The recent announcement by SAB Miller to acquire Meantime is a very interesting move. Some analysts have reacted by saying that this is the natural cycle of innovative brands within the category, other suggest that this is a very lazy solution to the long term brewing industry issues. We analyse whether the current approach will address the industry’s challenges.
It has been a tough decade for the UK brewing industry with 2014 seeing the first growth in beer sales for 10 years. During that time 24% of volume has been wiped off the industry. Its first year in growth has seen a modest 1% rise (Morning Advertiser November 2014), so whilst this is a positive reversal of fortune it will take a seismic shift to return to the former glory days.
Putting this into context of the craft beer market performance, there are now 1,285 breweries operating in Britain, the highest number since the 1930s (2015 Good Beer Guide). A 2013 GCA Strategies report calculated that craft beer was growing at 79% a year. Two stars of this category epitomise this success. Meantime, founded in 2000, now has a turnover of £17m having grown its volume by 58% last year (Financial Times, 15th May 2015). Another is Brew Dog, opened in 2007, their sales have grown exponentially ever since and it was named the UK’s fastest-growing food and drink brand by The Sunday Times in 2012 and 2013 with revenues of £29.6m in 2014, up by 64% from 2013 (The Guardian, 22nd April 2015).
By contrast, Heineken’s recent results revealed struggling fortunes. In Western Europe volume is down 1.7 % as the U.K. weakened (Bloomberg April 2015). Whilst AB InBev and SAB Miller are also expecting ongoing flat sales in Europe due to high beer penetration levels (Forbes, May 2015). So with Meantime’s and Sharp’s purchase by SAB Miller and Coors respectively over the last couple of years, it appears that their strategy may be acquisition.
The rise of craft drinks continues to gather momentum as the category capitalises on the global trends of modern craftsmanship, celebrating roots and authenticity. The multinational alcohol producers are very worried about this, they have the research and data which clearly identifies where the challenge is coming from. However their response thus far has been to acquire these phenomenal growth brands in order to increase distribution and transform them into mainstream brands which will effectively kill off what made them so appealing in the first place.
This seems like an odd strategy. Whilst we have no doubt that they have conducted the due diligence to ensure the financial viability of these acquisitions, they are not addressing the long term issues.
The issue is that consumers are bored of their mainstream brand choices. Anecdotally, we regularly witness drinkers ordering ‘just a Foster’s’, the implication being that this is a sub-standard apologetic choice. The global brands are becoming less relevant to a consumers life. Along with a high quality product, the beer consumer wants social collateral. They want to embrace the brand story in order to justify their selection and impart knowledge and understanding of the category to their fellow drinkers.
So, rather than just throwing money at the problem, the big brewers need to think more creatively. The solution isn’t simple or straightforward, however if the global brewers genuinely have a long term interest on their industry a different approach is required. Fundamentally they need to address the challenges, understand what is driving the growing appeal of craft beer and to reinvent their category. Acquisition is not the answer, they must go back to their roots to find the solution, after all they all started as highly entrepreneurial craft beers themselves.