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Raising a glass to the drinks industry

Malcolm Ireland, partner and Head of Leisure & Licensing at Napthens and Mark Newton, senior category and development manager at CGA Strategy discuss mergers and acquisitions in the UK drinks industry and what this means for British breweries.

Mark Newton (MN): M&A activity will always exist in brewing. Changes to the economic factors in the trade create particular conditions for them to occur. This is about global consolidation and the competitive differences between key markets which create unique challenges for big business. Consolidation is one way in which these challenges can be addressed.

Malcolm Ireland (MI): And that’s what’s happening with AB Inbev /SAB Miller. The merger will achieve estimated costs savings of £1.4bn due to streamlined and more efficient operations. Also, it can be as simple as a sale always having been the plan. Some breweries have always had a trade sale as their exit strategy and they seem to be ramping up their preparations because conditions are right.

MN: As a side point though, the market will ultimately decide what M&A activity takes place. Where significant success occurs the opportunity can arise for acquisitions to take place. Over the last decade we have seen a proliferation of new breweries worldwide. This expansion is based on local provenance and niche appeal – something which larger brewing businesses can’t always provide. But they can buy into it.

MI: And that will fuel more acquisitions. The brewery boom really found momentum a number of years ago and the early businesses that were part of that are now well-established, have sufficient customer reach and a strong brand which makes them an attractive proposition to larger operators.

MN: But where is the activity coming from? Well this is very much about scale and compatibility with other global markets. Most of the smaller craft and micro-breweries produce brands focused on local preferences. In the UK much of the appeal of small brewers is their size and independence, therefore smaller scale merger activity may not always be a desirable scenario.

MI: Totally agree – a brewery generally has to be of a certain size to be an attractive acquisition. We know from speaking to operators that they are receiving interest from a variety of potential suitors in the UK, Europe and some from further afield. If the craft beer business has a significant market share in their region, contemporary recognition and a USP in its product base then it’ll be an attractive proposition to a business that wants market share in that sector or region.

MN: At the moment craft beer is a trend. Then, once ‘critical mass’ has been reached in consumer recognition it continues to have a life of its own beyond the trend. For craft beer, it looks set for significant and continuing growth. There are several key brands which have already reached levels of global recognition, which would have been unthinkable just a few years ago.

MI: What is more interesting is that craft beer continues to outperform a market that’s in decline. Consumers are leaning towards quality and esoteric products that have a combination of local provenance and a brand story behind them. Craft beer is extraordinarily positioned to take advantage of that.

It offers a fresh proposition to an up-and-coming customer base which beer has never seen before in terms of sales growth, innovation or brands in the marketplace. There are certainly no signs of the trend slowing.

Thanks to Robinsons Brewery for the meeting venue.