Posted August 2011
Pick your tipple wisely
Global spirits market | Many a brewer I have heard
saying: "When I am thirsty I will have a beer. When I am feeling queasy,
I will have a schnaps. But I have never felt so sick as to feel like
having a glass of water." If this is indicative of brewers' overall
consumption habits, they cannot have contributed much to the spirits
industry's growth this past decade. In total spirits represent around 9
percent of total alcohol volume. Consumption has grown 1.8 percent per
annum on average. This was slower than beer at some 3.4 percent but
ahead of wine at 1.2 percent. Which just goes to show: brewers know how
to move with the flow.
Over the past twenty years the globalisation of the
brewing industry has proceeded at such speed that brewers, still
scratching their heads over where to find their companies' latest
far-flung purchases on a map, can be forgiven for not having followed
M&A activity in the spirits industry all that closely.
In fact, for most of us, the world spirits map resembles
a Roman map. Like us, the Romans had a fairly good notion of Europe but
many regions beyond they just marked with a "HIC SVNT LEONES", or HSL,
which translates to "here are lions" and means the territory is
uncharted, unexplored and wild.
This is another way of saying that brewers may have taken
note of France's Pernod Ricard buying Sweden's Vin & Sprit, the maker of
Absolut vodka for USD 9 billion; or Diageo acquiring a 50 percent stake
in Ketel One, the Dutch vodka maker for USD 900 million, both in 2008.
However, if they were asked which other transactions come to mind, many
of them will draw a blank.
Still, the consolidation of the spirits industry has been
heady and frantic, albeit confined mostly to HSL geographies like Asia
and done by local operators. To this day, the global spirits market
remains highly fragmented with numerous, cheap products available
locally. The International Wine and Spirits Record lists over 900
spirits producers, but they account for less than a third of the total
volume of spirits produced worldwide.
Before I look at the beer and spirits industries more
closely, let me issue a warning: all figures concerning global spirits
volumes and profits are guestimates. Depending on whose market research
you consult, they can vary widely, not least if unrecorded spirits
volumes - moonshine - are factored in or not. There is a huge volume of
unrecorded alcohol sloshing around in virtually every country, which
includes both traditional home-brew and "brush whiskey", says the
International Center on Alcohol Policy, an alcohol-industry funded body.
Unrecorded alcohol accounts for 30 percent of total consumption in China
and Eastern Europe, 50 percent in India and over 80 percent in several
African countries, according to WHO estimates. In other words, no one
has the faintest idea as to how much booze people really drink.
When comparing the beer and spirits industries, we need
to bear in mind that we are basically comparing apples and pears:
although beer and spirits companies, the listed-ones at least, are
usually lumped together by bankers and investors as "sin stocks", the
two industries have very little in common. When we talk about beer, we
talk about a fairly uniform product the world over (95 percent of global
beer is lager according to Canadean), whose material differences are
limited to bottles, labels and price points. I know this will raise beer
marketers' hackles, but never mind.
Spirits companies - a hotchpotch group
Now, when we talk about spirits, we not only need to look
at different sub-categories like vodka, gin, bourbon, Scotch, rum etc.
We also have to take into account that spirits range from rotgut sold
for a few cents in teabag-sized sachets in places like Africa to pure
luxury items such as the Hennessy XO Extra Old Cognac which retails at
EUR 150 a bottle.
That makes spirits companies a fairly hotchpotch group
and immediately begs the questions: which ones do you compare? The
companies that predominantly sell western spirits like Diageo, Pernod
Ricard, Bacardi, Fortune Brands (Jim Beam), Brown Forman (Jack
Daniel’s)?
Moreover, do you include Asian giants like United Spirits
from India, controlled by the colourful VJ Mallya, who also owns United
Breweries - together with Heineken- and Kingfisher Airlines? United
Spirits, which ranks third behind Diageo and Pernod Ricard in volume
sales - so it claims - markets more than 140 brands of whisky, vodka,
rum, brandy and scotch. Unfortunately many of its brands sell for less
than USD 1.30 per bottle. Accordingly, it reported hardly any profits on
a turnover of USD 1.4 billion in the year ended 31 March 2010.
And what about the likes of LVMH and Remy Cointreau?
What's the common denominator of, say, Diageo and LVMH?
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