Holsten just the tip of the iceberg
Holsten, unveiled earlier this week, was not the first major
takeover in the German beer market, but it certainly will not be
the last, either.
With more than 1,200 brewers in Germany, consolidation is long overdue, and was effectively kick started a few years ago with Interbrew's takeover of Becks. The Belgian brewer followed this with other German acquisitions, and is now the biggest single brewing group in that market, with a little over 11 per cent.
As this market share figure clearly shows, the sheer scale of the German beer market means that even the biggest players still have plenty of room to manoeuvre, and that is likely to result in further acquisitions in the future.
Euromonitor drinks analyst Natasha Berg told FoodandDrinkEurope.com that there were other reasons why Germany was likely to prove attractive to brewers looking to expand.
"Apart from being a low risk country in comparison to emerging markets, assets in Germany are comparatively cheap due to a high rate of family run businesses," she said. The reason why German consolidation has taken so long to arrive is because no German brewer has managed to carve a nationwide market share, with even well-known international brands such as Becks and Holsten having strong regional businesses but no real nationwide presence. Many brands are known only in the region -not to say the town - where they are brewed.
This has led most analysts to suggest that the only breweries likely to attract foreign investor interest are those with an annual output of more than 200 million litres, according to Berg. "But even these larger outfits have a market share of less than 8 per cent each, highlighting a market fragmentation that has so far kept foreign buyers at bay."
Euromonitor has identified five potential targets for international companies - Binding, Brau & Brunnen, Krombacher, Veltins and Warsteiner - all of which fit the target profile.
As far as bidders are concerned, Berg said that Carlsberg was considered unlikely in the short term because of the task of integrating its business with that of Holsten - although with it occupying just fifth place in the German brewers' ranking, its longer term plans could include further growth.
"Germany is, however, thought to be on the radar of Scottish brewer Scottish & Newcastle, which has been following a strategy of increasing its premium range in recent years," Berg said.
"With only a minimal presence in Germany currently, the company would be able to take advantage of the increased popularity of imported premium lager over the past five years, during which volume sales increased 30.9 per cent at the same time as volume sales of domestic premium and standard lager declined 1.7 per cent and 2.9 per cent respectively.
"Volume sales of imported premium beer are expected to continue to perform well with an increase of over 19 per cent to 2008," she added.
But a deal with a German brewer could also strengthen S&N's position further in western Europe. "Acquiring Brau & Brunnen, for example, would bring a balance to the company's operations in the region, by propelling it above Interbrew, taking it to the number two spot.
"Consolidating its position in Germany would also assist the company in securing itself against becoming vulnerable to a takeover. Following the firm's decision to sell its £2 billion pub business in 2003, S&N has become an attractive target. Should it decide not to re-enter the European merger arena, there are plenty of potential bidders that would like to take a piece of the company."
Another potential buyer of German assets could be SABMiller, the world's second largest brewer, formed in a merger between South African Breweries and Miller Brewing last year. "SAB Miller currently ranks 25th in western Europe, accounting for under 1 per cent. An acquisition of Brau & Brunnen would take the company's share in the region to a full 2.5 per cent, leap-frogging Diageo to take the number 7th place in the region."
But another possible scenario is for several German breweries to join together to fend off a foreign takeover. Possible mergers are Actris with Radeberger, or Radeberger with Brau & Brunnen, according to Berg, while other groups such as Warsteiner have formed partnerships with foreign brewers (in this case Grolsch) to try and expand their international presence at the same time as maintaining their independence.
Radeberger, Warsteiner and Krombacher also recently bought Trinks, a distrubtion company formerly owned by Nestlé, which will allow them to expand sales of their regional brands to the rest of the German market.
