22 November 2023
Being on the right side of disruption is going to be a key driver of generating future investment performance. Many consumer staple companies that have been at the core of quality portfolios are now being disrupted and beer clearly falls into the same category.
Being on the right side of disruption is going to be a key driver of generating future investment performance. Many consumer staple companies that have been at the core of quality portfolios are now being disrupted and beer clearly falls into the same category. Historically investing in beer companies has been attractive since most beer markets around the world are duopolies or oligopolies which led to rational competitive behaviour, high cash flow generation and high levels of profitability for incumbent players. In addition, in the pre-crisis period, global beer volumes typically grew in line with GDP, with revenues growing ahead due to pricing and mix effects.
However, between 2010 and 2017 global beer volumes grew below GDP. Going forward (2018-22), Euromonitor forecast beer volume growth at c30% of GDP which is a significant slowdown. The schematic from the Brewers Association below shows some data from the US market in 2107.
There are several reasons for this collapse which include:
- One of the largest demographic shifts in history,
- The emergence of alternative beverage categories like wine, cider and health-oriented drinks
- Tighter regulatory and taxation measures.
Based on traditional economic moat analysis, Anheuser-Busch InBev (ABI), being the undisputed leader in beer with 30% of global volumes and circa 50% of profits, would be the most attractive company to invest in. However, this is no longer a great benefit now that the category has stopped growing and is entering a secular decline. Within the beer market, mainstream beer is suffering the most, as consumers are moving rapidly towards other alternatives (like premium and craft beer, spirits, wine and even cannabis). Mainstream beer remains under pressure in most markets, including Emerging Markets, and while premium and super-premium beer continues to grow, an estimated 81% of ABI’s volumes are still estimated to be in mainstream/discount beer.
The growth in beer volumes over the next decade is expected to come from select pockets of Africa, Asia and Latin America. Heineken’s exposure to many of these faster growing emerging markets and a greater percentage of sales towards premium beers makes it very well positioned to continue to benefit. For example, two of its core markets, Mexico and Vietnam, are expected to be the two fastest growing markets over the next 5 years. The company is also well positioned longer term with Africa, one of the few structural growth regions in the world, represents 19% of Heineken’s group volume, compared with only 9% for ABI. With over 60% of operating profits comes from emerging markets, the highest exposure to premium beer and an owner managed business model, Heineken is positioned on the right side of global disruption and a major beneficiary of the Africa Megatrend.
For more information on other Megatrends, please visit Insync Funds Managers’ Website here.
EQT Responsible Entity Services Limited (“EQT”) (ABN 94 101 103 011), AFSL 223271, is the Responsible Entity for the Insync Global Quality Equity Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) (“Insync”), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.
*The views and opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Reach Markets.
Reach Markets Disclaimer
Reach Markets Pty Ltd (ABN 36 145 312 232) is a Corporate Authorised Representative of Reach Financial Group Pty Ltd (ABN 17 090 611 680) who holds Australian Financial Services Licence (AFSL) 333297. Please refer to our Financial Services Guide or you can request for a copy to be sent to you, by emailing firstname.lastname@example.org.
This publication contains general securities advice. In preparing the advice, Reach Markets Australia has not taken into account the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision on the basis of this advice, you need to consider, with or without the assistance of a securities adviser, whether the advice in this publication is appropriate in light of your particular investment needs, objectives and financial situation.
Reach Markets Australia and its associates within the meaning of the Corporations Act may hold securities in the companies referred to in this publication. Reach Markets Australia does, and seeks to do, business with companies that are the subject of its research reports. Reach Markets Australia believes that the advice and information herein is accurate and reliable, but no warranties of accuracy, reliability or completeness are given (except insofar as liability under any statute cannot be excluded). No responsibility for any errors or omissions or any negligence is accepted by Reach Markets Australia or any of its directors, employees or agents. This publication must not be distributed to retail investors outside of Australia. It is recommended that you seek independent advice and read the relevant Product Disclosure Statement before making a decision in relation to any investment. Any advice contained in this communication is general and has not taken into account the investment objectives, financial situation and particular needs of any particular person.