Global Performance and Prospects For Beer

Global Performance and Prospects for Beer
July 2011
Alcoholic Drinks: Beer Overview
Euromonitor International
Introduction Global Picture Category Analysis Regional Analysis Channel Analysis Competitive Environment Prospects
Introduction
Scope
ALCOHOLIC DRINKS 239 bn litres
Wine 27 bn litres
Beer 187 bn litres
Spirits 20 bn litres
RTDs/ high-strength premixes 3.9 bn litres
Cider/perry 1.8 bn litres
Lager
Dark beer
Stout
Low/non-alcohol beer
Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies opinions, reader discretion is advised
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Introduction
Objectives
The core objective of this report is to examine the current state of the global beer industry, including the post-
recession fallout, recovering and beleaguered markets, and scenarios for growth moving forward.
In addition to providing a global overview of market performance, the report also analyses: performance by product category;
performance by geographic region;

the state of the competitive landscape; performance by retail distribution channel; global prospects and opportunities. The data and analysis are specific to beer and the categories of lager, dark beer, stout and low/non-alcoholic beer. The global beer market is examined in terms of performance over the period 2010-2015, with a closer look at 2010
specifically, with graphics and analysis identifying key areas of risk and opportunity.
The report does not claim to be comprehensive, focusing on key industry developments, but rather seeks to offer
high-level insight into key changes in the market at a time of manifest macroeconomic volatility.
Introduction
Key findings
Global beer sales increase Global beer volume growth picked up again in 2010, after flat sales in 2009. Although there was a significant improvement on 2009, growth has not yet returned to prerecessionary levels, with its peak in 2006. Chinas share within global beer volumes increased over the review period, with it now representing almost a quarter of total volumes sold. Its importance obviously gives it a significant influence on global beer sales. Lager is the most important beer type globally, accounting for over 90% of global beer sales in both volume and value terms. However, low-/non-alcohol beer was the best performing category globally in 2010. Beer operates in a "local global" market, with the majority of beer being consumed where it is produced. Imports and exports account for only a small proportion of global beer production, and domestic lager accounts for over 90% of global sales. Asia-Pacific is the major region for beer in volume terms, accounting for more than 30% of total volume sales. However, in value terms, Western Europe leads, with about a quarter of global spending on beer. In 2010, the on-trade outperformed the off-trade. However, this does not mean that consumers have started going out again. Excluding China and Russia from the global figures, the on-trade actually declined, while the off-trade grew. Beer is very concentrated, with the top 10 brewers representing about 61% of total beer volumes in 2010, compared to wine where the top 10 wineries only hold a 13% share. Although brewers are global, most brands are very local. Beer sales are expected to increase in all regions except Western Europe over the forecast period, with emerging markets expected to be the most dynamic, particularly China, Brazil and India.
5
China gains in importance

Lager dominates
Domestic beer holds largest share Western Europe and AsiaPacific the key regions
On-trade the more dynamic channel

Beer market is very concentrated Emerging markets will lead the way
Global Picture
Beer sales pick up in 2010 after the slowdown in 2009

Global beer volume growth picked up again in 2010, after flat sales in 2009, with volumes growing by over 1%. It
appears that recovery is on its way. Although 2010s performance represented a significant improvement on 2009, growth has not returned to prerecessionary levels yet. Volumes stood at 187 billion litres in 2010, making beer the largest category in the alcoholic drinks industry representing 78% of volume sales, compared to wine and spirits which represented 11% and 8%, respectively. The stagnation in 2009 and still relatively low growth in 2010 was mainly caused by Eastern Europe, North America and the saturated Western European region, which all saw declines in both years.
Beer Total Volume Performance 2005-2010

190 185 180 Billion litres 10 175 170 165 8 6 4 155 150 145 2005 2006 2007 2008 2009 2010 7 % total volume growth Beer 14 12
Beer value growth
160
Beer volume growth
2
0
Global Picture
China impacts global beer volumes

Chinas share in the global beer market has gradually increased over the past six years, from 19% in 2005 to 24% in
2010. As a result of China accounting for almost a quarter of the global beer market in 2010, it has a substantial impact on the performance of the category globally. Western Europe has gradually been losing share within the global market, with its share declining from 18% in 2005 to 15% share in 2010, as beer becomes more and more saturated within the traditional beer consuming markets of Western Europe. Global beer volume growth stood at 1% in 2010; however, excluding China global sales declined, highlighting the importance of this one market.
Global and China Beer Growth 2005-2010

16 % total volume growth 14 12 10 8 6 4 2 0 -2 -4 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 World
China
World excl. China
Category Analysis
Lager dominates the beer category

Global Beer Performance by Category
100% 90% 80% 70% Billion litres 60% 50% 40% 30% 20% 10% 0% 2005 2006 2007 2008 2009 2010 Lager Low/nonalcohol beer Stout
Lager is by far the most important beer
Dark beer
type, accounting for 93% of global beer sales by volume and 91% by value in 2010. Although sales remain small compared to lager, low-/non-alcohol beer was the best performing category in beer in terms of both volume and value growth in 2010, with volume sales increasing by 6%, compared to 1% for lager. The category benefits from the current drive to consume less alcohol, and stricter drink-driving regulations in many countries. Stout is the smallest category in beer representing less than 1% of beer volumes in 2010. Falling consumption of stout in the key markets of Ireland and the UK has contributed to overall volume stagnation on a global level. Although dark beer suffers from an oldfashioned image in many traditional beer drinking markets, it has seen growth overall, driven by the popularity of wheat beer among younger consumers looking for sweeter and milder tastes, and also craft beers, many of which are dark beers. These are becoming increasingly popular in developed markets, such as the US and the UK.
10
Category Analysis
Domestic lager most popular globally

Domestic lager defined as being brewed in the country in which it is sold has a significant dominance over
imported lager, accounting for 96% of global lager volumes in 2010. Generally, domestic brands are the best known, most widely available brands, and tend to be more affordable than imported beer. Only in Western Europe and North America does imported lager have a 10% or bigger share. For all other regions its share is below 5%. In most instances where the share of imported lager is higher than average this is not caused by an inability to meet consumer demand through domestic lager but more about consumer preferences for certain imported brands. Large markets for imported beer, such as the US, exist thanks to consumer preferences rather than necessity. Instead of making up for any shortfalls in local production, beer is generally imported to give an upscale cachet lacking from most domestic brews. Until 2009, domestic lager Domestic vs Imported Lager by Region was losing share to Total Volume in 2010 imported lager as Western Europe consumers were trading North America up towards more premium lagers; however, since the Middle East and Africa recession started Latin America consumers have been Eastern Europe trading back to domestic Australasia lager which resulted in domestic lager gaining Asia-Pacific share in 2009 and 2010, World and showing positive 0% 20% 40% 60% 80% 100% volume growth in 2010, compared to a 4% volume Domestic lager Imported lager decline for imported lager.
11
Category Analysis
Standard lager dominates in all regions except Asia-Pacific

Lager by Price Platform by Region 2010
Western Europe
North America
Standard lager is by far the most
Middle East and Africa

Latin America
Eastern Europe
Australasia
Asia-Pacific
World 0.0% 20.0% 40.0% 60.0%
Premium lager
Standard lager
popular price platform within lager representing almost 50% of global volume sales in 2010. The majority share standard lager holds is replicated when looking at all other regions, with the exception of Asia-Pacific, where economy lager leading the way with a 70% volume share, largely due to the large beer consuming markets of China and Japan. Unlike the UK, the US, Germany and other major importers, where domestic beer dominates and beer is imported by choice and tends to be premium, in countries such as Bosnia-Herzegovina, Belarus and Georgia, which have a higher share 80.0% 100.0% of imported versus domestic lager, the brands that are imported feature standard and economy products Economy lager more prominently in the mix.
Note: Premium, standard and economy lager are categorised primarily on price, but also with consideration to packaging and positioning. Classification is made on a country by country basis. This means that some brands with a higher abv and therefore a higher price, eg Tennant's Extra in the UK, are classified according to positioning, which in this case is in the economy segment.
12
Category Analysis
Polarisation apparent in lager

Lager Performance by Price Platform 2005-2010
10 8 6 4 2 0 -2 2004-05 2005-06 Premium Lager 2006-07 2007-08 2008-09 Economy Lager 2009-10
% total volume growth
Standard Lager
While economy lagers growth witnessed a marginal slowdown in 2010 compared to 2009, it consistently
outperformed both the standard and premium segments. Premium lager witnessed a relative resurgence in 2010, while standard lager continued facing significant hurdles. The trading down of 2009 was thus replaced by a degree of polarisation in 2010. Polarisation was particularly evident in the US, where economy and premium lager saw growth in 2010, while standard lager saw a 5% decline in total volume. Germany saw a similar trend to the US, with polarisation being apparent in 2010.
13
Category Analysis
Polarisation: Economising in the age of austerity

While recessionary pressures in mature markets appear to have largely bottomed out, the still subdued consumer
confidence levels, plummeting disposable incomes, the nature of the jobless recovery and persistent market volatility have established thriftiness and bargain-hunting as defining characteristics of the new consumer in mature markets. Economising can obviously take many forms beyond merely buying smaller quantities, ranging from purchases of lower-end private label products to heavily discounted premium variants, and while the former is straightforward, the latter goes hand-in-hand with the concept of value for money. Packaging reformulation is one of the ways that cost savings can be achieved. Larger and smaller sizes can either reduce the average unit price or render affordable a product previously considered too expensive. At the same time, launches of products positioned at lower price points by leading manufacturers can mitigate migration away from their flagship brands in times of austerity.
Brand name: Buck Range NBO: Supervalu Inc Market: US Category: Lager Launched: 2010 Comment: Taking on brewing heavyweights, a cheaper private label alternative to the likes of Bud Light and Coors Light
Brand name: Desperados NBO : Heineken Entreprises SAS Market: France Category: Lager Launched: 2010 Comment: A large 1.2-litre bottle to share: more affordable and offering more content than the standard 3x33cl pack
14
Category Analysis
Non-alcoholic beer popular in the Middle East

Iran is the largest market globally for non-alcoholic beer.
With Islamic law forbidding the consumption, manufacturing and trade of alcohol in any form, and antismuggling programmes run by the Iranian government further limiting parallel trade alternatives, non-alcoholic beer witnessed very strong growth in Iran between 2005 and 2010, posting a volume CAGR of 40%. The recent state-backed initiative to shift consumption away from carbonates played an integral role in maintaining this momentum, with the burgeoning nonalcoholic beer segment registering 46% total volume growth in 2010, a feat unrivalled by other markets around the world, making Iran the fastest growing beer market globally. Japan also saw rapid growth in sales of non-alcoholic beer in 2010, of 22%, to reach 79 million litres, due mainly to purchases by drivers. With stricter penalties for drinkdriving having been imposed with the revised traffic law in 2002, there has been a stronger incentive not to drink standard beer. However, low-alcohol beer still contains a very small amount of alcohol, and consumers have not been totally convinced that it would be legal to drive after drinking them. The introduction of 0.00% alcohol beer in 2008 provided a greater sense of security, resulting in dramatic growth. Following the launch of Kirin Free in April 2009, all the major domestic breweries launched non-alcoholic beers, boosting sales of non-alcoholic beer in Japan.
Top 10 Markets for Non-alcoholic Beer 2010

400 350 300 35 Million litres 250 200 150 100 10 50 0 5 0 30 25 20 15 50 45 40 % total volume growth 15
2010 Total Volume
2009/2010 Growth
Category Analysis
Stricter drink-driving law aids low-alcohol beer

Spain has emerged as the leader in the global rankings
for low-alcohol beer, with per capita consumption of 7 litres in 2010. Stricter drink-driving legislation, increasing health awareness and a mature beer category in need of innovation were the main growth drivers of the category over the review period. However, as the economy worsened and consumers drank less out of the home, low-alcohol beer saw its volumes decline. In Russia, the second largest market, sales of lowalcohol beer grew by 1% in 2010, making it the best performing category. This increase in low-alcohol beer was driven by two main factors a ban on drinking alcohol before driving and no increase in excise taxes, as there was in lager. In the US, MillerCoors MGD 64 and Anheuser-Busch InBevs Select 55 have started an arms race to offer the lowest calorie and carbohydrate products available. These two products are marketed towards health- and appearance-conscious consumers as lighter light beers, with only 64 and 55 calories, respectively. Premium imports have also taken notice of this trend, with Red Stripe releasing a light version of its beer, and both Heineken Premium Light and Corona Light supported by advertising in 2010. A side effect of lower calories and carbohydrates is a lower alcohol content in the beer. As such, low-alcohol beer has surged in the US, with total volume growth of 16% in 2010 the fastest among the top 10 markets by volume.
Top 10 Markets for Low-alcohol Beer 2010

350 20
300
250
15 % total volume growth 16
10 200 Million litres 5 150 0 100 50 0
-5
-10
2010
2009/2010 growth
Category Analysis
The health issue: Low calorie and low carbohydrate content

While health credentials and alcoholic drinks consumption are rarely used in the same sentence, healthier or less
harmful alcoholic drinks propositions are increasingly finding favour. Such offerings seldom claim to promote health per se, but rather purport to moderate the negative effects of alcohol consumption. They primarily targeting female consumers. Among health claims, low calorie and low carbohydrate content are the primary trends driving such propositions, while attempts to promote functional attributes are still largely a niche, and products with such attributes account for negligible volumes. Governments and independent health advocacy bodies around the world are putting increasing pressure on manufacturers to provide lighter alternatives to their flagship brands, and at the same time demonstrate their corporate responsibility credentials. Additionally, increasingly stringent drink-driving legislation is forcing the hands of both manufacturers and consumers. Brand name: Sol Cero NBO: Colebrook SL Market: Spain Category: Non-alcoholic beer Launched: 2010 Comment: A nonalcoholic extension of the Mexican Sol brand, providing social responsibility credentials to the company and a practical alternative for drivers
Brand name: Stella Artois Lgre NBO: Lion Nathan Ltd Market: New Zealand Category: Lager Launched: 2010 Comment: Premium low-carbohydrate beer containing only half the carbohydrates of the standard variant
Brand name: HeyDay NBO: Khoshgovar Mashhad Co Market: Iran Category: Nonalcoholic beer Launched: 2010 Comment: Addition of mango and raspberry flavours to the line
17
Category Analysis
Sweeter and milder tastes benefit dark beers

Top 10 Markets Dark Beer in 2010
1,600
1,400 1,200 1,000 Million litres 4 800 2 600 0 400 200 0
Dark beer is a relatively small category within beer, and
12
10 8 6
-2
-4 -6
represented only 4% of beer volumes in 2010. Although dark beer suffers from an old-fashioned image, sales are being driven by the popularity of wheat beer among younger consumers looking for sweeter and milder tastes, and also craft beers, many of which are dark beers. In Germany, which is the largest dark beer market globally, sales of wheat beer were especially strong in the region of origin, Bavaria, in 2010, but continued to grow in other German regions as well, as more Germans enjoyed the milder taste and slightly higher alcohol content compared to Pilsener. Wheat beer has been especially successful among younger people, which has made it a focus of innovation and new product development across Germany. The US is the most dynamic dark beer market in the top 10 by volume, posting double digit growth in 2010, driven by amber ale and wheat beer. Wheat beers are preferred to standard American lager by many non-beer drinkers, due to their lower levels of bitterness and a hint of sweetness. The category had been thought to be at the tail end of the meteoric rise seen since 2002, but experienced a surge in the latter part of the review period due largely to the entrance of Bud Light Golden Wheat on the market.
2010
2009-2010 Growth 18
Category Analysis
Stout a Nigerian Staple

Top 10 Markets Stout 2010
400 350 300 250 Million litres 20 15 10
Nigeria overtook the UK and Ireland as
5
200 0 150 100 50 0 -5 -10 -15
the top market for stout sales by volume as far back as 2006 and 2004, respectively, and by 2010, sales in the country had reached 355 million litres. Marketing campaigns that successfully used the platforms of football and music to reach out to the massive consumer pool of the Nigerian market were the driving force behind the category's strong gains over the review period. As in the UK and Ireland, Guinness dominates the category in Nigeria, accounting for 55% of sales in 2010. Italy is the most dynamic Western European country among the top 10 in 2010, with stout enjoying 2% volume growth. Italians are becoming more interested in new types of beer, such as dark beers and stout. This trend is being fed by supermarkets, hypermarkets and pubs, which are enhancing their portfolios and increasing the space dedicated to special beers. An increase in the number of companies focused on special beer imports, for example Eurosaga, has contributed further to this.
19
2010
2009-2010 growth
20
Regional Analysis
Asia-Pacific and Western Europe dominate

Asia-Pacific and Western Europe are the
Beer Total Volume by Region 2005 and 2010

100% 90% 80% North America 70% Billion litres 60% 50% 40% 30% 20% Asia-Pacific 10% 0% 2005 2010 21 Middle East and Africa Latin America
key regions for beer by both volume and value. While Asia-Pacific is the major region in volume terms (accounting for 34% of global sales), value sales in the region account for only 25% of global sales, indicating the relatively low unit price of beer in the region (economy lager makes up the bulk of volumes, at 70% in 2010). Conversely, Western Europe accounts for 15% of global volumes but 26% of values, indicating the extent of premiumisation in the region over the review period. (Standard and premium lager constituted 74% of volumes in 2010, and the region has a relatively high share of other types of beer besides lager compared to other regions.) Despite the large size of the Asia-Pacific market, it offers potential for future growth. As well as being the most dynamic region in volume terms (average annual growth of 7% between 2005 and 2010), per capita, consumption of beer, at 17 litres, is well below the global average (27 litres in 2010).
Western Europe
Eastern Europe
Australasia
Regional Analysis
Emerging markets are most dynamic, as mature stall

Regional Performance Beer 2005-2010
8
2005-2010 6 4 % total volume growth 2 0 -2
Generally, the emerging markets are more dynamic
2009/2010
-4
-6
-8
than developed markets, with all emerging regions bar Eastern Europe growing in 2010. MEA, Latin America and Asia-Pacific outperformed the global market in both volume and value terms in 2010, while Western Europe and North America underperformed in terms of both volume and value growth. Eastern Europe suffered in 2010, as a result of the economic slowdown, with Russia, in particular, showing strong high single digit declines in 2010. The main reason for the decline in Russia was the implementation of a 200% excise tax increase in 2010, which significantly increased unit prices, hampering beer sales in the country. Western Europe and North America saw sales decline in 2010. In North America, the recession was mainly to blame, with sales starting to decline in 2009 but expected to grow again in 2011. Western Europe, on the other hand, has seen beer sales stagnate for several years, with the recession accelerating the slowdown. There will be continued decline in saturated major markets such as Germany and the UK. Not only are sales being eroded by ageing populations, the economic slowdown means that beer continues to suffer from falling patronage in the ontrade, as well as drinkers shifting to cider, wine and soft
22
Regional Analysis
Top 10 markets determine global beer market

The 10 largest markets determine global beer
Top 10 Markets by Volume 2010

China USA Brazil Russia Germany Japan Mexico United Kingdom South Africa Poland Others
fortunes, and in 2010 accounted for 67% of global sales by volume and 63% by value. The volume share of the leading 10 markets has remained relatively static over the past five years; however, Poland entered the top 10 rankings whilst Spain moved out. China alone accounts for 24% of volume, making it a bigger market than any single region except AsiaPacific. However, China has the lowest per capita consumption of the 10 largest beer markets, of 34 litres, indicating a lesser degree of saturation and potential for future volume growth. The Chinese market saw strong growth between 2005 and 2010, as rising disposable incomes and price competition made beer more affordable. Additionally, health concerns have boosted the migration from traditional spirits to drinks with a lower alcohol content, and contributed significantly to robust growth in total volume sales of beer. In contrast, volume sales declined in the mature markets of Germany and the UK between 2005 and 2010. In Germany, ageing populations have translated into a decline in the core drinking demographic (20-39 year-olds) while in the UK, beer is becoming less popular, partly on the back of increased food offerings in pubs, which has led some consumers to prefer wine and some to move to cider/perry.
33% 24%
13% 2% 2% 2% 3% 4% 5% 5% 7%
Top 10 Markets by Value 2010

USA Japan China Germany Brazil United Kingdom Russia Spain Mexico Canada Others
23
37%
15% 10% 8% 6% 3% 3% 3% 4% 5% 6%
24
Channel Analysis
On-trade outperforms off-trade in 2010

Global On-vs Off-trade Performance Beer 2005-2010
140 120 5 100 Billion litres 80 60 40 20 -2 0 2005 2006 2007 2008 2009 2010 -3
Both on-trade and off-trade alcoholic
7 6
4 3 2 1 0 -1
Off-trade volumes On-trade volumes Off-trade growth - Global On-trade growth - Global Off-trade growth - excl. China and Russia On-trade growth - excl. China and Russia
drinks volume sales saw a bounce back in 2010 after a slowdown in growth in 2009. The off-trade marginally outperformed the on-trade over the review period, with both channels taking a hit in 2009, when the recession was at its peak. It is notable that in 2010, on-trade sales grew faster than off-trade sales with this trend expected to continue over the forecast period. However, this does not mean that consumers have started going out again. If China and Russia were excluded from the global figures, the offtrade would see growth while the ontrade would decline. This highlights the importance of these two emerging markets. The importance of Russia and China is driven by the on-trades relative advantage in absorbing the 200% tax hike for beer in Russia and the rising middle-class increasingly going out in China. Nevertheless, these two markets are the exception rather than the rule, as the on-trade continues to suffer.
25
Channel Analysis
On-vs Off-trade performance by country in 2010
Key:
Off-trade On-trade
Note: The map denotes better performing channel (off-trade or on-trade) in 2010
26
Channel Analysis
Internet retailing the most dynamic channel

Global Beer Distribution by Channel
140 120 Billion litres 100 80 60 40 20 0
Supermarkets/hypermarkets
Non-store retailing Other grocery retailers Food/drink/tobacco specialists Small grocery retailers Discounters Supermarkets/hypermarkets
and independent small grocers remain the most important off-trade channels for beer, with 33% and 29% shares of off-trade sales, respectively, in 2010. Within store-based retailing, discounters saw the highest growth between 2005 and 2010. Discounters benefited from consumers looking for value for money, with their economy proposition appeals to cash-strapped consumers. Internet retailing was by far the most dynamic channel overall, having enjoyed near double-digit annual average growth over the review period, benefiting, like discounters, from consumers quest for value. Consumers are looking for bargains and bulk purchases, to which this channel lends itself well.
Beer Distribution Breakdown 2005-2010

Other grocery retailers Forecourt retailers Food/drink/tobacco specialists Small grocery retailers Convenience stores
Independent small grocers

Supermarkets/hyper markets Discounters Internet retailing -5 0 5 10
% Off-trade volume CAGR 2005-2010 27
28
Competitive Environment
One clear leader in a concentrated beer market

Top 10 Brewers 2009-2010
40,000 2009 35,000 2010 30,000 25,000 20,000 15,000 10,000 5,000 0
AB-InBev is by far the largest
brewer globally, with a 19% volume share in 2010: almost double that of the second biggest brewer, SABMiller, which held a 10% share. Beer is very concentrated, with the top 10 brewers representing about 61% of total beer volumes in 2010, compared to wine, where the top 10 wineries only hold a 13% share. Also, the wine rankings have remained unchanged since 2005, unlike beer, where consolidation has been going on for several years, with the acquisition of Anheuser Bush in 2008 by InBev, and Heineken buying FEMSA in 2010. Heinekens acquisition of Femsa has made it the fastest growing company in the rankings with its volumes increasing by 30% in 2010, closing the gap to number two brewer SABMiller.
29
Billion litres
Chinese brand leads the pack

Top 10 Beer Brands Globally Total Volume
9,000 2009
Chinese beer brand Snow is the
8,000
2010 7,000 6,000 Billion litres 5,000 4,000 3,000 2,000 1,000 0
leading beer brand globally holding a 5% total volume share in 2010. Its lead is down to Chinas importance in the global beer market, holding a 24% volume share of global beer sales. Snow, owned by China Resources (CRE), is a very local brand, with its sales concentrated in its home market. This is not unusual as, unlike spirits brands, which are more international with major brands having an international presence, beer brands are relatively local, although brewers are global. Budweiser and Heineken are exceptions, with both brands having significant international presence. This is especially the case for Heineken, with 40% of its sales volumes being generated outside its home market of the Netherlands, making it a truly global brand. The next slide indicates how different the coverage of CRE and Heineken is.
30
Heineken vs China Resources' global presence in 2010
31
How does Heineken do it?

Globally, Heineken is the second largest imported
lager brand after Mexico's Corona Extra. 40% of Heineken's international volumes (excluding the Netherlands) are imported lager. This is high compared to Budweiser, another well-known global brand, which has 12% of its international volumes within the imported category. In many markets where it does not own a subsidiary, Heineken's brands are brewed under licence. In most markets, this is done by companies in which it owns a minority stake, eg CCU in Argentina and Chile. The main countries of export for Dutch beer, including Heineken, are outside Europe, with the US being the largest consumer of Dutch beer. Exports from the Netherlands grew between 2004-2008, but declined in 2009, as countries such as the US drank less imported beer due to the recession, which was reflected in Heineken's sales declining by 12% in the US in 2009 and 2010. In early 2011, Heineken acquired the brewing operations of the Sona Group (five breweries) in Nigeria, further strengthening its grip on this large and rapidly growing beer market. This is indicative of the direction of brewers' corporate strategies, now that most of the major acquisition targets have been purchased.
Heineken, Brewing Facts and Figures

Own breweries Western Europe 37 (recently closed two breweries in the UK, and one in each of Finland, France and Spain). Eastern Europe 31 (recently closed two breweries in each of the Czech Republic and Russia). Licensed brewing Before InBev's acquisition of Anheuser-Busch, Heineken used to brew Budweiser in Italy.
Heineken is a major third-party brewer of Diageo's Guinness in Russia. Before InBev's acquisition of Anheuser-Busch, Heineken used to brew Budweiser in Russia.
Middle East and Africa 25
Heineken is a major third-party brewer of Diageo's Guinness in many African markets (eg Rwanda and the Democratic Republic of Congo).
Minority stake in CCU in Argentina and Chile. Heineken produces Budweiser in Colombia and Panama. Heineken is a major third-party brewer of Diageo's Guinness in Indonesia.
32
Latin America 5 (this will rise to 19 with the acquisition of FEMSA).
Asia-Pacific
Potential for global brewers in cider/perry

Until 2008, cider/perry was an undervalued niche category in the Netherlands, with limited volume growth. In 2008,
the country's dominant beer producer, Heineken, launched a new cider called Jillz, targeted primarily at women as an alternative to wine and beer. The brand is expected to help volume sales and per capita consumption double between 2008 and 2015, albeit from a small base. Heineken has achieved this by leveraging its distribution and financial strength. The Jillz brand has seen very strong growth, and in 2010 accounted for around 50% of category volumes. In 2010, Anheuser-Busch InBev launched Stella Cidre in a dynamic UK cider market, where cider sales are far more dynamic than beer sales making it a logical step for the brewer. If any other brewer were to move into cider/perry, it could attempt something similar in the US and Canada, where cider has a niche premium image, as well as in other Western European markets, such as Belgium, France and Germany. One means to enter cider/perry would be through the acquisition of the world's third largest cider company, C&C, which is a small independent player and publicly listed. C&C is already well established in the key cider/perry growth markets of the UK and Ireland. Any volume gain would be relatively small in the short term and would require considerable effort to develop brands, but in increasingly mature beer markets any growth is likely to be welcomed.
Cider/Perry Performance in the Netherlands 2005-2015

Total market size ('000 litres) 12,000 10,000 8,000 6,000 4,000 2,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 33 0.0 Total volume sales '000 litres Per capita consumption 0.6 0.4 0.2 Per capita consumption (litres) 14,000 0.8
Opportunities for brewers: diversification is essential

The global beer market remains highly localised, with brewers constantly looking for new ventures and opportunities
to sustain growth in what is a relatively stagnant market overall. From China to Germany, brewers are facing challenging market conditions, which vary by market and range from factors such as ageing and declining populations to changing consumers preferences for other alcoholic drinks categories, such as wine, spirits, cider and RTDs, to ongoing global economic uncertainty. Despite the different challenges currently faced in different markets, local and international brewers are all facing an increasingly saturated market. As such, they will need to look to diversify, be it in the short, medium or long term. In Germany, the beer market is saturated, with consumers increasingly preferring lighter and healthier beers over traditional varieties, thus many brewers have already expanded into the more lucrative malt-based RTDs category. Malt-based variants boast a perceived healthier positioning and lower alcohol content, while consumers associating such products with beer can provide a new direction for brewers. Similarly, in Russia, with increased pressure on the national beer market, due to a 200% excise tax increase, leading to an almost 10% decline in 2010, brewers are looking to be less dependent on beer and find new growth areas. For example, Baltika Breweries is launching products in new categories and focusing more on exports. Even in relatively high growth markets, such as China, brewers are looking further afield, with strategies to diversify further their gradually maturing urban consumer base. Female-targeted products represent one option, as does further expansion into underserved provincial and rural areas. Product diversification Channel diversification On-trade focused: specific channels within on-trade, such as full-service restaurants Off-trade focused: non-store retailing vs store-based retailing modern retailing vs traditional Geographical diversification Urban vs rural Exports to more dynamic markets, with emerging markets in Africa and the Middle East, Latin America and Asia-Pacific offering the best growth opportunities
Within beer: moving into . different categories; low/nonalcohol beer, premium lager, flavoured beer Within alcoholic drinks: cider, malt-based RTDs Outside alcoholic drinks: carbonates, bottled water, etc
34
35
Prospects
Beer volumes to increase over the forecast period

Global beer volumes are expected to continue to grow over the forecast period. The forecast total volume CAGR is 3% for 2010-2015, which is a slight improvement on the CAGR for the review
period, which stood at 3%, as the category sees sales picking up after the 2009 and 2010 slowdown caused by the economic downturn. All regions are expected to see sales begin to increase again by the end of the forecast period, at the latest, after the slowdown in the latter part of the review period. Western Europe is expected to take the longest to recover but will eventually see some growth again.
Global Beer Market Forecast Performance

230,000 220,000 210,000 200,000 190,000 180,000 170,000 2010 2011 Beer Total Volume 2012 2013 2014 Total volume growth 36 2015 4 3.5 3 Billion litres 2.5 2 1.5 1 0.5 0 % growth
Prospects
Non-alcoholic beer continues to be most dynamic

As was the case during the review period,
non-alcoholic beer is set to be the most dynamic beer category over the forecast period, driven by the Middle East and Africa, and in particular by Iran. Low-alcohol beer is seeing a marked improvement on the review period, with China being one of the most dynamic countries as more flavoured and lower ABV beers are on the market, targeting female consumers. With economically independent women becoming a much bigger group in China, female consumers will become a target market with greater potential. Hence, manufacturers are likely to cater to female consumers preferences with the launch of more low-alcohol/non-alcoholic beers or fruit-flavoured beers in the future. Lagers forecast performance is similar to its historic growth, mainly driven by AsiaPacific, which is forecast to grow by a 6% CAGR in total volume terms between 2010 and 2015. The Middle East and Africa region will drive stouts and dark beers forecast growth, with both categories showing an improved or similar performance compared to the review period.
Beer by Category Forecast Performance 2010-2015
Stout
Non-alcoholic beer
Low-alcohol beer
Lager
Dark beer
-2
10
12
14
16
% total volume CAGR Note: The filled bar is referring to 2010-2015 CAGR (forecast), the unfilled bars refer to 2005-2010 CAGR (historic) 37
Prospects
Emerging markets set to remain most dynamic

Beer Forecasts by Country 2010-2015
38
Prospects
Growth Opportunities outside of China

Already the largest beer market in the world, China
2,000
20
1,500
15
1,000
10
500
0
Brazil India Vietnam Iran Nigeria
2010-2015 Absolute Growth
2010-2015 CAGR
39
% CAGR 2010-2015
will account for over half of global volume growth between 2010 and 2015, and given that its per capita consumption is still under half that of many Western markets, this trend is set to continue. Therefore, having a strong presence in this market is important; however, there are growth opportunities in beer outside China. After China, Brazil will be the second most dynamic beer market in terms of absolute volume growth between 2010 and 2015, followed by India and Vietnam. Emerging markets will be the main engine for beer growth over the forecast period, with regions such as Latin America and the Middle East and Africa playing an important role. China will underpin the dynamism of Asia-Pacific. Iran will be the most dynamic in percentage growth terms despite the complete ban on alcoholic drinks, with media coverage of the harmful effects of cola carbonates offering growth potential for non-alcoholic beer. The potential seen by brewers in these regions is clearly evident when reviewing global brewers' strategies. Opportunities also exist outside beer, with some brewers looking to enter new categories.
Beer Opportunity Markets Outside China 2010-2015

3,500 35
3,000
30
2,500 million litres
25
Prospects
Brazil beer sales driven by premiumisation

In 2010, beer benefited from increasing disposable
incomes among lower income brackets and a steady employment rate, combined with the FIFA World Cup held in South Africa, which boosted sales in June and July, a Economy lager period of the year when demand is typically lower compared to the summer season. Low-/non-alcohol Beer Increases in the purchasing power of most Brazilians, and Standard lager growing demand for higher quality products was evident over the review period. As a result, alcoholic drinks Beer manufacturers invested in expanding their portfolios with premium products, such as Cervejarias Kaiser do Brasil, Premium lager which introduced Amstel Pulse (Netherlands), Birra Moretti (Italy), Edelweiss (Austria), Murphys Irish Stout and Dark beer Murphys Irish Red (Ireland) in early 2010, and Cervejaria Petrpolis, which partnered with a German brewery to 0 5 10 15 20 produce and distribute Weltenburger beer. 2010-15 CAGR % It is expected that consumers will continue to migrate to more sophisticated products in the forecast period, as Key point: Brazil offers great opportunities for brewers disposable incomes continue to rise. The share of as consumers are opting for more premium products households with a monthly disposable income over as disposable incomes are rising and urbanisation US$750 is predicted to grow from 47% in 2010 to over continues. The northeast region of Brazil is a focus of 57% in 2015. investment, as the area has benefited most from the Dark beer and premium lager will experience the fastest economic stability experienced in Brazil since growth, of 96% and 70%, respectively, in total volume 1998. It showed the fastest growth in GDP among terms between 2010 and 2015. Greater investment in the regions of Brazil. The very young population of these categories and growing demand for such products Brazil, with the bulk being under 40 years, is also among affluent consumers and the middle class are favourable to brewers. expected to spur sales in the near future.
40
Brazil: Forecast Growth by Category 2010-2015
Prospects
Advancing middle classes key for growth in Brazil
41
Prospects
Opportunities in India for international brands and categories

India is forecast to be the second fastest growing country for beer in absolute terms globally between 2010 and
2015. It is expected to add an extra 1.3 billion litres to its current market size of 1.7 billion litres by 2015. However, although it is dynamic, beer consumption is still very low compared to Western markets. Indias per capita consumption in 2015 is expected to be 2.4 litres, compared to the global average of 30 litres. Sales of beer are highest in South India, with over 30% of Indias beer volume sales. The hot climate makes beer a favoured choice of South Indians. Andhra Pradesh and Tamil Nadu are the main contributors to South Indias beer consumption. Strong lager, with around 8% abv, constitutes more than 70% of sales, while mild lager is more popular in on-trade outlets in urban areas. International brands are expected to expand their shares considerably over the forecast period, as Indian consumers become more discerning about their brand preferences. International products, including ales and weissbier/weizen/wheat beer, are also expected to become more popular, particularly in the major cities, where brands such as Hoegaarden, Little Devils and Geist proved popular in high-end on-trade outlets in 2010. Future growth is expected to be driven by small cities and towns in states such as Orissa and Madhya Pradesh, which were under-penetrated by the major brewers over the review period. With increased availability in supermarkets/hypermarkets, this will expand the occasions and locations for Indians to consume and purchase beer. Key point: India has huge potential due to its India Beer Forecast by Region 2010-2015 relatively low per capita consumption of beer 1,200 20 and its strong expected forecast growth, as 1,000 brewers are expected to increase their 15 800 penetration. However, it is worth noting that 600 10 India has issues with infrastructure and with gross under-capacity for all forms of transport, 400 5 which hinders distribution. It also has a 200 complicated taxation system, which varies from 0 0 state to state. This, and the difficulty in setting South India West India North India E and NE up production facilities nationally, caused by India byzantine regulations, could be big factors in 2015 total volume 2010-2015 total volume CAGR hindering development within beer.
% total volume growth million litres 42
Prospects
Vietnam: Beer sales benefit from westernisation trend

The shift from traditional rice wine varieties to beer in the context of evolving westernisation trends was the main
driver of beer growth over the review period, which spearheaded alcoholic drinks growth. Volume sales of beer in Vietnam are expected to continue to grow between 2010 and 2015, at a 9% CAGR, on the back of the long-term growth of the local economy, as well as changing consumer lifestyles, which are increasingly influenced by Western culture.
With the increasing
number of more educated consumers, expatriates and overseas students, consumers will look for products that suit their taste, lifestyle and status. At the same time, consumers will also seek drinks that have a health and wellness positioning or are low in alcohol content for social drinkers. Consequently, lowalcohol beer is likely to be introduced to the market in the future to meet this consumer demand.
43
Prospects
Vietnams changing regulatory environment offers

The integration of Vietnam into the WTO is opening more opportunities for investment and imports from foreign
companies, especially as its government is committed to reducing taxes levied on imported beer to 65% after joining the WTO, and further reducing the rate to 35% in the next five years. Also, the countrys relatively young population, with a median age of just 28 in 2010, compared to Japan, where it is 45, offers good opportunities.
Key point: Reinforcing health and wellness perceptions for beer will cement already buoyant growth rates, whilst also adding value and raising profit margins. Imported beer will benefit in the medium and long term from the integration of Vietnam into the WTO and the subsequent tax reductions.
44
Prospects
Iran the most dynamic beer market in terms of growth

With Islamic law forbidding the consumption, manufacturing and trade of alcohol in any form, and anti-smuggling
programmes run by the Iranian government further limiting parallel trade alternatives, non-alcoholic beer witnessed strong growth in Iran over the review period, which is expected to continue over the forecast period. Forecast volume growth is expected to be at a 33% CAGR between 2010 and 2015, which makes Iran the fastest growing country for beer. This will be driven entirely by non-alcoholic beer, and in actual terms it will add an extra one billion litres to the global market. Non-alcoholic beer is expected to see an impressive performance in Iran, more than doubling its total volume sales between 2010 and 2015. More young adults in Iran will switch to non-alcoholic beer, following widespread media coverage suggesting that it as a better alternative to cola and other carbonates, and this will play a significant role in most major players promotional activities. A number of international beverage companies, as well as some Iranian soft drinks companies, have expressed interest in producing non-alcoholic beer, on the assumption that it could become an alternative to standard carbonated soft drinks. The increasing number of supermarkets in Iran, together with growing westernisation and urbanisation trends, will be the key reasons driving volume sales of foreign non-alcoholic beer over the forecast period. The shares of multinationals, such as Carlsberg A/S, Bavaria NV and Heineken NV, are expected to grow slowly but steadily during the 2010-2015 period, enhanced by their wider availability in major supermarkets and hotels all over the country. New entrants both international beverage companies and some private Iranian soft drinks companies previously operating only in soft drinks are expected to be seen in non-alcoholic beer in Iran during the forecast period, on the assumption that it could become an alternative to standard carbonated soft drinks. These players will aim to persuade young Iranians to drink non-alcoholic beer instead of traditional carbonates, which is in line with the Iranian governments policy.
Key point: As the fastest growing beer market in percentage terms, Iran offers opportunities for non-alcoholic beer manufacturers in the future, aided by increasing number of supermarkets and the growing westernisation and urbanisation trends in the country, making it an increasingly attractive market for international producers.
45
Prospects
Nigeria dark beer and stout most dynamic

Beer sales in Nigeria are set to grow by a 7% CAGR
between 2010 and 2015, adding an additional 907 million litres to the global beer market. which are expected to grow by 19% and 11% CAGRs, respectively, in total volume terms over the forecast period. Although still relatively small compared to lager and stout, dark beer is making inroads into the Nigerian beer market because the high alcohol content and dark colour appeal to many Nigerian consumers. In addition, dark beer brands have attracted many consumers who typically drink stout since they are of similar quality but are cheaper. Polarisation is key for a country where 55% of households live in poverty, while a niche socioeconomic elite is adopting Western lifestyles and drinking habits. Focusing on the lower and higher ends of the market with a diverse product portfolio will guarantee the strongest returns within alcoholic drinks. Any brewer that wants to be in the market has to have local production, as there is a ban on imports of all alcoholic drinks. This means that foreign brewers have acquired breweries in Nigeria. For example, SABMiller acquired Pabod Breweries Ltd and Voltic Nigeria Limited in 2009, and has recently announced that it will invest over US$100 million in building a new greenfield brewery in Onitsha, in southeastern Nigeria.
2010-2015 CAGR %
Growth
Nigeria Beer by Category Forecast Performance

20 18 16 14 12 10 8 6 4 2 0 Beer Dark beer Lager Low/nonalcohol beer Stout
will be particularly strong in dark beer and stout,
Key point: Nigeria is on its way to becoming the largest and fastest growing economy in Africa. Its population is young and their disposable income will boom over the forecast period, creating opportunities for beer. However, this will also create challenges for brewers and force them to segment their offer to more diverse target groups. The one-dimensional, macho beer drinker image is expected to evolve and adapt to cater for women, older consumers or even expatriates, which will provide further opportunities for beer in Nigeria
46
Prospects
Summary: Key future trends for brewers and beer

China increasingly key
Emerging market potential is key,
Geographic and portfolio balance

Already the largest beer market in
Strong positions in emerging markets

Although still possessing
but it is necessary to offset this with strong operations in developed markets with high profit margins. As brewers become increasingly international, they are susceptible to economic fluctuations in specific markets. Having a balanced geographic presence will enable companies to mitigate declines. Similarly, brand portfolios should be diverse enough to meet macroeconomic conditions and satisfy changing consumer preferences.
the world, China will account for considerable potential for further over half of the global volume growth, China has already arrived growth between 2010 and 2015, and as a major market. Brewers must given that its per capita consumption target the next high growth areas, is still under half that of many such as Brazil, India, Iran, Nigeria Western markets, this trend is set to and Vietnam. continue. India, with its low per capita Having a strong presence in this consumption, is an obvious target, market is a necessity for the major but there are other prospective global brewers. markets in Asia-Pacific, such as Vietnam, and strong growth is Partnerships with local players have forecast in many African markets. for the most part dictated operations, and whether Initial costs can be high, while international players can instigate distribution and legislative factors buyouts will to a large extent be can be prohibitive, but the rewards dependent on government will be great in the long term. legislation.
47
Report Definitions
Definitions I
Beer
An alcoholic drink usually brewed from malt, sugar, hops and water, and fermented with yeast. Some beers are made by fermenting a cereal, especially barley, and are not flavoured by hops. Alcohol content for beer varies anything up to and even over 14% abv (alcohol by volume), although 3.5-5% is most common. Beer is often loosely classified by the nature in which it is made: Top fermented (eg ales, bitters, wheat beers, stouts, porters etc) and bottom fermented (eg all lagers). Pre-mixed beers, such as beer/lemonade, beer/whisky or beer/tequila mixes, are excluded from the data. These are included in RTDs/high-strength premixes. Beer is the aggregation of lager, dark beer, stout and LABs/NABs. Dark Beer Included here are ales, bitter, wheat and sorghum beers. Ale is brewed using a warm fermentation (ie the beer is fermented at a relatively warm temperature), while lager is fermented at lower temperatures, using a cool fermentation. Bitters are ales. They are categorised by having a harder, bitter flavour (hence the name). Bitters tend to be darker in colour, are usually less fizzy than lagers, and are generally drunk at warmer temperatures (just below room temperature is typical). Major brands in Germany include Erdinger, Paulaner, Bindingerlager and Maisel. In the US, Bass Ale and Molson Red Jack Ale. In the UK, John Smiths, Boddingtons, Stones and Newcastle Brown Ale. Also included are beers that have characteristics of other beers (for marketing purposes), such as Caffreys and Calders sold in the UK, and Half and Half (from Suntory) sold in Japan. At country level, dark beer is broken down into the main types within each country market. Low-Alcohol Beer Low-alcohol beer is defined as beer with between 0.05% abv and 3% alcohol by volume (abv). Non-Alcoholic Beer Non-alcohol beer has less than 0.05% abv. Stout Stouts (and porters) are generally very dark, almost black, and often have a roasted coffee or burnt toast taste to them. This is because the malt used in the brewing process is kilned or roasted until it is, literally, burnt. Kostritzer is an example in Germany. In the UK, Guinness, Murphys, Beamish and Mackesons are examples.
48
Report Definitions
Definitions II
Lager
Lager is categorised primarily on price, but with consideration to packaging and positioning. This is the sum of the following: imported premium/standard/economy lager and domestic premium/standard/economy lager. Premium Lager Premium lager is categorised primarily on price, but with consideration to packaging and positioning. Premium lager is classified on a country by country basis, therefore there is no set rule whereby all countries covered must deem that any lager which is, for example, priced over 20% of the standard benchmark brand is necessarily premium. For example, Tennant's Extra, in the UK, has a higher than average abv and therefore a higher price, but has a positioning that places it in the economy segment. The classification of brands by premium/standard/economy can be viewed through the brand shares link. Imported premium lager refers to lager that is brewed in a country other than the one in which it is marketed. Standard Lager Standard lager is categorised primarily on price, but with consideration to packaging and positioning. Brands within standard lager are usually those which have the highest shares in the market. Standard lager is classified on a country by country basis, therefore there is no set rule whereby all countries covered must adhere to the same price classification. The classification of brands by premium/standard/economy can be viewed through the brand shares link. Economy Lager Economy products are at the bottom end of the price range. These will usually include private label (unless premium private label brands have made inroads in the market) and unbranded products. Economy lager is categorised primarily on price, but with consideration to packaging and positioning. Economy lager is classified on a country by country basis, therefore there is no set rule whereby all countries covered must adhere to the same price classification. For example, Tennant's Extra, in the UK, is classified as an economy lager because of its positioning in the market, regardless of its higher than average abv and therefore higher price. The classification of brands by premium/standard/economy can be viewed through the brand shares link.
49
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Global Performance and Prospects For Beer

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Global Performance and Prospects For Beer

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Global Performance and Prospects for Beer

Alcoholic Drinks: Beer Overview

Alcoholic Drinks: Beer Overview

Beer 187 bn litres

RTDs/ high-strength premixes 3.9 bn litres

Cider/perry 1.8 bn litres

Alcoholic Drinks: Beer Overview

performance by geographic region;

Alcoholic Drinks: Beer Overview

China gains in importance

On-trade the more dynamic channel

Alcoholic Drinks: Beer Overview

Alcoholic Drinks: Beer Overview

Beer sales pick up in 2010 after the slowdown in 2009

Beer Total Volume Performance 2005-2010

Beer value growth

Beer volume growth

Alcoholic Drinks: Beer Overview

China impacts global beer volumes

Global and China Beer Growth 2005-2010

Alcoholic Drinks: Beer Overview

Alcoholic Drinks: Beer Overview

Lager dominates the beer category

Alcoholic Drinks: Beer Overview

Domestic lager most popular globally

Alcoholic Drinks: Beer Overview

Standard lager dominates in all regions except Asia-Pacific

Middle East and Africa

Alcoholic Drinks: Beer Overview

Polarisation apparent in lager

% total volume growth

Alcoholic Drinks: Beer Overview

Polarisation: Economising in the age of austerity

Alcoholic Drinks: Beer Overview

Non-alcoholic beer popular in the Middle East

Top 10 Markets for Non-alcoholic Beer 2010

2010 Total Volume

Alcoholic Drinks: Beer Overview

Stricter drink-driving law aids low-alcohol beer

Top 10 Markets for Low-alcohol Beer 2010

15 % total volume growth 16

10 200 Million litres 5 150 0 100 50 0

Alcoholic Drinks: Beer Overview

The health issue: Low calorie and low carbohydrate content

Alcoholic Drinks: Beer Overview

Sweeter and milder tastes benefit dark beers

% total volume growth

Alcoholic Drinks: Beer Overview

Stout a Nigerian Staple

% total volume growth

Alcoholic Drinks: Beer Overview

Alcoholic Drinks: Beer Overview

Asia-Pacific and Western Europe dominate

Beer Total Volume by Region 2005 and 2010

Alcoholic Drinks: Beer Overview

Emerging markets are most dynamic, as mature stall

Alcoholic Drinks: Beer Overview

Top 10 markets determine global beer market

Top 10 Markets by Volume 2010

Top 10 Markets by Value 2010

Alcoholic Drinks: Beer Overview

Alcoholic Drinks: Beer Overview

On-trade outperforms off-trade in 2010