Positioning today for the beer profit pools of tomorrow through distribution and export

Transcription

1 Positioning today for the beer profit pools of tomorrow through distribution and export International Beer Strategies Conference 2018 Radison Blu Portman Hotel London, 10 th May 2018

2 Table of contents Sections I Introduction to Rabobank 3 II Once upon a time - Heroic domestic beer brands and villains 11 III Happily ever after - Strategies to survive home market contraction 17 IV In a land far, far away - Profit pools in foreign countries 25 V You have three wishes - How profit pools will grow in coming years 31 VI Mirror, mirror on the wall - What is the best internationalisation strategy of all? 35 VII Conclusions 23

3 I Introduction to Rabobank

4 Overview of Rabobank The world s leading Food and Agribusiness ( F&A ) bank Size Among the world s largest banks 14.9% Tier 1 Ratio Nearly USD 1 trillion in assets Over 1,300 offices in 40 countries 55,000 employees Rabobank Group operates in 40 countries around the world with Rabobank and its subsidiaries Argentina Australia Austria Belgium Brazil Canada Cayman Islands Chile China Curaçao Czech Republic Denmark Finland France Germany Hungary India Indonesia Ireland Italy Japan Luxembourg Malaysia Mauritius Mexico New Zealand Norway Poland Portugal Romania Russia Singapore South Korea Spain Sweden Switzerland The Netherlands Turkey United Kingdom United States Rabobank Wholesale Rural & Retail has offices in 661 locations in 30 countries Argentina Australia Belgium Brazil Canada Cayman Islands Chile China Curaçao France Germany India Indonesia Ireland Italy Japan Luxembourg Malaysia Mauritius Mexico New Zealand Poland Russia Singapore Spain St Maarten The Netherlands Turkey United Kingdom United States Commitment Dedicated global focus on F&A Cooperative structure encourages long-term relationships 40countries Rabobank Foundation supports projects in 25 countries 30 countries Rabo Development holds non-controlling interests in 8 partner banks and provides advice and support for various projects Over 115 years financing agriculture Bolivia Brasil Cambodia Colombia Ecuador Ethiopia Ghana India Indonesia Ivory Coast Kenya Laos Mali Mexico Mozambique Nicaragua Peru Philippines Rwanda Senegal Sri Lanka Tanzania The Netherlands Uganda Vietnam Brazil Cameroon China Ethiopia Ghana India Ivory Coast Kenya Mozambique Paraguay Peru Philippines Rwanda South Africa Tanzania Uganda Vietnam Zambia Expertise Bankers with local knowledge Specialists from gate to plate Research and Advisory Group with 80+ F&A research analysts worldwide 25countries 18 countries 4

5 Rabobank Consumer Food & Agri research has a dedicated global team covering the beverages sector Dedicated FAR Beverages team located globally Stephen Rannekleiv Maria Castroviejo Global Strategist Senior Analyst Beverages Global Beverages Global New York, USA Utrecht, NL Bourcard Nesin Analyst Beverages Global New York, USA Andres Padilla Stacie Wan Senior Analyst Analyst Beverages Global Beverages Global Sao Paulo, Brazil Shangai, China Francois Sonneville Senior Analyst Beverages Global London, UK James Watson Senior Analyst New York, USA Sudip Sinha Vice President Beverages Global Mumbai, India Global sector knowledge Global research platform and local knowledge provide an in-depth network and understanding of the Consumer Food & Agri sectors Over 80 dedicated research professionals across 20 offices globally, covering 11 sub-sectors, working closely with Rabobank s M&A, ECM and DCM professionals Fundamental research covering the entire Consumer F&A chain and a wide array of topics ranging from macro themes, impacting a particular Consumer F&A industry, to micro-level analysis of individual companies All relevant topics in each sector are monitored from a local, regional and global perspective Rabobank as an influencer in the Beverages sector Upcoming conferences 10 5

6 Rabobank has relationships with most beverage companies Note 1. Depicted logo s are both Rabobank clients as well as corporates with whom we have a strategic dialogue, but are not financing relations 6

7 II Once upon a time Leading domestic beer brands and villains

8 Once upon a time there was a mighty King but did the King live happily ever after? Back in 1988 almost 1 in 4 beers sold in the American market was a Budweiser Source: Rabobank 2018, based on FAO Stat and Internet research 8

9 Consumers in mature markets are drinking less beer today than they did 20 years ago US consumption (2000=100) Beer consumption in the US has been roughly flat this century and beer consumption per capita has been declining Most growth in share of throat has happened in soft drinks Within soft drinks, juice and CSD have lost share to bottled water Reasons for weakness in beer are health concerns and substitution Soft drinks Alcoholic Beer Source: GlobalData

10 As can be seen for other consumer goods, most leading beer brands are losing share in their domestic market 60.0 US Budweiser consumption Mln bbl s Budweiser consumption in the US has gone down in litres as well as in volume share Development is similar to that seen for Heineken in Netherlands Some volume has been replaced by product extensions such as Bud Light Main winners however have been craft beer and foreign brands Budweiser market share USA: % % Source: GlobalData

11 Leading brands have commoditized and dropped down the value pyramid as consumers look for something new 105% Budweiser RSP development vs market average Super-premium 100% 95% 90% Premium 85% 80% Mainstream 75% 70% Discount Budweiser RSP US Beer avg RSP Source: Euromonitor

12 Dis-economies of scale are likely to lead to profit pressure if declining volume issue is not addressed $8.00 Operating profit per pack $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 Economies of scale. Dis-economies of scale As volumes grow, companies can realise economies of scale, leading to higher profit per hl Volume declines by contrast will lead to dis-economies of scale Fixed costs can be spread over a smaller number of units Sometimes, fixed costs can be adjusted (e.g. a brewery can be closed) but other fixed costs are harder to change (e.g. advertising) $ # 24-packs (12 ounce case eq.), mln Source: Annual reports 10-K Constellation Brands 12

13 Without taking action, the major beer brands will lose volume, value and profit Domestic Beer Market Market Share Relative RSP Operating Profit per HL 13

14 III Happily ever after - Strategies to survive home market contraction

15 There are different ways to improve outlook through strategies with focus on volume, unit profitability or costs Volume Revenue/hl To improve long term outlook you need to focus on volumes, selling price and unit costs Costs/hl Strategies are likely to help in one aspect but offset in another 15

16 While deciding on strategy, it is important to know what you are and what you want to become Brand owner Manufacturer Distributor In the changing beer landscape: The need to specialize is growing and The opportunity to specialize is growing 16

17 Brand strategies can primarily help to improve outlook through increased volume and profitability per hectolitre Internationalisation Other strategies Marketing/ brand promotion Launch foreign brands at premium price Repositioning/ pair with food Product extension Launch export brands at super premium price Product development Brands acquisition 17

18 Manufacturing and distribution strategies can primarily help to improve outlook through lowering the cost-line Internationalisation Other strategies Produce for export/utilisation License or acquire brands from 3 rd parties Outsource to foreign partner Build brewery and distribution abroad Add distribution of 3 rd party brands and non-beer Contract brew for 3 rd parties Flexible production Outsource to local brewer Forward integrate on-trade or online distribution 18

19 There are different ways that lead to Rome and internationalisation is one of them Internationalisation is not the only strategy you can follow but it might help Operating abroad is more complicated and often more expensive than domestic activities but rewards can be significant International operations can be started alone or with help from an experienced partner 19

20 IV In a land far, far away - Profit pools in foreign countries

21 Not all beers will sell well in every market and both product characteristics and image determine positioning Foreign product viewed differently in other countries China non-lager volume Nigeria non-lager volume wheat flavoured stout ale others Source: GlobalData

22 The largest markets for foreign beers are in North America and Western Europe but business models differ USA China UK Spain France Italy Cameroon Germany Brazil Mexico South Africa Japan Hong Kong Belgium Singapore Equatorial Guinea Ethiopia Qatar Sierra Leone Venezuela ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Mln litres Imported Licensed Source: GlobalData

23 In some markets foreign beer is (super-) premium while in others in is seen as nothing special Sierra Leone Qatar Hong Kong Equatorial Guinea Cameroon UK Singapore France Italy Spain USA Belgium South Africa China Germany Mexico Japan Brazil Ethiopia Venezuela 0% 20% 40% 60% 80% 100% Foreign beer (% volume) Sierra Leone Qatar Hong Kong Equatorial Guinea Cameroon UK Singapore France Italy Spain USA Belgium South Africa China Germany Mexico Japan Brazil Ethiopia Venezuela 0% 20% 40% 60% 80% 100% Discount Mainstream Premium Super-premium Source: GlobalData

24 Internationalisation through export will obviously lead to transportation costs, but import duties can be even more crucial For import beer in Africa, duties are both high and volatile (unpredictable) 1.60 Breakdown of selling price of a mainstream import beer (estimate) 1.40 US$ per litre (est.) ingredients production packaging sea transport import duties inland transport Source: Rabobank 2013, based on interviews with companies 24

25 For European brands, nearby markets are attractive from a costs and volume viewpoint, but profitability today is only average Profit Pool High profit/hl Average profit/hl Low profit/hl North America Western Europe Africa Oceania South America Eastern Europe Asia Source: Rabobank 2018, Based on annual reports leading brewers 25

26 V You have three wishes - How profit pools will grow in coming years

27 Emerging markets are benefitting from significant growth in drinking population whereas European population is static 3% Birth rate (2000) Death rate (2015) Net migration (2015) Expected growth in drinking population 2% 1% Africa Oceania South America Asia North America Western Europe Eastern Europe Source: UN Statistics Division,

28 Economic growth leads in emerging markets to volume growth and in mature markets to rises in value % 90 PCC (litres), Superpremium % total beer volume 25% 20% 15% 10% 5% % GDP per Capita (US$), 2015 GDP per Capita (US$), 2015 Sources: IMF and Euromonitor 2017 Sources: IMF and GlobalData,

29 In emerging markets investments in infrastructure can bring down costs for local operators, something seen in China in past decades Road density per 1000 inhabitants Chinese infrastructure km (1980=100) Road density per 1000 sq. km Sources: Nation Master and National Bureau of Statistics of China,

30 Profit pools of tomorrow differ from those today and are impacted by volume growth, premiumisation and cost reductions Population PCC Premiumisation Cost Development Consolidation Overall North America South America Western Europe Eastern Europe Africa Asia Oceania 30

31 Profit pools of tomorrow are growing but in some regions the drivers are changing Africa and Latin America remain best positioned for future profit pool growth due to demographics and current low PCC SE Asia has similar characteristics but China is moving from a volume- to a valuedriven market as premiumisation is in full swing Europe sees arrival of craft beer movement from North America, leading to premiumisation and stabilisation of volume losses Western Europe is still very fragmented and consolidation could help bring profit/hl towards levels seen in North America, but leading brewers will not be allowed by authorities to instigate this In North America, profit pool has grown strongly from already high levels but with craft growth now saturating, further profit growth will be more subdued 31

32 VI Mirror, mirror on the wall - Best internationalisation strategy of all?

33 There are different ways to start and develop an internationalisation strategy but choice today impacts opportunities tomorrow Exported to local distributor Licensing = quick internationalisation without huge capex Locally produced and distributed in-house In-house internationalisation put you on learning ladder Volume thresholds will change operating model but level differ per country Licensed Licensing today repositioning as premium import tomorrow Imported and distributed inhouse 33

34 Preference for export or local production of beer will differ from country to country and might even change over time Many factors decide the optimal model for internationalisation: Existing asset base in home country and abroad Import taxes Transportation costs Availability of inputs/supply chain abroad Image of domestic and imported products in market Scale Investment horizon/strategic plans Exchange rate Economic and political volatility Partnership opportunities (e.g. licensing, jv) 34

35 Volume growth in Africa has been higher, but also more volatile, making a case for a portfolio approach in export to continent 18.0% Volume change % 14.0% #observations 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% y-on-y volume change per country Africa W-Europe Source: GlobalData

36 VII Conclusions

37 Conclusions Without action, leading brands are losing volume, value and profits in their home market Several actions can be taken to slow down or reverse trend, one of which is internationalisation Internationalisation is difficult and expensive, especially when going further afield, but long term benefits can be very attractive Profit pool is shifting towards emerging markets in coming decade through both volume increases and premiumisation There is no single optimal strategy and both export or local production, either on your own or with a partner can work but careful planning is needed to ensure a Happily Every After 37

38 Important notice Rabobank International Francois Sonneville Senior Analyst Beverages Telephone +44 (0) Mobile +44 (0) This presentation has been prepared exclusively for the Arena International Beer Strategies Conference 2018, and does not carry any right of publication or disclosure. Neither this presentation nor any of its contents may be used for any other purpose without the prior written consent of the Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. ( Rabobank or Rabobank International ). The information in this presentation reflects prevailing market conditions and our judgment as of this date, all of which may be subject to change. This presentation is based on public information. The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. The information and opinions contained in this document are wholly indicative and for discussion purposes only. No rights may be derived from any potential offers, transactions, commercial ideas et cetera contained in this presentation. This presentation does not constitute an offer or invitation. This document shall not form the basis of or be relied upon in connection with any contract or commitment whatsoever. 38