QLC Perspectives – The Five Existential Challenges to Global Beverages

Introduction

It is hard to discuss the past decade of global beverages industry without focusing on AB InBev. In the five years before the Megadeal fusing global brewing giants SABMiller and AB InBev (ABI), ABI outpaced SP500 returns by 24% percent. The nearest surviving player, Heineken, lagged by 19%. Since that time, ABI has not only lagged the SP500, it has lost value, close to 40% of the value of the firm at the time of the acquisition announcement.

Exhibit 1: Global Beverage Stock Price Returns (Cumulative %)

While there are numerous circumstances and peculiarities that help explain the drop, within the undercurrent are emerging secular trends that pose existential challenges to the global beverages industry. One such trend is the flattening of per capita consumption, illustrated below for beer.

Exhibit 2: Beer Consumption vs. Household Expenditure (2003-2018)

When per capita consumption is flat, it becomes difficult for any one company to grow faster than the economy. This begins to create zero sum conditions not only among your direct competitors, but also your retail, distribution, and production partners. It becomes imperative to unlock any untapped sources of growth as well as to optimize your market facing functions in concert to optimize financial returns on the volume that is sold.

Considering this and other factors, we see the five existential challenges for the global beverages industry to be:

• Consumer trends towards mindful consumption and ESG are resulting in stronger attitudes against mass consumption of products and packaging
• Continuing fragmentation of media production and consumption reduces scale advantage in advertising and marketing
• Increasing shift of occasions from more profitable on-premise to at home, served by less profitable modern retail and e-comm

• Competition for capital from emerging, exponential value-add sectors and companies

• Flattening to declining per capita consumption growth

Note that these challenges hit the industry across all dimensions and will have significant impact on strategy and expectations. Further, all of them should be considered together, in total, to ensure the required transformations and strategies will meet these challenges in a concerted fashion.

Navigating these challenges

Quantum Logik Consulting is uniquely positioned to help companies answer the challenges posed. We are growth experts, having created volume and value growth across the world. To answer these challenges, we suggest the following diagnostic frameworks to quickly assess new and existing opportunities for growth.

• Global Affordability Framework – ensures the organization is reaching a growing set of consumers in a strategically coherent, and profitable manner
• Value Based Pricing Framework – examines the total competitive landscape and emerging consumer needs to match portfolio offering, channel mix, to optimally deliver additional value
• RAMI Optimization Framework – recognizing the interplay between RTM, Advertising & Marketing, and innovation, establishes a principled approach optimizing the investment across these functions for the better of the organization

We at Quantum Logik would welcome the opportunity to discuss these trends, our client proven methods of navigating them, and any other challenges your organization faces.

(Beer image source: Sky News)