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InBev shows strong growth as premium focus pays off

02-Mar-2005

InBev is already beginning to see the benefits of last year's merger of Belgian brewer Interbrew and Brazil's AmBev, with volume sales in 2004 growing at more than twice the rate of the global beer market as a whole. And with operations in all of the world's major beer markets, the company is optimistic of more strong growth in 2005, writes Chris Jones.

InBev reported global volume sales of 97.9 million hectolitres, excluding acquisitions or divestments, some 3.2 per cent higher than in the previous year and more than twice the growth rate of the market as a whole. In value terms, sales were ahead 4.3 per cent on an organic basis, or 21.6 per cent on a reported basis, to €8.6 billion.

Like many of its brewing rivals, InBev has been busy expanding its operation to all four corners of the earth in recent years, and it was this that helped the company perform so well in 2004. Difficulties in western Europe, caused by poor summer weather and the generally sluggish nature of the markets there, were more than offset by excellent performances in the Americas, for example.

 

But a broader international scope was not the only reason for the solid gains. InBev has continued to prioritise sales of its three premium brands Stella Artois, Beck's and Brahma, which together posted volume growth of nearly 5 per cent worldwide, and this has helped increase profitability despite rising marketing costs.

 

This strategy has paid of better in some markets than in others. In the increasingly price-conscious UK market, for example, the decision to maintain the premium positioning of Stella Artois led to a 2.6 per cent drop in volume sales, while Stella's sales in the US rose by a massive 50 per cent, albeit from a relatively low base, as the company played on the growing trend towards premium imports, one of the few areas of growth in a market which is otherwise sluggish.

 

Asia, however, remains a relatively small market for premium brands, with a combination of relatively low income levels and a strong loyalty to local brands making it hard for brands such as Beck's to grow outside of a handful of urban markets in Shanghai and Hong Kong.

 

Despite this, Asia is likely to be the main focus of activity for InBev in 2005, after massive investment there in 2004. The company has increased its production capacity in China to 30 million hectolitres after a series of high profile takeovers, and it now rivals long-time China investors Anheuser-Busch and SABMiller there.

 

But making money from the Asian businesses is still hard, with turnover there down 2 per cent on a like-for-like basis to €496 million as result of a reduction in selling prices and a major decline in sales for OB in Korea, whose economy is currently languishing in the doldrums.

 

Nonetheless, there are signs that China in particular is likely to become more open to premium beer brands in the next few years, as consumer spending levels rise and as the major international brewers begin to slowly squeeze low-margin local beers out of their portfolios.

 

InBev is already benefiting from this pattern in eastern Europe, where it operates mainly through its Sun Interbrew business. There it sells a combination of locally produced premium brands, such as Sibirskaya Korona in Russia whose sales rose by 37.9 per cent in 2004, and its international beers. Stella Artois and Beck's combined to add 200,000 hectolitres to the company's volumes in central and eastern Europe during the year.

 

Both China and Russia brought additional problems for InBev in terms of logistics costs - the sheer size of the distances involved means that it is far more expensive to create nationwide coverage - and raw material supplies - malt was in short supply in both regions during the year, increasing costs and taking a total on profits.

 

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