What is an alcohol seller to do when the world loses its thirst? There is no need to speculate — that is the universe that brewers, distillers and vintners have been inhabiting for a generation.
Global alcohol consumption has been stable at 4.3 liters to 4.7 liters per capita since 1990, according to the WHO.
The future does not look much brighter: Seven of the 10 countries forecast to have the biggest population in 2050 have a majority or substantial minority of Muslims.
Warning: Excessive consumption of alcohol can damage your health
Photo: Bloomberg
The answer for Anheuser-Busch InBev SA/NV has been to go for quantity. If its US$106 billion takeover of SABMiller PLC announced on Tuesday goes ahead, the maker of Budweiser will end up selling one in every three beers worldwide.
However, that strategy is facing diminishing returns as the world’s beer consumption hits a plateau.
So why not go for quality instead?
That is the plan being followed by Australia’s Treasury Wine Estates. Spun out of Fosters Group Ltd before Fosters was gobbled up by SABMiller in an earlier round of brewery deal-making in 2011, Treasury is now paying US$600 million to buy Diageo PLC’s US and UK wine assets, including the Beaulieu Vineyard, Sterling Vineyards and Blossom Hill brands.
The maker of Penfolds Grange and Beringer has been selling as much prestige wine in the US as it can produce and hopes to drive more profitable sales by acquiring Diageo’s suite of high-end brands.
It is a bold strategy. Winemakers need to pick the best grapes from a vintage that varies in size and quality every season.
Some analysts argue that means winemakers can only survive as low-margin commodity businesses, closely held companies, such as E & J Gallo Winery, or units of diversified groups such as LVMH’s wine and champagne brands.
The absence of publicly traded vintners — with a market cap of US$3.4 billion, Treasury is the biggest pure winemaker globally — speaks volumes.
Still, the world’s appetite for wine looks to be increasing, which is more than can be said for beer and spirits.
Treasury’s stock climbed to A$6.46 before trading was halted for yesterday’s announcement.
Treasury CEO Mike Clarke will have to raise A$486 million (US$353.2 million) selling new shares to pay for the deal and will end up with a mass-market brand in Blossom Hill that he will probably want to shed — Treasury’s European unit made just A$0.16 of operating profit per bottle in the first half.
Still, Clarke yesterday forecast full-year operating profit above analysts’ estimates and expects the acquisition to increase earnings per share at double-digit rates the year after that.
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