FOCUS: Downturn For Brewers' Could Be Worse Than Thought Article
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By Michael Carolan
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Evidence from two of the world's largest brewers Thursday suggests a global slump in demand for beer may be more severe than expected and that emerging markets such as Russia and China can no longer be relied on for growth.
SABMiller PLC (SAB.JO) posted a surprise drop in beer volumes Thursday. Third-quarter lager volumes fell 1% on an organic basis, compared with expectations of a rise of up to 3%. The world's second largest brewer cited the global economic slowdown as the reason for weakening demand in many of its markets.
Danish brewer Carlsberg A/S (CARL-A.KO) meanwhile was forced to cut a further 274 jobs in Denmark and the Baltic region in response to tougher market conditions. The Copenhagen-based company, which has around 40,000 employees worldwide, already announced 80 job cuts in November.
Brewing is traditionally seen as a defensive industry during a recession but SABMiller's numbers suggest this may not be the case, especially in emerging economies.
"If anyone had any doubt, and SAB have never hidden away from it, the trading environment is deteriorating and there is no sign of it getting any better," said Blue Oar analyst Bruce Davidson.
While SABMiller's volumes in the U.S. dropped 2.3% - including a 7.5% fall for the flagship Miller Lite brand - and actually rose by 1% in its home South African market, newer beer markets like Russia and Columbia saw sharp declines, with volumes down 22% and 6% respectively. Even in China - one of SAB's key growth markets in recent years, volumes were no more than flat.
"The previously high-growth emerging markets are disappointing across the board," said Shore Capital analyst Andy Blain.
Brewers like SABMiller, Carlsberg and Anheuser-Busch Inbev NV (ABI.BT) have invested heavily in the emerging markets of South America, Eastern Europe and Asia in recent years, where sales growth has dwarfed that of traditional beer drinking countries of Western Europe and North America.
SAB's declining volumes in Russia are of particular concern to Carlsberg investors. The Danish brewer is the largest operator in Russia, having gambled heavily with its joint takeover of U.K.-based Scottish & Newcastle with Heineken NV (HEIA.AE) last year.
The Russian beer market - with its double digit annual growth rates - was the prime attraction for Carlsberg and the reason why it was prepared to pay such a full price for the brewer. Since its acquisition, however, the Russian economy has gone into steep decline and this growth has evaporated.
Carlsberg now generates more than 50% of its sales in Russia and also has a strong presence in the Baltic states - where the global economic downturn has hit particularly hard.
While giving no indication of Carlsberg's performance, Chief Executive Jorgen Buhl Rasmussen told Dow Jones Newswires in an interview Thursday that Russia's total beer market has stayed "somewhere around flattish" in 2008 compared to 2007, though he acknowledged that some see that market as declining.
Heineken is unlikely to have fared much better from the deal. The S&N deal made Heineken the largest player in the U.K. market - a market also in steep decline. The U.K.'s largest pub firm Punch Taverns PLC (PUB.LN) said Wednesday that its beer volumes had declined by 12% in the latest quarter.
....che p.irla!
