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January 31, 2019

Asahi's Push Into the EU Beer Market (not China, not the U.S.)

MHT Partners  | Consumer Investment Bank

Last week’s announcement of Asahi Group’s acquisition of the British beer business of Fuller, Smith & Turner marks Asahi’s third substantial beer acquisition in Europe since 2016. This deal further supports Asahi’s international expansion goals, but is this push strategic? Reactive? Opportunistic? Why has Asahi ignored the U.S. craft beer market (and craft beer in general), and why not focus on the massive growing beer market in neighboring China?

First off, the Fuller’s Beer Company division (including soft drink production and wine distribution) had been growing nicely and garnered a frothy multiple of nearly 24x EBITDA, so this was not a distressed carve-out. Further, the acquisition comes at a time when many Japanese companies have responded negatively to Brexit but are announcing plans to move operations to continental Europe. Asahi, which markets dozens of beer, spirits, and food brands, is making good on a promise to generate 35% of operating profit outside of Japan. While Japan is still a strong beer market from a per capita consumption standpoint, volume and dollar sales trends are mature-to-declining due to the country’s aging population and related consumption shift towards spirts, wine, and ready-to-drink canned cocktails. Similar market dynamics exist in the U.S., however the craft beer market share element makes for an even steeper uphill battle for legacy brands like Bud, Coors, and Miller. Asahi has said that it will focus on organic growth in the U.S. with its legacy brands (sushi anyone?).

Speaking of Bud, Coors, and Miller, their 2016 megamerger was all about growing in emerging markets. Further, to satisfy regulators and finance the merger, AB InBev had to jettison several marquee brands in core markets such as the EU. So, if Asahi’s international growth strategy was the proverbial hand, AB InBev’s Peroni, Grolsch, Pilsner Urquel, and others were fingers on the proverbial glove. The glove didn’t come cheap, with Asahi spending over $10 billion to buy those brands. Asahi’s latest move was the sale of its 20% in Tsingtao, further signaling its disinterest in the Chinese market, the world’s largest by sales.

So, it appears that Asahi is indeed executing on a well-defined strategy…which may or may not have been formulated in the wake of the AB InBev megamerger. Low and behold, the company’s international LTM operating profit through Q3 last year represented 37% of the total.

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