Despite growing concerns around changing drinking habits, the investment research firm in its latest report, expects the global beer sector to grow at a 3.7% annual rate over the next five years, as growth in emerging markets and premiumisation offset weaker demand in mature markets.
Morningstar predicts that these emerging markets across Asia-Pacific, Latin America, the Middle East and Africa will account for the bulk of growth due to rising incomes, urbanisation, and continued investment from large brewers.
The report highlights the long-term trend of premiumisation in beer, with “conspicuous consumption behaviour” leading consumers to trade up.
As a result, it expects premium beer will continue to drive growth taking share from midrange and economy brands. The result will mean that premium beer will account for 29% of total consumption by 2035, up from 25% currently.
While the world’s five largest brewers account for around 50% of global beer volumes the report suggests these emerging markets and the shift towards premiumisation may shift this landscape.
Despite the positive news, beer volume growth is expected to lag behind other categories, with ready-to-drink, energy drinks, and carbonates taking share. To offset slowing beer growth in developed regions, brewers are diversifying their portfolios toward higher-growth categories, the report said.
“For investors, the key question is which brewers are best positioned to capture the industry’s growth opportunities. We expect emerging-market investment to be a key determinant of long-term winners and losers, as these markets offer both volume and value growth,” said Verushka Shetty, Equity Analyst at Morningstar.
She said that regional scale is also a distinctive competitive advantage for brewers.
“The strongest brewers benefit from lower costs and greater bargaining power, supporting higher returns on invested capital, while their distribution and marketing scale help them defend market share and grow premium brands,” she said.
