The Best Way to Play Big Beer

Depending on whom you ask, the beer industry in the U.S. is either going through tough times or has never been better.

Overall, beer sales were down 1.3% by volume in 2011 and 1.2% in 2010. Craft beer sales, however, were up 13% by volume last year and 12% in 2010. There were 1,989 total breweries operating for some or all of last year, marking the highest total since the 1880s. Net revenue for craft-beer king Boston Beer (NYSE: SAM  ) increased by 11% in 2011. Clearly all is well in the world of craft beer. It's the macro sector that's suffering.

Big Beer's struggles at home
Anheuser-Busch InBev
's (NYSE: BUD  ) 50% U.S. market share has been declining since 2008. In 2011 the giant reported a 3% decline in sales volumes. The company is struggling as consumers opt for craft beer or forgo beer altogether in favor of wine and liquor, sales of which are up 9% and 12%, respectively, over the last five years.

AB InBev isn't the only one struggling in the States. Molson Coors (NYSE: TAP  ) watched its domestic numbers decline as well. The company reported that sales to retailers fell 3.3%, and sales to wholesalers declined 1.6% on the year.

Success abroad
But AB InBev's global volumes for Budweiser were up 3%, indicating that the best way to play big beer is to find companies with a strong presence in foreign markets. Today we'll look at two markets for investor consideration: Brazil and Kenya.

Brazil
Total beer sales by volume were up 4% last year in South America's largest country. The number was affected by the end of a temporary beverage tax exemption that had been designed to encourage consumption during the recession. However, the country's beer future is bright; Brazil has two specific advantages for beer industry investors in the near future. First is its growing economy. Brazil overtook the U.K. as the world's sixth-largest economy last year, and analysts expect growth of 2.5% this year.

Second, the country will host both the 2014 FIFA World Cup and the 2016 Olympics. And the country seems committed to increasing beer sales. Since 2003 sales of alcoholic beverages have been banned at sports arenas in Brazil, but in late March a bill lifting the ban for the duration of the tournament passed the country's Chamber of Deputies. The bill must also pass the senate and be signed by president Dilma Rousseff, but it looks like things are going according to plan.

Budweiser is a major sponsor of the World Cup, and its parent company, Anhueser-Busch InBev, controls AmBev, a subsidiary currently jockeying for more market share in Brazil. The opportunity to sell beer at the 12 stadiums for the tournament would be huge for the company.

Kenya
The East African nation isn't a BRIC country, but it will serve as a foothold for the beer industry as energy investment pours into the region over the next 10 years. The country's big player is East African Breweries. Headquartered in Nairobi, EAB has 83% of the volume share in Kenya. Its firm grip on the market is the result of many factors, including the low price of its products, high availability, and consumer brand loyalty.

Diageo (NYSE: DEO  ) owns a 50% stake in East African Breweries, and the company expects its overall annual growth in Africa to grow higher than its current 15%. The continent is the company's biggest emerging market and rivals Latin America as the fastest-growing.

Diageo is the best bet to play the beer industry in Kenya for two reasons. First, its East African Breweries is the dominant player there. EAB also owns a 51% stake in Tanzania's Serengeti Breweries and a 20% stake in Kenya Breweries, giving Diageo multiple footholds across the region. Second, though 70% of its Africa business is in beer, Diageo offers a built-in hedge against the beer industry: liquor. Liquor sales growth has actually outpaced beer in Africa, and Diageo has a 40% share of the international spirits market on the continent.

Foolish takeaway
These markets are just the beginning of the potential the international scene holds for the beer industry. While the U.S. market matures and shifts away from Big Beer, there is plenty of opportunity for investors abroad. Some of the companies, like Diageo, offer additional benefits like stellar yields for those interested in dividend opportunities. Investors looking for more dividend-generating ideas should check out nine more stocks Fool analysts have selected for their great returns.

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. Check out what she's keeping an eye on by following her on Twitter @TMFDuffy.

The Motley Fool owns shares of Boston Beer. Motley Fool newsletter services have recommended buying shares of Diageo, Boston Beer, and Molson Coors Brewing. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 12, 2012, at 5:30 PM, TMFPennyWise wrote:

    Nice article! It sounds like the brewers are really the quintessential model global enterprises these days. I bought Heineken (HINKY.PK) stock earlier this year because it too purchased breweries in Africa and opened a distribution office in Kenya. Not to mention its purchase of Femsa in South America. And garnering the lager sponsor rights to the Olympics in London this summer.

    Heineken is going the extra mile in Africa engaging the local population and sourcing building products for their new outposts thru NGO's that support the local economy. And I recently read that in Haiti Heineken is building hospitals. All in an effort to be good citizens in these developing markets and of course to sell beer to the emerging middle classes there. It will be fascinating to watch these brewers develop their markets and hopefully build their brands too.

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