Global forces and the European brewing industry

Mike Blee
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 mid 2000s the major centre for production of beer in the world was Europe; its
production was twice that of the USA, which in 2003 was the worlds largest beerproducing country. In the alcoholic drinks sector beer sales are dominant: total sales
across the world accounted for 74 percent of all alcoholic purchases (Euromonitor
2002).
Although the European market as a whole is mature, with beer sales showing slight
falls in most markets, Datamonitor 2003 reported that the alcoholic beverage sector
grew at an annual rate in value terms by 2.6 per cent year between 1997 and 2002.
Table 1 European beer consumption by country and year (000 hectolitres )
Country
1980
1997
1998
1999
2000
2001
Austria
7651
9145
8736
8810
Beigium
12945
10243
10011
10203
Denmark
6698
6165
5707
5562
Finland
2738
4170
4084
4087
France
23745
21655
22663
22833
Germany
89820
107679
104550
104629
#
Greece
N/A
3940
4211
4354
Ireland
4174
5406
5592
5699
Italy
9539
14535
15501
15675
Luxembourg
417
466
452
474
Netherlands
12213
13475
13225
13309
Norway*
7651
2330
2203
2305
Portugal
3534
6318
6494
6475
Spain
20065
26238
26677
27772
Sweden
3935
5459
5077
5258
Switzerland*
4433
4249
4277
4212
UK
65490
61114
58835
58917
Total#
269358
302587
298295
300574
*Non-EU countries, 1980 excludes GDR. Figures adjusted.
Source: www.Brewersofeurope.org

2002

8762
10064
5452
4024
21420
103105

8627
9986
5282
4085
21331
100904

8734
9901
5200
4136
20629
100385

4288
5594
16289
472
13129
2327
6453
29151
5011
4194
57007
296742

4181
5625
16694
445
12922
2290
6276
31126
4932
4141
58234
297081

4247
5536
16340
440

Page 1 of 9

11985

2420
5943
30715
4999
4127
59384
295121

Table 2 Annual consumption per capital by country and year (litres)

Country
1980
1997
1998
1999
2000
Austria
Beigium
Denmark
Finland
France
Germany
#
Greece
Ireland
Italy
Luxembourg
Netherlands

2001

2002

101.9
131.0
130.7
56.6
44.3
145.9

113.3
101.0
116.7
84.0
37.0
131.2

108.1
98.0
107.7
80.0
38.6
127.5

108.9
100.0
104.6
80.1
38.7
127.5

108.1
99.0
102.2
77.9
36.2
125.3

107.0
98.0
98.6
80.2
35.9
122.4

108.5
96.0
96.7
79.5
34.7
121.5

N/A
121.7
16.7
115.8
86.4

39.0
123.7
25.4
112.0
86.4

42.0
124.2
26.9
107.0
84.3

43.0
126.0
27.1
110.0
84.4

40.0
125.0
28.1
108.2
82.8

39.0
125.0
28.9
100.9
80.5

39.0
125.0
28.2
98.5
79.2

Norway*
48.1
Portugal
35.0
Spain
53.7
Sweden
47.4
Switzerland*
69.5
UK
118.3
Total#
82.5
*Non-EU countries
Source: www.Brewersofeurope.org

52.9
63.6
66.7
61.7
59.5
103.6
78.6

49.7
63.3
66.9
57.3
59.9
99.3
77.2

51.7
64.9
69.1
59.3
58.8
99.0
77.6

52.0
646
72.0
56.4
58.3
97.2
75.9

51.0
61.3
75.7
55.4
57.2
99.0
75.9

53.7
58.6
73.4
55.9
56.6
100.6
76.8

The Interbrew market trend report 2002 states that within Europe the on-trade market (sold
through licensed premises) beer accounts for 59 per cent of all alcoholic beverage sales by volume
, while in the take-home market this figure increase to 72 per cent..
Two key trends within Europe were the rapid growth in leisure spending and the consumers
increased awareness of health and fitness. These factors had resulted in a drop in the volumes of
beer consumed.
Another current trend across Europe is towards drinking a wider range of alcoholic beverages.
There has been a growth in demand for flavoured alcoholic beverages, with wine consumption
having shown large increases. Within the UK alone wine sales had grown from 14 per cent of the
market in 1980 to 26 per cent of the market in 2002. Meanwhile there has been a negative trend in
the overall consumption of spirits.
Acquisition, licensing and strategic alliances have all occurred as the leading brewers battle to
control the market. There are global pressures for consolidation due to over capacity within the
industry and this has resulted in a focus upon cost containment and brand reinforcement (see table
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5). Interbrews market trend survey 2002 shows that the consolidated global share of the top 20
brewers increased from 51 per cent in 1990 to 65 per cent in the year 2000. The report suggests
that consolidation will further increase and compares brewing with the cigarette industry. In 2002
the five largest global brewers accounted for 30 per cent of production volume, whereas in the
cigarette industry the five leading players had a 60 per cent market share.

Table3 European production by country and year (000 hectolitres)

Country
1990
1997
1998
1999
8830
8869
Austria
7606
9366
14105
14575
Beigium
14291
14014
8075
8024
Denmark
9145
9181
4697
4700
Finland
2823
4804
19807
19866
France
21684
19483
111700
112800
Germany
92342
114800
#
4022
4359
Greece
N/A
3945
8478
8648
Ireland
6000
8152
12193
12179
Italy
8569
11455
469
Luxembourg
729
481
469
23988
Netherlands
12213 24701
23988
2169
2222
Norway*
2001
2299
6784
6760
Portugal
3557
6623
24991
25852
Spain
20027
24773
4568
4673
Sweden
3759
4858
3586
Switzerland*
4433
3563
3586
56652
57854
UK
64830
59139
315114
319932
Total#
276198
321637
*Non-EU countries, 1980 excludes GDR. Figures adjusted.
Source: www.Brewersofeurope.org

2000

2001

2002

8750
14734
7460
4612
18926
110000

8588
14966
7233
4631
18866
108500

8731
15696
8534
4797
18117
108400

4500
8324
12575
450
24502
2223
6451
26414
4495
3599
55279
313883

4454
8712
12782
438
25072
2216
6554
27741
4449
3630
56802

4443
8113
12592

315674

Consolidation trends are indeed continuing: Interbrew had purchased in 2001 parts
of the old Bass Empire, Becks and Whitbread and in 2004 announced a merger with
Am Bev, the Brazilian brewery group. Meanwhile Scottish and Newcastle had
acquired the Danone French brewing operations as well as Bulmer cider. In 2003 it
targeted Eastern Europe and China, acquiring Finland's biggest brewery, Hartwall, for
1.2bn ( 1.8bn) together with a purchase in December 2003 of a 20 per cent
shareholding in a leading Chinese brewing. It is interesting to note that Bass
contradicted this trend prior to the sale of the company in 2001, when a disposal took
place of its interests in Northern China and some of its operations in the Czech
Republic.
In 2003 Anheuser-Busch was the world's largest brewer ranked by sales volume but
with limited overseas operations. It had invested in a Mainland Chinese brewery and
had a significant shareholding in Modelo of Mexico. However, its European
Page 3 of 9

25232
2300
7121
27860
4376
3551
56672
316530

operations were limited to just one brewery in the UK at Mortlake. In 2004 its world
no.1 position merger. This gave Interbrew 14 per cent global market share which
made it no.1 (by volume but not by value).
Coors, another large American brewer, had gained European market entry by
purchase from Interbrew in 2002 of the Caring Brewing Company. This sale was
forced upon Interbrew by the UK regulatory authorities as they felt the dominant
position held by Interbrew within the UK's large market was against the consumers'
interest.
South African Breweries has also been extremely active. In early 2002 there were
market rumours of a merger with Interbrew; these were unfounded, however 2002
resulted in two major acquisitions-the Miller Group(USA)and Pilsner Urquell in the
Czech Republic.
These large global brewers (Table 4) control a range of key brands with which they
will start to achieve large cost savings with the premium lagers leading the way.
Volume sales will help to contain costs and should lead to increased economies of
scale. However , differences will occur in the various local country markets. Where
there are significant taste and product differentials potential savings are limited. The
large groups, however, hope to utilise increased knowledge management systems and
linked technologies across these combined brands to improve performance.
During 2003, due to the activity highlighted above, there were major changes to the
world market shares of the leading brewers (Table 4) with an ever increasing
domination of global brands (Table 5) .Trends within Western Europe (Table 6)
reinforced the dominance of the key players and the importance of the lager market in
branding terms.
Table4 The worlds top 10 brewery companies by volume:2003
Position
Company
Country of Origin
1
2

Anheuser-Busch
South African
Breweries/Miller
3
Heineken
4
Interbrew
5
Carlsberg
6
Am Bev
7
Scottish Newcastle
8
Coors
9
Modelo
10
Kirin
Source: Coors Brewers Limited UK

USA
South Africa
Netherlands
Beigium
Denmark
Brazil
United Kingdom
USA
Mexico
Japan

Table 5 Top exported lager brands (world), 2001

Brand Name
Ownership
Export sales
(million hectolitres)

Percentage of
global sales
Page 4 of 9

Heineken
Heineken
17.7
Carisberg
Carisberg
8.9
Amstel
Heineken
8.5
Budweiser
Anheuser-Busch
8
Corona Extra
Groupo Modelo
7.7
Stella Artois
Interbrew
6.8
Fosters
Fosters
5.7
Skol
Carisberg
5.2
Tuborg
Carisberg
5.3
Becks
Interbrew
2.7
Source: Impact/ Interbrew SA/ Industry Estimates/ Company reports

82
87.6
78.7
17.1
32
88.5
68.7
18
63.3
62.5

Table 6 European beer market: top companies, 2001, by market share by volume
Company
Home Country
Market Share
Leading Brand
Heineken
Interbrew
Carisberg
ScottishNewcastle
Mahou
SA
Holsten Brauerei
Diageo PLG
Binding-Brauerei
SA
Damm
BrauBrunnen
Source: Euromonitor 2002

Netherlands
Belgium
Denmark
United Kingdom
Spain

11.70%
10.40%
6.90%
6.90%
2.90%

Heineken
Stella Artois
Carlsberg
Kronenbourg
San Miguel

Germany
United Kingdom
Germany
Spain

2.60%
2.20%
2.10%
2.10%

Konig
Guinness
Radeberger
Super Bock

Germany

1.90%

Jever

The two largest Western European markets

Germany
At nearly twice the size of the UK market in consumption terms, the German beer
market is very different to that of the UK. It is highly fragmented, having in excess of
1,200 breweries. However, acquisition has happened in this market with Becks going
to Interbrew in 2002 and Holsten being acquired by Carlsberg in 2004. German beer
drinkers are used to strict German purity laws and therefore generally trust and drink
German beer as against imports. This has resulted in large numbers of regional
breweries satisfying the home market. Exports from Germany are nearly double that
of the UK in volume percentage terms(Table 7).
Table 7 imports and exports of beer by country (2001)
Country
Import (% of

Export(% of Consumption)
Page 5 of 9

Consumption)
Austria
5.3
4.8
Belgium
19
39
Denmark
1.7
34.1
Finland
1.9
6
France
25.5
12.4
Germany
3.2
10
Greece
4
10
Holland
6.1
51.9
Ireland
11.9
28
Italy
26.4
3.9
Luxemburg
37.6
Norway*
4.1
0.8
Portugal
4.7
11.2
Spain
13
2.3
Sweden
11.6
Switzerland*
14.8
0.6
United Kingdom
8.6
5.6
Total
9.3
14.1#
Note: Import figures do not include beers brewed under licence in home country
;export figures do not include licensed brews produced elsewhere.
*excludes Sweden; #Non-EU countries.
Source: www.brewersofeurope.org
Packaging in Germany differs form many major markets with 60 per cent of all
beer produced being sold in bottles. Due to a deposit scheme being introduced on cans
in 2003 the sales of bottled beers have grown significantly.
Discount own-lable beers have increased the off-trade to 70 per cent of total beer
volume. However, sales in Germany during 2002 dropped at their highest annual rate
in the previous decade and sales since 1998 have declined overall by 7 per cent. The
outlook for the later part of the decade is that there will be declining consumption and
a gradual drop in the number of breweries, with increases in merger and acquisition as
the market consolidates to contain costs. This follows the trends being experienced
already in the majority of European markets.
The fastest growing niche in 2003 was within the youth market. Sales of flavoured
beer mixed with either lemon-lime soda or cola, available in draught and bottles, had
an increasing market share, up 30 per cent in 2002. These accounted for 3 per cent of
the total annual beer consumption. Pilsner-type beers in 2002 still dominated the
market holding a 67 per cent market share.
United Kingdom
Beer sales were fairly mature and although there was a steady decline in the 1990s the
market has begun to stabilise at around 55 million hectolitres per year. However, there
are some definite market trends. The major change in the UK industry has been the
Page 6 of 9

disposal of the tied pub chains by the national breweries. Scottish and Newcastle
became the last of the large companies to dispose of their chains in 2003.
These public house chains are now independently managed separate companies and
this has increased the distribution chain access to a much wider variety of brewers.
These large independent chains of public houses exert high buyer power on the
brewing industry.
Meanwhile ownership of breweries within the UK had rapidly changed. Foreign
multinationals have targeted and entered the industry. The Keynote Report 2003
shows three foreign multinationals, Interbrew, Coors and Carlsberg, control 53 per
cent of the market. The leading brewer is Scottish and Newcastle with 27 per cent of
the market. There are a number of large regional brewers with well-known speciality
brands but the trend by the majors in the market has been to consolidate production,
closing down plants and containing costs.
Lagers and premium lagers dominate the home market and many are brewed under
licence arrangements. Consumption of large has grown from just over 50 per cent in
2002. In 2003 60 per cent of UK beer was packaged in draught from. As the UK
market switches more towards production of large the trend will be for incteasing
sales through supermarkets resulting in a reduction of draught beer demand. There is
limited export of traditional UK beers as demand is relatively limited and therefore
the reliance is on the internal market.
As supermarkets within the UK sell high volumes of beer, they exert high buyer
power over the supplying breweries and are in a position to dictate terms for the
supply of product. As a result there is heavy discounting and brand value destruction
as the brewers find themselves operating in an over capacity market with low profit
margins. The market is moving more and more towards increased sales in the offtrade. BBPA data 2003 reported that the wholesale price of beer had declined by 16 per cent from
the level that was obtained in 1992.
However, home sales are additionally hindered by the booze cruise. Excise duties on alcoholic
beverages are much lower in France and importation of alcoholic beverages for personal use is
legal. These cruises have almost become a feature of daily life with large quantities of beer
carrying low excise duties being imported both legally for personal use and illegally for onward
sale.
Four brewing companies
Heineken (The Netherlands)
In 2004 Heineken was by far the biggest and most global of the European brewery businesses. It
remains a family business and its brands are available in more than 170 countries. It owns more
than 110 breweries in over 50 countries and exports all over the world. In the UK its licence
agreement with Whitbread ceased in 2003 and this was followed by the introduction of its fullstrength range, Heineken is now sold as a premium beer in all markets except its home market.
Heineken has become Europes favourite brand of beer and the most international beer in the
world, with sales increasing annually, Founded in Amsterdam in 1963, the companys other brands
include Amstel and Murphys. Heineken had been acquiring other brewing groups since 1991 and
in 2003 announced its biggest acquisition to date, the Austrian brewery BBAG. Of Heinekens
turnover,76.5 per cent is European based.
Page 7 of 9

The four major strategic objectives for Heineken were to:

remain one of the top global brewers;
be more profitable per cent than other international brewers;
build the most valuable brand portfolio with Heineken as the international flagship brand;
remain independent.
By the utilization of its key brands the company aims for a broad leadership position with a
target of being NO.1 or NO.2 in its local markets. Achieving this in production ,marketing and
distribution brings economies of scale. The local breweries give it market access from which
they can sell their high-premium Heineken and Amstel beers.
Groisch (the Netherlands )
In 2001 Groisch NV is a medium size international brewing group, less than one-tenth the size
of Heineken, with overall sales in 2002 of 3.27 million hectolitres. The groups strategy calls
for this to increase to 4.6 million hectolitres by the end of 2006. Its key products include
Groisch premium lager and new flavoured beers(Groisch lemon and Groisch pink grapefruit).
In the Netherlands Groisch holds the right for the sales and distribution of the valued US Miller
brand. The Groisch Brewery has been established since 1615 and has been exporting since
1946. The brand is available in over 50 countries; however in certain territories, including the
UK and Poland, the brand is brewed under licence. In the five years to 2002 the group turnover
had increased by 20 per cent with net profits increasing by more than 30 per cent. Although the
home market for beer is declining, The Netherlands is still the companys most important
market and accounts for over 50 per cent of its sales volume. Export sales are increasing, with
the UK, USA and Canada being the most important overseas territories.
Groisch has two main breweries that are situated in Enschede and Groenio. From 2005
production is situated within a single new site at Bokelo. Efficiency is the key driver behind this
relocation: by concentrating brewing on one site, Groisch will again ultimate cost control and
will also increase volume capacity significantly. Groischs drive to optimize costs has included
the outsourcing of its distribution and a move within The Netherlands to use inland shipping
rather road.
Interbrew (Belgium)
Interbrew is one of the oldest beer companies in the world. It has operations in 21 countries
and Interbrews beers are sold in more than 120 countries. The company strategy is to build
strong local brand reputation as well as to market its international labels. These include Becks,
Stella Artois, Bass, Hoegaarden and Labatts. Interbrew has been on the acquisition and organic
growth trail as a determined strategy since 1993. In the five years to 2003 the company had
made over 20 acquisitions and 35 per cent of the operating income during 2002 was derived
from this acquisition programme. 2004 saw the merger between interbrew and Brazils largest
brewer Am Bev. Interbrews philosophy is reinforced by its claim to be The Worlds Local
Brewer.

In 2001 the company acquired Bass (UK), Whitbreads (UK) and Becks (Germany).
At the time of acquisition Bass brands accounted for 24 percent of the UK market.
The acquisition from Bass was unconditional and when the UK regulatory authorities
challenged the decision to acquire Bass, Interbrew was forced into a sale situation.
Due to this forced sale the stock market at that time formed the view that Interbrew
had overpaid for the company.
Page 8 of 9

On appeal to the High Court Interbrew managed to overturn the competition

authority decision agreeing as a result to sell the Carling Brewing Company to Coors
but retaining much of the Bass Empire. Between 2000 and 2002 net turnover for the
Interbrew company increased in excess of 20 percent. In 2002 Interbrew invested
heavily in the growth market of China and in 2004 Interbrew became the largest
brewer in Germany, following a partnership with Spaten giving them an 11 percent
market share.
Scottish and Newcastle (UK)
Scottish and Newcastle is an international brewing group with leading positions in 13 European
countries. These countries include the UK, France, Finland and Russia. Its strategy is to be a major
force within the global brewing industry with a concentration of effort upon expanding a number
of leading positions in the Western European market. In 2003 the company disposed of its retail
and leisure businesses, which had been significant in the companys past. In the year 2000 this
business alone had accounted for 1.1bn of turnover and 246m of profits.
The companys expansion strategy is to enter high-growth emerging markets. This will be
achieved by working through alliances with experienced local breweries that hold strong market
positions. Its key brands include John Smith, Kronebourg, Kanterbrau and Baltika and it brews
Fosters under licence for the UK market. In 2003 turnover had increased by 17 percent, with
profits up 8 percent and overall volume up 2.4 percent. The brand of Kronebourg, Fosters and
Newcastle Brown all showed substantial volume growth in the year 2003. Acquisitions in the early
2000s have included Hartwell, Kronebourg from Danone in France,Buliners Cider and
investments in Mainland China and India.
The Hartwell acquisition is particularly important as this gives the group a 50 percent
investment in Baltic Beverages. This results in exposure to the high growth markets of Russia,
Ukraine and the Baltic countries. The growth rate of the Russian market was such than in 2002 it
was bigger than any Western European countrys home market other than Germany.
The future
Forecasts from Euromonitor 2002 conclude that the world market for beer between 2002 and 2007
will increase by 35 percent in Eastern Europe and the Asian Pacific region by 28 percent whilst
Canadeans latest annual global beer report forecasts sales of 1.5bn hectoliters in 2005.
The Interbrew market report 2002 concludes that most beer markets in Europe are now
relatively mature with limited potential for growth resulting in the focus now moving towards Asia
and Eastern Europe.

Questions
1. Using the data from the case, what are the major trends in the European brewing
industry?
2. For the four breweries outlined above(or breweries of your own choice) explain:
(a) how these trends will impact differently on these different companies; and
(b) how you think the strategy of each company should change.
Page 9 of 9