Whose shout is it again?

Here is a handy summary of the manoeuvring in the Australian drinks markets in recent months. The current offers on the table are:

– NZ brewer Lion Nathan (46% owned by Japanese brewer Kirin) pitching for Coca Cola Amatil (who bottle and distribute soft drinks and beers and are roughly 30% owned by US firm Coca Cola Company) (discussed earlier here).

– Japanese brewer Asahi bidding for the Aussie Schweppes business (but potentially scuppered by Coca Cola Company) (discussed earlier here).

The Asahi offer throws up the possibility that the firm may either expand its relationship with Aussie brewer Fosters’ or go head to head with them. The firm claims to be biding its time until Fosters’ sorts out whether it wants to stay in the wine business.

Meanwhile, a raft of potential international bidders remain on the horizon for Fosters’ beer business if they can dump the less profitable (and less stable) wine arm, including Moors Colson, SAB Miller, presumably the aggressive Anheuser-Busch Inbev or even Coca Cola Amatil (if they can survive the Lion Nathan bid).

This is well and truly a game of chess in terms of the moves and countermoves we are likely to see over the next 6 months. The wild cards in the pack are (i) the competition regulator in Australia (the ACCC), who might deem any one of these current proposals (or any move by Coca Cola Amatil) unacceptable on the basis that rivalry will be reduced,and (ii) the Foreign Investment Review Board could deem an international acquisition of Australian assets to be outside the national interest. The latter is extremely unlikely given the current level of international involvement.

It still remains very unclear whether if there are clear and valuable synergies here.

Are there genuine economies of scope between the distribution of soft-drinks and beer?

Fosters’ experience seems to indicate that the wine and beer don’t mix well, despite sharing the same retail outlets.

Why would we expect the non-alcoholic and alcoholic product lines to gel any more effectively?

Or, in the end, is this just a simple grab for a currently very profitable, oligopolistic Aussie beer market?

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More beer shake-ups down under

As I flagged in yesterday’s post, the Australian beer industry looks a prime target for takeovers by international players, as it highly profitable and fairly isolated from the major international brewers. There has been much talk about a potential takeover of Foster’s by one of the big global players, such as Molson Coors (who have recently taken a 5 percent holding). Well, today, we’ve seen the other big player in the Aussie market, Lion Nathan make a bid for Coca Amatil.

This is a rather complex international business scenario (please bear/beer with me).

Lion Nathan were originally a merger of New Zealand’s two biggest domestic brewers. They subsequently became a major presence in Australia in 1990 via the acquisition of the nation’s second largest bundle of brewing assets (principally Tooheys and Castlemaine Perkins). Their brands currently represent just over 40 percent of the Australian beer market. Over time, the major shareholder of Lion Nathan has become Japan’s second largest brewer, Kirin (itself part of the Mitsubishi group). Kirin currently hold a 46 percent stake in Lion Nathan. Kirin also own National Foods, Australia’s largest dairy and juice company (acquired via Kirin’s holding in Filipino brewer San Miguel.

Coca Cola Amatil (CCA) are the bottlers and distributors of the ubiquitous black fizzy stuff in Australia, New Zealand, Fiji, Indonesia, Papua New Guinea, and South Korea. They also have their fingers in the bottled water, juice, canned fruit and coffee markets down under. They recently entered a joint venture with global brewing giant SAB Miller to distribute a couple of major labels in Australia (Peroni and Miller), and also took over a fledgling craft/microbrewer Blue Tongue. The major shareholder (at around 30 percent) in CCA is The Coca Cola Company back in the US (the folks who own the Coca Cola brands)

So is this the consolidation and acqusition play we expected? And is it all about beer assets?

That’s the tricky question here. The CCA/SAB Miller joint venture was supposed to see some competition for Foster’s and Lion Nathan, as CCA’s distribution network into retailers should have overcome the typically high barriers to entry in the market (alas, beer vending machines were fairly unlikely under Australian liquor licensing laws).

If Lion Nathan were successful in acquiring CCA we would be back to square one in terms of competition in the Australian beer market. It is hard to imagine Lion Nathan placing too much emphasis on the minor Peroni, Miller or Bluetongue brands. They may find some use for the CCA distribution network however.

It is more likely that this is a bigger food and beverage story. Kirin would be building a very considerable holding in the non-alcoholic beverages segment if it ended up owning both CCA and National foods. The extent of complementarities of assets across the alcoholic and non-alcoholic beverage segments is still unclear, but market power is market power, and this new beast would be wielding a hell of a lot of it with Australian retailers.

This tale highlights the complexity of telling (and researching) single-industry stories, at either the domestic or international level. The reality is that firms often reach across markets, in terms of both products and countries (I have not even mentioned the additional burden of wine holdings for the Australasian brewers). Trying to untangle motives is a real challenge for scholars (and competitor firms).

It will be intriguing to see the next move in this chess game. The big international brewers are surely still circling.

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Not a good beer year

The merits of global scale and reach are an ongoing source of debate in the International Business world (among researchers and practitioners). On one side of the coin is an argument that operating across a range of markets should allow firms to build huge economies of scale (in terms of sourcing inputs, in R&D, in production, in distribution and in marketing). The counter argument is that the world is not really one big market, and that consumers will demand such different types of products, or infrastructure will differ so considerably, that the pressures to adapt will outweigh any gains from scale. Thus, we arrive at a potential trade-off between global integration and local responsiveness.

One industry that has seen substantial international consolidation in recent years has been beer. Several very large players have emerged, predominantly via cross-border acquisitions. The big idea has been that these firms would achieve the aforementioned scale advantages, and also tap into the growth in under-serviced markets in the developing world. The high population, fast growing BRICs have been a big target.

This Wall Street Journal (WSJ) reveals the difficulty these big brewers are facing with the current economic downturn. Folks are not drinking enough of the stuff, especially in these developing nations, where beer is a luxury good. This highlights one underestimated aspect of country difference – demand elasticity. Put simply, consumers in particular countries may be more or less sensitive to shifts in their income (and/or in prices). This is a far tougher issue for the multinationals to overcome, as it isn’t about their responsiveness, but rather an error in assessing the size and growth rate of the global market.

This has left these brewers wondering what to do next. A further aspect of internationalisation is the scope to arbitrage advantages across markets. Maybe they should be looking to acquire brewers in highly profitable markets with little competition, and then use these profits to fund further international growth. US/Canadian brewer Molson Coors has taken a tentative interest in Aussie firm Fosters. That shouldn’t surprise when you look at the profit data in the WSJ article – Australia was the 8th most profitable beer market in the world in 2007 and has none of the big global players involved. Looks like the big guns might want a taste of the oligoply action.