Crafty Guinness makers are sitting out a wave of big beer consolidation
Published 05/12/2015 | 02:30
The global drinks industry is going through a radical shake up, but Ireland's own brewing giant Guinness seems to be sitting this one out.
The $110bn Anheuser-Busch InBev (AB InBev) merger with SabMiller will spark the biggest shake up in the sector in a generation. On the one hand the deal creates an unrivalled mass market global giant - with leading beer brands spanning both developed and key emerging markets.
Together, AB InBev and SabMiller will control a staggering half of all beer profits, globally.
On the flip side, and in order to gain competition approval, that merged giant has to offload a plethora of brands, potentially setting off a further wave of consolidation in the sector.
That has already begun. AB InBev said that it is looking at selling SABMiller's European premium beer brands including Peroni and Grolsch and Britain-based Meantime BrewingCo to smooth the merger. That would potentially raise more than $1bn, but more importantly it gets out ahead of possible European competition concerns. By the same token, Molson Coors Brewing has already agreed to acquire SABMiller's 58pc stake in MillerCoors for $12bn, and a 49pc stake in China Resources Snow Breweries may need to be sold.
Selling Peroni and Grolsch "would help reduce leverage and doesn't make the SABMiller acquisition less attractive," Javier Gonzalez Lastra, an analyst at Berenberg in London, said."They are attractive assets. They're very well positioned, internationally recognised brands."
Peroni - founded in Lombardy in 1846 - has outpaced Grolsch over the past decade as the brand has leaned on its association with Italy's fashion world to become a beer of choice for young drinkers in bars and restaurants, particularly in the UK. Dutch beer Grolsch, a pale lager known for its flip-top cap that can be opened by hand, has struggled in recent years.
As premium beers they straddle, but could fall through, the gap between big brewery beers and the emerging wave of so-called craft beers, produced by smaller and, ironically, often younger breweries.
Peroni was bought by SABMiller for about €400m a decade ago, and could be worth close to €1bn today.
Grolsch was bought for almost €900m in 2008, but analysts reckon might fetch less than a third of that price now.
Meantime is a smaller but more on trend, supplying British pubs and retailers with smaller craft brands.
While historic brewers like Japan's Kirin and Denmark's Carlsberg are talked of as potential buyers of all and any assets shaken out of the merged SABMiller/AB InBev, Guinness owner Diageo is not.
That is partly because, Guinness and its associated Irish beers aside, Diageo is more of a spirits business. It owns brands including Johnny Walker and Smirnoff and Baileys.
But, it's is not just that.
While other big drinks conglomerates have been buying up established brands, Diageo has quietly set about fostering a new one.
Its little known Distill Ventures unit, based in London, was set up two years ago to provide financial support and mentoring to start-up drinks businesses - including seed finance of as little as £175,000 (€245,000).
The idea is both to build out the brand portfolio relatively cheaply, but also to tap into the consumer demand for authenticity, the policy is to nurture smaller, craftier producers.
With Distill the focus, as the name suggests, is on spirits rather than beers. But the same hipster, crafty, vibe has carried into beer.
Five or 10 years ago Guinness heritage appeal was built around historic advertising campaigns and the Irish pub experience.
The focus now is on the brewing heritage at James's Gate, that includes the launch of new beers like Hop House 13 and The Open Gate Brewery, a visitor experience designed around the making rather than the marketing of beer.
With the rest of the world betting that bigger is better, the crafty people at Diageo are going against the grain. (Additional reporting Reuters)