Essay About Largest Beer Market And Ab Inbev Acquisition

Ab Inbev Acquisition of Sabmiller
Reasons for Acquisition (Financial Reasons)Historically, AB InBev has been most profitable brewing company thanks to its prominent position in two of the world largest beer market – USA and Brazil and its strict focus on cost control. However, high exposure to the developed market (US/UK) restricts the company’s growth rate which is further compounded by the fact that consumer tastes are increasingly shifting to craft beer. As a result, their overall contribution in the global beer market has been steadily decreasing as is evident from the graph below:[pic 1]Source: BMI ReportNot only their share of global beer market has decreased, their EBIDTA has remained almost stagnant while revenues have marginally increased in the past 5 years. This disappointing performance in the past year has led to canceling of bonuses for the management. [pic 2]   The only market which has seen positive growth in the beer consumption is Sub-Saharan Africa where AB InBev doesn’t have a significant presence. [pic 3]Source: BMIHowever, SABMiller has significant presence in Africa with the region contributing about 30% of the overall revenue. While SABMiller started out in Africa in 1990, it was only in the later part of 90s it started to acquire some of the recently privatized state run breweries. The acquisition of such old newly privatized state run breweries not only provides SABMiller the ownership of some of the most established brands, it has also slowly and steadily introduced and captured the market with its own brands. Clearly, SABMiller has the competitive advantage of being an established brand in the region with strong supply-chain networks and it would make more sense for AB InBev to acquire the company than to build its presence grounds-up. As a result of this acquisition, AB InBev has predicted that its share of revenues from Africa will grow to 9% as compared to negligible before the acquisition and in Latin America, it would grow to 33% as compared to 30% before. [pic 4]Source: AB InBevWith the slowdown in its core market, AB InBev can bet on the growing African market to improve its financial performance. As the African market continues to grow, it can slowly introduce its premium range of beers such as Corona and Stella to capture the growing middle class population.