By Jon Malankar, Class of 2016
SABMiller acquired today. Dr Pepper Snapple Group tomorrow?
AB InBev-SABMiller. That’s a mouthful but we will have to get used to it. While SABMiller initially decided to swipe left and play hard to get, ABInBev raised its offer and has all but closed the deal.
So what? Most folks will have you believe that this is a beer story but the true reverberations of this merger will be felt outside of beer. The megabrew merger is the end of ABInBev’s beer story and the start of everything else. It’s time for the likes of Dr Pepper Schwepps, Mondelez and others to hear an ominous knock on their doors.
Megabrew completes the beer geography puzzle for ABInBev
Let’s not forget these two companies are operating in an industry with growth problems. Consumers in developed markets have grown tired of Budweiser and Miller. Now they want something with hops, a little orange peel, and possibly even some beard. In short, craft is king. Those that aren’t shifting to craft beers are leaving beer altogether in favor of wine and spirits. Both ABInBev and SABMiller have made moves to purchase craft players but they have not stopped the bleeding.
While developed market pose challenges, developing markets like South America, Africa and China offer plentiful growth. ABInBev possesses strong roots in the Americas and Europe but has gaps in the rest of the world. Guess who fills those gaps. Yep, SABMiller has roots in Africa and owns 49% of a joint venture with China Resources, which makes the top beer in the country.
This deal completes the beer geography puzzle by bringing the Americas, Europe, Africa and China under one entity. The scaled production and trademark 3G Capital cost cutting will pay dividends but beer alone will not solve the long-term picture. Bernstein Research analyst, Trevor Stirling, said, “[Investors are] concerned about sustainable earnings growth. There’s not much sentimentality when it comes to these things.” There’s nothing sustainable about growing earnings in an eminently shrinking category like beer.
Consumer packaged goods companies next on the menu
If beer is not the answer, then where will ABInBev turn next? What other beverages are basically water with some carbonation and flavorings? While it might sound crazy to say it now, big CPG players could be next on the target list.
ABInBev already has a scaled non-alcoholic beverages portfolio in South America. Beer plants could easily be leveraged for other beverages as they already are in South America for ABInBev (for PepsiCo)and Africa for SABMiller (for Coca-Cola). The company would love to add growth from comparatively bursting categories like ready-to-drink tea, sports drinks and energy drinks.
Just imagine if they scooped up Suntory to make a stronger play in Asia Pacific.
Dr Pepper Snapple Group could become a bargain pick up with some serendipitous timing and a few tough quarters of missing analysts’ expectations.
Even PepsiCo, or perhaps just the beverages business, could make sense down the road.
ABInBev’s reach could stretch beyond beverages as well. They have proven interest in non-beverage players when they bought Heinz and merged it with Kraft. Which company used to be part of Kraft, has lots of international growth potential and has been struggling to impress Wall Street? Mondelez, you could be next. Soon we could be dunking Oreos in Bud Light.
If you don’t believe the CPG angle, then surely Diageo (which has both beer and spirits) and Moet Hennesey should be looking over their shoulders. While the focus of this mega-merger has been on beer, the real story lies in ABInBev’s future. Whether the company focuses on reviving its beer business, pushes for a stronger focus on craft products, or expands its reach to non-beer opportunities remains to be seen.
For now all we can do is sit back, crack open a cold one, and ponder the possibilities.
What do you all think? Will ABInBev focus on reviving its beer business? Will it build out craft beer more? Or will they pivot to other categories?