.

Craft Beers

Boutique beers have grown strongly over the past five years, with about 250 craft and boutique breweries in operation across Australia as at December 2015. Growth in the number of craft brewers has driven increases in enterprise numbers and employment in the craft beer business segment. Household discretionary income has increased over the past five years, which has helped the shift towards higher value beer. The shift in preferences has been further aided by the fairly homogenous nature of traditional brews, and consumer demand for variety and quality. Drinkers have become increasingly discerning and more willing to try different brands and styles. As a result, smaller brewers have emerged to fill this niche. Craft and boutique brewers have focused on European and American styles previously under-represented in the Australian market, such as pilsner, pale ale, porter, amber ale, dark ale and wheat beer. The majority of craft breweries are based in Victoria, New South Wales and Western Australia.

Industry Structure

Industry players have undergone major changes in business ownership over the past decade. In December 2011, SABMiller acquired Australia’s then-largest brewer, Foster’s Group, now trading as Carton & United Breweries (CUB), for $10.5 billion. Two years earlier, Japanese brewer Kirin Brewery Company acquired Lion Pty Ltd. These international acquisitions have left Coopers the largest Australian-owned beer manufacturer, with an estimated industry market share of 4.7%. Together, Lion and CUB command an estimated 83.7% of the Australian Beer Manufacturing industry.

Foreign-Label Brands

Consumer demand for premium beer has led to an increase in industry imports over the past five years, while the number of international beer brands being produced and sold under licence in Australia has grown substantially. At a time when sales of traditional domestic brands have been comparatively poor, this has proven highly profitable for domestic producers. Until recently, CUB had the upper hand over Lion in this regard, but following SABMiller’s acquisition of CUB, SABMiller’s global rivals have switched key contracts to Lion. Following this switch, Lion now produces Heineken, Beck’s and Kirin, and distributes Corona, Budweiser, Leffe and Hoegaarden. CUB now produces SABMiller-owned beers Peroni Nastro Azzurro, Grolsch, Miller and Pilsner Urquell. Coopers produces Carlsberg, Kronenbourg and Sapporo under licence, while Independent Distillers Australia produces Russian brand Baltika, Japanese Asahi and Indian brand Kingfisher. The recent re-entry of Coca-Cola Amatil has boosted the industry’s US beer brand presence, with Coors and Blue Moon beers joining the fray.

Competition and Profitability

Heavy discounting in the Liquor Retailing industry has weighed on the beer manufacturing business, as Woolworths and Coles have expanded their price wars into the alcohol segment. Over the past decade, Coles and Woolworths have boosted their combined share of the Liquor Retailing industry from about 33% to almost 65%. The supermarkets have exploited their growing market power to reduce shelf space for branded products to push their own labels and control-label beer brands. Despite these pressures, profitability has benefited from rising demand for premium and craft beer, and the Australian beer market remains one of the most profitable in the world.

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Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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