Alcoholic beverage industry overview and market dynamics

Alcoholic Beverage Industry

Throughout the world, in all industries it is now a period of consolidation and this process is now taking place for a large number of companies from different continents and different countries, and the only reason for consolidation is the fact that they come from a common industry. The undisputed largest economy in the world is now the United States and this also contains the largest companies in the world for the manufacture of beer. The expansion capacity, within the home country for the large manufacturers, have now almost ended, and the expansion that is now to take place will be in countries outside the home country. The attempt in this essay will be to study the situation of the beer companies in some parts of the world where the highest expansion is taking place, and how there are attempts by companies to spread into other countries to maintain their rates of growth.

Analysis:

Before getting into the area of analyzing the situation in the beer market, let us first analyze the situation in the total beverage market. The world may now be assumed to have a population of 6.2 billion (Population Reference Bureau). These are the people to whom we shall refer to as consumers and they drink an estimated 91 billion (Beverage Digest Fact Book 2003) gallons of non-alcoholic beverages, along with 30 billion gallons (World Book Encyclopedia 2001) of beer, 6.04 billion gallons (Adams Handbook Advance 2003, Wine Institute Statistics 1999) of wine and 768,586 million gallons of spirits. (Reuters Data monitor Drinks Database).

The leadership in terms of price in the American market is still in the hands of Budweiser, and when they announce an increase in price, the increase is followed by the other brands like SAB Miller among others within a period of six months. Some of the people in the market have been concerned about the misbehavior in pricing by SAB Miller and this gets reflected in their stock prices, but these antics have not led to gains in market share for the company, and ultimately they have to follow the lead of the brand leader. (Beverages: Time to chill out and have a drink) it is also easy to see from the above that the acceptance of price increases is based on a belief that (A Micro-econometric Model of the U.S. Consumer Demand for Alcoholic Beverages) In comparative terms, the products like Coca-Cola Co and PepsiCo make up as much as 75% of the market capitalization of S&P 500 beverage index. These two companies represent about 2% of the bigger S&P 500 overall index. (Prudential Equity Group)

The largest brewery in the world is Anheuser-Busch Companies, Inc. with its head office situated at 1, Busch Place, St. Louis, MO 63118. According to the philosophy of the company it wants to be the life of the party in all its operation, in both its theme parks as also its breweries. Apart from the brewery operations, the company is one of the largest among the theme park operators, manufacturers of aluminum cans in the United States and the largest recycler of aluminum cans in the world. The share of the company in the United States in the sales of Beer with a share of just less than 50% and the company has the brand called Budweiser, which is the top ranked beer in the country. There are also a number of other brands manufactured by the company and among them are Bud Light, Michelob and Busch. The other activities of the company are in the manufacture of certain well-known theme parks like Busch Gardens and Sea World and water parks like Water Country USA and Adventure Island.

The company is being run by the Busch family for four generations and the present individual in charge is Chairman August Busch III. The company has been a public limited company for a long time and the total turnover in 2003 was reported to be $14.14 billion with a steady growth of sales of 4.3% during the year. The net income was also reasonable with the final figure for the net income being $2.07 billion during the last year and the growth in profits was higher than the growth in sales at 7.3%. It is a fairly large sized company with a total number of 23,316 million during the year of 2003 and the growth in sales or profits did not require a high growth in terms of employees which grew only by 0.6%. (Anheuser-Busch Companies, Inc.) This is clearly seen as a company which has almost reached its capacity in terms of growth and in line with today's philosophy of business probably does not want to expand into other lines of business outside its area of core competence.

Another very important beer company in the United States is called the Adolph Coors Company and it is listed in the New York Stock Exchange. This is the third largest company in the country producing beer after Anheuser Busch and Miller Brewing. The biggest brand of the company is Coors Light and the nickname for this brand is "The Silver Bullet. Again the leading brand contributes a large proportion of the sales to the company and amounts to more than 50% of the revenue. Apart from the leading brand, the company has a number of other brands like Blue Moon Belgian White Ale, George Killian's Irish Red Lager and Keystone. The company is essentially a beverage manufacturer and makes certain other products like Zima, which is a clear malt-based drink and Coors Non-Alcoholic. To sustain the spread of the company in Europe, the company bought a major brand in the United Kingdom from Interbrew called Carling and that has made it the second largest seller of beer in the United Kingdom.

The heirs of the original Adolph Coors still control about a third of the voting stock of the company. The financial year-end of this company is in December, and this is another Public Company. In terms of size this is a smaller company than the leader and the sales last year was about $4 billion and the growth over the previous year was about 5.9%. The base profits were also lower at about $174.7 million and there was a better growth than the leader as the growth in one year was about 8%. Being a smaller company, the number of employees was also less and about 8,500 employees were on the rolls in the last financial year. As the company had expanded substantially in Europe in the previous year, the growth in terms of employees was also high at about 2.3%. The top management of the company is still directly controlled by the family and the Chairman was Adolph Coors and the Chairman of the Brewing Company was Peter H. Coors. (Adolph Coors Company)

Now let us look at the second largest brewing company in the world, and that is SAB Miller, but we shall look at the London end of things. This has the name of SAB Miller plc and is situated at 1, Stanhope Gate, W1k 1AF in United Kingdom. The company originated due to the purchase of Miller Brewing by the South African Breweries, which is also called SAB. This purchase has made the company the second largest brewer in the world, after Anheuser-Busch. The company is now an international company with operations in 40 countries and is the largest by far on the South African market with 98% of the market share. The reason for this high share is due to the high sales of Africa's beer with the highest sales, Castle Lager.

The company also has other important brands in Africa and that includes brands like Hansa Pilsener and Ohlssons. The company is not only a manufacturer of beer, but also has large interests in wines, spirits and fruit drinks. It is also a bottler for Coca-Cola and Schweppes. The Miller end of the business has come from the owners of Philip Morris Companies in the United States who were known as the Altria Group. These companies still own about 36% of the new company Called SAB Miller. The company had high sales of $8,295 million in 2003 and the growth in revenue was very high in a 1 year period of 160%. This was of course due to the take over of the Miller operations. The number of employees was relatively larger at 42,402 and the growth in the number of employees was also very high at 27.6%, and this may be in part due to the absorption that took place. (SABMiller plc Company Profile)

Though the number 1 company in the British market did well, the British market was not as good, and that was attributed to tough competition by the next good company called Scottish and Newcastle. The company has been claiming that the consumer confidence has remained weak in general. The chief executive Tony Froggatt is on record as having made a statement that has said "For the balance of the year we anticipate reasonable market conditions, although consumer confidence remains weak, and the summer season in Western Europe is unlikely to be as buoyant as in 2003." (Scottish & Newcastle UK profits slip) Even the year of 2003 did not seem to be very good for the company as the increase in profits was just 1% to 471 million pounds, on an increased sale of 4.28 billion pounds. The increase in sales was by 3.4% and this was due to the fact that the company absorbed the makers of cider in Portugal named Bulmer and Central de Cervejas/Luso. The fall in profits was due to both the impact of the acquisition, disposals and movements in foreign exchange. (Scottish & Newcastle UK profits slip)

The total drop was by 1.4%, though the profit from beer in UK was by a larger amount of 8.1%, and the profits were only 148 million pounds. There were however reasonable profits of 19 million pounds from Bulmer. These drops in performance have made the company to make attempts of improving operations and part of this is their closing down of their historical brewery at Fountainbridge in Edinburgh. This is an attempt to restructure the operations in UK of the beer division. Internationally, the company has done much better with an increase in the profits by 36% to a figure of 190 million pounds, and this is a profit ratio of 6%. The company is also introducing cosmetic changes, like the shifting of the year end to December. The pre-tax profits for the 8-month period in the previous year were 100 million pounds while the total sales were 3.66 billion pounds, and the profits that considered here are after the 240 million pounds of the one-time costs. The dividend was also lower at 13.41 pence for the period. (Scottish & Newcastle UK profits slip)

Now let us look at a country which is expected to be the second biggest consumer of beer in the world, China. In that country the largest beer manufacturing company is known to be Harbin Brewery Group Ltd. And the shares of the company are traded in the stock exchange at Hong Kong. There was a recent attempt by SAB Miller plc to take over all the shares of the company, and this attempt was criticized by the chief executive of this Chinese company. The battle for the acquiring of this company started when the rival company of SAB Miller, Anheuser-Busch had expressed a desire to buy a 29.1% share of the company on 2nd May. The competition really started after SAB Miller made an offer of $391 million on May 5, 2003. This bid was viewed by the Chinese brewery company as hostile and terminated a strategic investor agreement that the Chinese company had with the London Company. A statement to this effect was released on July 28, 2003, and this was recorded by Hong Kong stock exchange. (Harbin Brewery chief sharply criticizes SABMiller's bid)

The reason for the high interest in the growth of the Chinese market for beer probably has something to do with its economic growth, and the size of the market is rapidly picking up in size and is soon expected to match the United States. It is at present the second largest market for beer and is soon expected to become the largest market for beer in the world for the jugs of beer. There was a survey done recently by Kirin Brewery and the survey found that last year the consumption of beer was the highest with a total consumption of 23.82 million kiloliters, and that was a growth of 1.4% during the year, from the figure achieved the previous year. At the same time, the existing gap with China which was second with a volume of 12.35 million kiloliters was falling sharply as the country had a growth of 4.7% from the previous year's figure as compared to the growth of 1.4% in the United States. One of the major reasons for this large growth in China is the huge population that the country has of 1.2 billion people and the only reason that it is not a large consumer of beer was the cultural differences that the country had. (China a close second to U.S. beer drinkers)

It is now clear that certain changes had taken place in the country and its culture regarding the drinking of beer, and this is certainly sure that the country will become a large drinker of beer. On the other hand the European countries that were the largest drinkers of beer earlier are seeing drops in their consumption of beer, and the levels in Germany fell to 10.03 million kiloliters and that was a drop of 0.5%. Similar trends were seen in Brazil where also there was a drop in the levels of drinking of beer and that country also had a drop of 0.5% and the volume there was 8.35 million kiloliters. Russia was the fifth in the list of beer drinking countries as the volumes of beer consumed increased by 11.6% to reach a total of 7.08 kiloliters. Japan was in the sixth position and in Japan also there was a drop in the volumes of beer that was drunk by 2.6%. Thus there is a clear indication that there is a growth in the drinking of beer in some countries while the market is declining in some other countries. (China a close second to U.S. beer drinkers)

In terms of continental areas, Europe still remained the largest area for the drinking of beer with almost one-third the beer of the world being drunk there, but Asia including China and Japan had improved their position to come to the second spot with a share of 26% of the share of beer drunk in the world. North America was now in the third place with a comparatively high share of 18.3% share of the beer that is drunk in the world. The growth in the drinking of beer still the highest in the Middle East where the growth is only below that of Russia, and the growth was 5.3%. Yet it is still a very small market for beer in the world with a total share of only 0.6% of the world's beer. (China a close second to U.S. beer drinkers)

That is only natural as most of the people in that region are the followers of Islam where drinking of any form of alcohol is banned both by religion, and even by the state in public places. The general trend in shifting away from beer to hard liquor and wine is being seen in Western Europe where the present form of beer originated. The area still is managing to keep its rank as the largest drinkers of beer in the world, but there is a gradual decline in the consumption of beer in most countries in that region. This has been seen over the last few years in countries like Ireland, Denmark, Belgium, Luxembourg, France and Germany.

The decline of drinking of beer in the countries where beer has been a traditional favorite may be the large number of alternatives that are available in those countries. There are a large number of alternatives in terms of both location and beverages that are available. There are wine bars and ready mixed bottles of spirits like vodka and tonic water. These new attractions have definitely caused a decline in the number of people who are interested in visiting the beer pubs and this is probably one of the reasons that have moved out beer pubs from the top of mind position of the people. Even in the case of the manufacturers of the brand that conducted the survey being referred to now, there have been expansion into a large number of products other than beer, and that was not only into wines and spirits, but also into soft drinks, mineral water and herbal teas. (China a close second to U.S. beer drinkers)

Research into the possibilities of new products from the by-products of the beer industry are also raising interest as it is reported that one of the lactic acid bacteria may be a potential cure for the combating of hay fever. These are all moves for the expansion of the companies beyond the area of purely making and selling beer. This is taking place as there is a demand from the customers also for products that are less damaging to the liver than alcohol, as also a general demand for better medicines. The same attitude exists in China also where the customers are now looking at beer as an alcoholic drink that gives a lot of fun and enjoyment, but does not cause much damage to the liver, or other parts of the body. The government in China also is helping out the locally produced beer, as compared to imported alcohols through the low taxes that are being charged on the product.

This has made locally produced beer one of the cheapest drinks that are available in the country. There are also reasons other than costs and the other reason is definitely the increasing health consciousness of the people as has been found in some surveys. The trend among the Chinese is towards choosing drinks which have less alcohol with a high image, and it seems that beer is fulfilling the image requirement of the customers. The demand for low alcohol drinks has compelled many local manufacturers of alcohol-based products to reduce the alcohol content of their products from over 50% alcohol content to alcohol contents between 30 and 50%. Other manufacturers have even switched their product lines from making hard liquor to the production of beer and wines instead. (China a close second to U.S. beer drinkers)

The growth and potential of the Chinese beer market has made it very attractive to the large giants of the world in the manufacture of beer, and this has caused a contest for Harbin in China. A large portion of shares of the company, Harbin, 29.4% has been purchased by SAB Miller under an agreement, and there was a reply from the St. Louis-based company, Anheuser-Busch, who are the largest brewers in the world, but not looking at markets outside the United States earlier. Harbin is a large company for the manufacture of beer in China, and is now the fourth largest company for the manufacture of beer. Both the American giants already have other companies in China with whom they are associated, and the relationship of Anheuser-Busch has been going on from 2002. This was when it had agreed to spend $182 million over a seven-year period in the operations of the largest brewer in China, Tsingtao. This spirit of development that has been shown by Anheuser is probably the reason that has irritated the chief executive of Harbin, Peter Lo into making a statement saying that the ownership of SAB Miller has done nothing for Harbin and there was no contribution to Harbin by SAB Miller after they purchased Harbin. This strong comment has led to a situation when the trading of the shares of Harbin in the Chinese stock exchange at Hong Kong has been suspended till the clarifications are received from the company regarding the statements of the Chief Executive. There was a reply from the company and they said that an agreement that had been entered into by the brewery and SAB Miller had "failed to (realize) the objectives specified in the (strategic investor) agreement, including greater levels of synergy, brand enhancement and contributions to technical expertise" (Harbin Brewery chief sharply criticizes SABMiller's bid)

This is according to the statement given by the stock exchange. The reference given by the Chief Executive was to an incident where SAB Miller had got their joint venture partner in China, China Resource Breweries to sell beer at lower prices after Harbin decided to increase prices in January. SAB Miller has a long-standing association with the brewery industry in China and has entered the market in 1994, and is now in charge of operation of 30 breweries. The questions have also been raised about the ability of the foreign brewer being able to manage breweries in China without the support of local management and employees. At the same time, the Chinese management welcomed the proposed investment by Anheuser-Busch, which has started through the acquisition of Global Conduit Holdings Ltd. The success of Anheuser in building up the nation-wide network and in excellent promotion of its brand, Budweiser across the nation of China has been praised by the Chief Executive. (Harbin Brewery chief sharply criticizes SABMiller's bid)

The reply came from Anheuser-Busch soon enough, and the leading brewer of the world soon announced that it would take over 29% holding of the company, Harbin Brewery Group Limited. It is already discussed that Harbin is a leading brewer in China, and process of investment was to be through the purchase of Global Conduit Holdings Limited, which is an investment company. The total price to be paid by Anheuser is expected to be around $1.08 billion Hong Kong dollars or roughly 139 million U.S. Dollars. Harbin is one of the oldest brewers in China, and situated in the Northeast of the country. The leading brand of the company is called Hapi. The statement given by the Patrick Stokes, the president and chief executive officer of Anheuser-Busch Cos., Inc. is interesting and he has said "Harbin fits our strategy of investing in leading companies in growth markets like China with good volume and profit growth potential. We look forward to working closely with Harbin management and believe this cooperation will allow us to better participate in the long-term growth of the industry in China." (Anheuser-Busch Announces Investment in China's Harbin Brewery)

Of course, Anheuser-Busch has already had some experience of operations in China due to their investment earlier in Tsingtao Brewery Co. Ltd. In 1993. This has been followed up with a strategic alliance and the starting of a best practices exchange program between the two companies in 2002. There have also been other management initiatives between the two companies. The ownership of Anheuser-Busch of Tsingtao is only a minority holding of 9.9%, though there are proposals to increase the holding to about 27% during the next few years. There is assistance from the existing collaborator regarding the new investment, and there was a statement from Stephen J. Burrows, President and Chief Executive Officer of Anheuser-Busch International Inc. In this regard when he said "This investment complements our successful Budweiser operations in China and our strategic partnership with Tsingtao. Tsingtao is supportive of Anheuser-Busch's investment in Harbin and agrees it will be beneficial for all parties. We look forward to further contributing to the growth and development of the China brewing industry." (Anheuser-Busch Announces Investment in China's Harbin Brewery)

Thus it is clear that the leading brewer in United States is interested in the Chinese industry as also the second largest international brewer. Anheuser-Busch already has other investments outside the United States and the biggest among them is the 50% share in Grupo Modelo which is the leading brewery in Mexico. Among the different beverage companies, Anheuser-Busch has a good image and has emerged on the top in a study that was conducted among 10,000 business leaders and security analysts, as was done by the Fortune magazine in 2004 for their listing of "Global Most Admired Companies." (Anheuser-Busch Announces Investment in China's Harbin Brewery) As has been already mentioned, the company also has a large interest in other industries in the United States like recycling of aluminum beverage containers, production of aluminum cans and in the operation of theme parks. (Anheuser-Busch Announces Investment in China's Harbin Brewery)

China seems to be a very interesting market for the brewery companies of United States and United Kingdom. Even the other company that has been discussed earlier, Scottish and Newcastle has agreed to pay about 36 million British pounds to get a share of the market, and they are concentrating on collecting shares of the Chongqing brewery as per the reports. The value paid by the company is about four times the value of the assets in the company. This had caused a rise in the Shanghai stock exchange before the profit takers took out their profits. At the same time, the attitude of the Chinese government to this deal is not known, as there has not been any approval from the Chinese government towards this deal. The block of shares that are being purchased by the company will make the company the second largest shareholder in the Chinese unit.

The investment is being proposed, or rumored in spite of the fact that the investing company has suffered a drop in the profits of the first half due to falling beer prices and pension charges. Maybe this is part of an effort to concentrate on brewing only, as the company has already sold off the pub unit for this purpose. Coming back to Harbin, the brewery seems to have become a prestige issue between the world's two largest brewers, and the offer of Anheuser-Busch was countered by SAB Miller with a counter offer of Hong Kong $4.31 billion, or U.S. $553 million against the offer of the world number 1. This is certainly setting up a war, and is certainly the first important bidding war between foreigners for a company listed on the stock exchanges in China. This clearly shows that there is an increasing tendency among the Western companies to get strong market positions in the Chinese economy.

As already mentioned, the battle was started by Anheuser-Busch with their purchase of 29% of Harbin on 2nd of May and the rate paid by them was roughly HK $3.70 per share, and their total cost was HK $1.08 billion. This irritated the world number two; SAB Miller which had earlier bought a similar stake of 29.4% last year, and now they are trying to buy all the shares of Harbin at an even higher price of HK $4.30 per share. The shares are listed in the Hong Kong stock exchange, and this fired up the price of the share which reached a high value of HK $4.70 by Wednesday. Since the competition has started between the leaders, it is now expected in the market, that there will be a counter-offer by Anheuser-Busch and this is going to drive the prices higher. The aim of the top two is to reach the number 1 spot in terms of volume of beer sold. Statements have already been released by Alice Hui of the share analysts DBS saying "It is up to what Anheuser-Busch will do. There are only two choices -- " either they will sell the stake or they will enter the bidding war." The counter offer was also expected at the Anheuser-Busch International, and this has been said in a statement released by their president, but he has not released any higher bid. The reason being given by SAB Miller is that it was forced to propose a higher price since the earlier offer was not accepted by the city authorities of Harbin who hold the stake.

Harbin brewery is one of the oldest breweries in China and dominates the market for beer in the north-eastern region. Totally, it is number four in the brewery industry, and there have been a lot of offers for the shares in Chinese breweries in the recent period. The characteristic of the Chinese beer market is that the price for beer in this country is very low and as low as 18 cents U.S. per bottle. The attraction is from the very large market that it has, and the growth is expected to help the management of the companies to make higher profits in the future times. Thus, it is likely that there will be future battles for purchase of breweries in China in the coming period, as it is very difficult to set up a brewery from the beginning, and also the difficulty in attracting of investments in new operations. That was the original aim of the investors, but there are new difficulties being faced by them in that route according to the analysts at Richmond Asset Management of Hong Kong. Both the world's largest brewers have already got shares in Chinese breweries as mentioned earlier. SAB Miller has a share in China Resource Breweries where they have a share just below 50%, and Anheuser-Busch has a share in the largest brewery in China, Tsingtao Brewery. There has also been expressed support for the proposed investment by Anheuser-Busch in Harbin breweries. (Foreign brewers battle for Harbin Brewery)

The problem that is faced by these breweries is that there are very few independent breweries in China, and one of the few companies that own a brewery division in China is a company called Chocolate Products (Malaysia), who has their registered office at 46, Menara Citibank, 165 Jalan Ampang, 50450 Kuala Lumpur. The growth of this company is slow in terms of the growth of the business in China and is only around 10% a year. The plant is old and the division is on continuous upgrading of the plant and improvement in productivity. The division has nine brewery companies including Wenzhou Double Deer Brewing Group Co. Ltd. And Ningbo Lion Beer Co. The profitability of the first company is good in terms of both revenue and profit, while the second company has gone through an improvement program of the facilities.

These improvements include the construction of 12 stainless steel fermentation units, which have a total capacity of 3,600 metric tons; a premium beer bottle packaging line which has a capacity of handling 12,000 bottles per hour and a waste water treatment plant with a capacity of 8,000 tons. The increase in capacity of this plant has been organized as the pattern in China seems to be the shift in drinking habits of people from hard liquor to beer. There is also a clear indication that high growth is taking place in Chinese economy, and there is a rapid increase in the disposable income of the people, and this is expected to lead to a rapid growth of the beer industry. In the meantime, there is expected to be an intense competition in the sector and this will force the small breweries to join each other and form a consortium, or to merge with larger units so that they could get the benefits of economies of scale. They also require the assistance of the foreign breweries so that they could get better technology. (Chocolate Products: Malaysia)

One of the oldest areas where beer was developed is Germany and in that country Lowenbrau is a brand with an established heritage. This beer is only made at the Lowenbrau Brewery in Munich and is exported to all countries of the world from there. Lowenbrau Original Lager beer contains the highest quality of ingredients and that gives it a superb natural head, golden color and a distinctive refreshing flavor. It is also said to eave a pleasant, enjoyable aftertaste. The brew is made as per the Bavarian "Reinheitsgebot" (Purity Law) which was introduced in 1516.

The facilities for the preparation of this beer requires special strains of Lowenbrau lager yeast, two row barley of the selected varieties, the procedure includes malted within a special technology so that one can get the unique and light Pilsner type malt, Lowenbrau special composition of the best quality of bitters and the hops with the finest aroma and these hops are collected from the world's largest hops growing area in Hallertau which is just 50 kilometers northeast of Munich, and the soft, clear and clean well water of Bavaria. The entire process of brewing is done without the addition of any chemicals, preservatives or additives. After processing, the beer is matured by processing at cold temperatures so that the typical character of the fermentation products is obtained. The procedure takes a lot of time, but is required for getting the special flavor that is associated with the brand. After this process is over, then the bottling is done with the best quality of equipment. The original gravity is to be 11.8% by weight and the alcohol content is about 5.2% by volume. This beer is considered to be one of the best beers in the world. (Brahma of Brazil)

This is one of the oldest markets for beer, and even in this market there is a large amount of takeovers that are taking place. There was a high profile and somewhat unexpected acquisition of Holsten by Carlsberg a couple of weeks ago. There are more than 1,200 brewers in Germany, and definitely there is lot of consolidation that may be required. The first phase of this takeover started with the takeover of Beck's by Interbrew. The originally Belgian company then went ahead and took over a lot of other German brewers and is now the largest brewing company in Germany with a little over 11% market share.

There are a large number of beer manufacturers and marketers in Germany, and this makes it clear that all marketing organizations have a lot of room to make needed adjustments, and this is expected to give more opportunities for adjustments in the future. An analysis for this has been done by Natasha Berg and according to the expert there were many reasons why the country was attractive for investments to other brewers. The statement was "Apart from being a low risk country in comparison to emerging markets, assets in Germany are comparatively cheap due to a high rate of family run businesses." (Brahma of Brazil) The process that Germany is now going through is the process of consolidation of the industry, and the reason why it has not happened till now is that no brewery has a real country-wide presence, though some names are very strong in certain regions. Thus all brands are at most known in the town, or best the region where the beer is brewed.

At the same time, the foreign investors would only be interested in breweries which have reasonably large output, and the accepted figure among analysts is a production capacity of at least 200 million liters. This is still a very small output for the foreign investor as the market share that this capacity provides is still less than 8%, and thus the German beer market is an extremely fragmented market. Some experts now have identified five potential targets for foreign companies and these may be taken as Binding, Brau & Brunnen, Krombacher, Veltins and Warsteiner. These breweries may be easily taken over by foreign companies and made a part of their organization. The reason why the previous takeover occurred may be due to the fact that the taken over brewery could be expanded further. (Brahma of Brazil)

Another company is known to be with an interest list of German brewers and this is the Scottish company called Scottish and Newcastle, and this company has been in the process of increasing its range of premium beers in the recent time. The company does not have a worthwhile presence in Germany, and the company would be able to take advantage of the present popularity of imported premium lager as seen in the last five-year period of imports. During this period it was seen that the volume of imports increased by 30.9% while the domestic brands declined in both the premium and standard ranges declined. Volume sales of imported premium beer are expected to increase very well in the period up to 2008 and the growth is expected to be over 19%. Apart from this, collaboration with a German brewer could help the European position of Scottish and Newcastle as if it acquired Brau and Brunnen, then the business of the company in this region will be better balanced, and this will become the number two beer manufacturer in size in Germany, and above Interbrew. (Brahma of Brazil)