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GLOBAL 2016: Changing consumer tastes drive brand fragmentation

As the leading global brewers consolidate

It finally happened... After years of rumors, the two giant global brewers, AB InBev and SABMiller, announced plans to merge, forming a giant company with a portfolio of 400 brands expected to produce $64 billion in annual revenue, about the size of Unilever, the consumer products multinational.

The new consolidated company will own seven of the BrandZ™ Beer Top 10 brands, including a new entry, Aguila. The company will not own rivals Heineken and Guinness. Also after SABMiller divests its stake in Molson, it will not own Coors Light. But in a curious dichotomy, the beer industry is fragmenting at the same time it is massively consolidating. Particularly in mature markets, the beer category is beginning to resemble the wine category, with a proliferation of choices based on taste and provenance.
There are over 4,000 breweries in US, according to the Brewers Association, a craft beer trade group. With market share of just over 12 percent, according to the association, craft beer remains a relatively small but influential part of the category. A six-pack holder that customers can customize with any combination of beer brands is among the best selling stock keeping units at Kroger, a leading US supermarket chain.
This explosion in variety indicates the power of brand stories and experience to inspire consumer interest. It also reflects a global generational shift in preference to sweeter taste, lower alcoholic content, and healthier ingredients. Government regulations both mirror and encourage these trends.
Beer brands have reduced alcoholic content in the UK because of government tax incentives. Britain’s health minister issued guidelines for reducing weekly alcohol consumption to lower cancer risk. Although the situation is changing, some EU countries levy taxes based on alcohol and sugar content. European regulators historically associated beer with the alcohol industry and wine with agriculture, an inference that made wine seem healthier.
Impacted by slower growing economies in Latin America, particularly Brazil, three Latin American brands declined in value, resulting in a 3 percent drop in the BrandZ™ Beer Top 10 value, following a 9 percent rise a year ago.
Experience and purpose
Traditional premium light beers attempted to connect with millennials with stories that presented brand history and heritage in an authentic way. Coors described the journey of its founder Adolph Coors, a German immigrant to the US who established his brewery in the Rocky Mountains because of the purity of the local water.
In its Super Bowl ad titled “Not Backing Down,” Budweiser presented the brand as a muscular counterpoint to craft. The ads mixed a soundtrack of loud aggressive music with images of racing Clydesdale horses, industrial beer production and distribution, and young people partying hard.
Distinguished for emphasizing its brand heritage and the drinking experience with a signature glass it calls a chalice, Stella Artois added a larger purpose to the drinking ritual, pledging that with each chalice purchased, Stella Artois will provide clean drinking water in impoverished countries.
Heineken, marketed in 179 countries, promoted the premium brand with sponsorships that included a special edition bottle for the James Bond film “Spectre”. The brand performed especially well in the developing markets of Africa and Southeast Asia. Guinness continued to associate the brand with physical heroics of sports, but also connected with the inner strength of a champion and the importance of team solidarity, in an ad about a Welsh rugby star revealing his homosexuality.
Brands are expected to refine their messages to reach more targeted audiences with digital marketing this year, at the same time they create mass campaigns around two major sporting events, the European football championship in June and the Summer Olympics in Brazil.
The new company
At around the time of the Olympics, in August, the merger of AB InBev and SABMiller is expected to finalize. By then, the companies will have navigated a maze of national anti-trust regulations, and begun the process of identifying operational efficiencies and rationalizing the brand portfolio.
Even as AB InBev was completing the transaction with SABMiller and the regulatory process, it added more brands, acquiring three US craft brewers. AB InBev also introduced new beer variants and cider options, while modifying some marketing to present the drinking occasion in ways that appeal to consumers who increasingly drink beer at home rather than on premise.
The consolidated company expects to develop the beer business in growing parts of the world, like Africa, which SAB dominates, and Latin America, where AB InBev has the greater presence, with Skol and Brahma in Brazil, for example. The Americas currently contribute about two-thirds of the combined company’s revenue.
Africa will account for only 9 percent of revenue initially, but AB InBev expects African beer consumption to grow at three times the global rate. Asia Pacific and China will initially drive 11 percent of revenue. AB InBev markets several beers in China, including Budweiser, which is positioned as a premium brand. For regulatory reasons, SAB Miller is relinquishing its holding in Snow, the world’s most consumed beer.
India presents opportunity as well, although alcohol penetration is relatively low and Indians generally prefer spirits rather than beer. The diversity of the country adds marketing complexity and the possibility of offering beer with lower alcohol content.

Brand Building Action Points

1.Be authentic.
The rise of craft signals the need for authenticity. But being authentic is not always about being crafty. It is about being real. The core meaning of beer is social. It is about connecting people. Provenance adds authenticity by rooting that connection in a specific place.

2. Build brands around home occasions.
Develop creative new ways to build brands based on the drinking occasions that happen at home, given the decline of on-premise consumption.

3. Refine social media communication.
Use social media effectively to present the brand with a sense of personal engagement even though the brand is communicating to a mass audience.