Cut-throat, cut-price European competition sees SABMiller beer sales stall

The $28bn turnover firm (March 2011), which produces the Pilsner, Peroni, Miller and Grolsch brands, revealed its muted European performance in an interim management statement released by today, covering the third quarter (Q3) ending December 31.

Overall, SABMiller reported that lager production volumes were 3% up on Q3 2010, due to good growth in all regions except Europe and the US, while soft drink volumes grew 6% in all regions.

Organic revenue – discounting profits, growth from mergers and acquisitions – grew by 7% when currency fluctuations were discounted, while SAB saw mix gains in all regions apart from Europe.

Describing quarterly performance in line with expectations, SAB noted that US domestic retail sales (MillerCoors) fell 3.3%; European lager volume sales slumped 2%, with beer markets there “affected by intense competition, which continued negatively to impact, as well as fragile economic conditions”.​

BeverageDaily.com asked SABMiller whether it saw declining European and US volumes as a blip – due to, say, recessionary pressures, high taxes – or a more fundamental identity crisis for the beer category, as suggested by Euromonitor International within the UK market​.

US beer drinkers unemployed​

A SABMiller spokesman told BeverageDaily.com: “There’s definitely not a fundamental problem with beer, and it’s wrong to equate the US and European markets together.​

“The US market is very different to our European markets. In the former, beer is in many ways in very good health. Take the vibrant craft beer segment growing strongly [Tenth and Blake saw double-digit Q3 growth] and huge interest in the overall beer category, which is encouraging.​

“The difficulty for us is that our big premium light brands are exposed to areas of the economy that are still struggling. Look at the unemployment rate within the core demographic of beer drinkers in the US and it’s still quite high. So it’s very largely an economic story here.”​

Within SABMiller’s core European markets – Central, Eastern Europe and Russia – there was also strong consumer interest in the category, the spokesman said: “Again, the problem macroeconomic to a certain degree, but the primary difference is that we’ve seen a lot of competitive pricing pressure, with competitors dropping prices for mainstream beer categories.​

“They’re promoting economy brands now, and that’s a certain amount of profit out of those markets.”​

Emerging market promise​

SABMiller takes around 70% of its profits from emerging markets, and within Latin America lager volumes were up 8% (soft drinks +8%), with SAB’s non-alcoholic malt brands a telling success story, up 21% and now rolled-out across Central America.

In that region lager volumes grew 6% with particularly strong performance in El Salvador; Asia Pacific and Chinese lager volumes grew 7% and 5% respectively, and Indian volumes 21%.

This success was replicated in Africa with lager volume growth of 11% despite capacity constraints, and the spokesman confirmed that SAB Miller would be interested in potentially acquiring French firm Castel’s interest in an African joint alliance, with a £6bn deal mooted in some quarters.

Under an existing agreement SABMiller has a 20% share in Castel’s African beverage interests and Castel has a 38% in SABMiller’s main African holding company.

Castel African interest confirmed​

The spokesman said: “We’ve got a big overlapping interest in each other’s operations, and given that fact, it’s probably stating the obvious to say that if Castel was interested in a sale, we probably would be interested in buying-up their interest in the alliance. ​

“But it is worth noting that they’ve given no indication that they have any interest in selling up.”​

SABMiller said on Monday that it was trialing premium brand Miller Genuine Draft, in the Zhejiang region of China, with the company looking to “test the potential for its international brand with a premium beer imported from the USA”.​

Ari Mervis, SABMiller’s Asia Pacific MD, said: “This is an exciting opportunity to introduce one of our international brands into the fast-growing premium segment in China, in a way that takes advantage of [exclusive importer] China Resources Snow Breweries’ (CR Snow’s) strong market position.”​

CR Snow owns ‘Snow’ (pictured) the largest beer brand in China and the world by volume: in 2010 the firm held a 21% share of the Chinese beer market with sales of more than 92m hectoliters.