The global beer and malt business is currently being rocked by two separate crises. Both the COVID-19 pandemic and the Russian invasion of Ukraine are negatively affecting the markets. No one can reliably predict when both events will be over and what the world will be like afterward. However, if you look at previous major market disruptions, you can get a picture of the “day after”.
The RMI Brewery Conference which currently takes place in Antwerp, opened on Wednesday with a presentations on the Global Market Context of the international beer industry. Sanjeet Aujla, Equity Analyst at Credit Suisse, pointed out that the overall growth of the beer industry already slowed down from about 3% in the first decade of this century to only 1% in the second decade, just before the first major disruption, the COVID-19 pandemic occurred in 2020.
While lockdowns and interruptions of the logistic chain were the biggest problems during the pandemic, the international beer industry is now, during the war in Ukraine, mainly faced with major cost increases for energy and raw materials, leaving aside the incredible destruction and human tragedy associated with the conflict.
Aujla predicts the input costs per hectoliter beer which increased slightly above 4% in average in the last two decades to increase by 15% in 2022, a rate the industry last faced when the financial crisis hit markets in 2008.
At the current situation, brewers and maltsters are hardest hit which did not cover their energy, malt and packaging material needs right in time. The supply of malt is particularly precarious because, due to a difficult supply situation, malt prices had risen sharply even before the war in Ukraine and have almost doubled to date, if there is any availability at all. The only ray of hope is hops, because its supply is more than secured and no notable price increases are to be expected.
Looking back to 2008, when the industry faced similar price increases as today, the situation in the following years was not so bad at all. The beer industry delivered two strong years of margin expansions in 2009 and 2010 as higher costs could be passed on to the customer and beer prices remained at the elevated level even when commodity costs decreased again.
A similar situation can be expected in 2024 and 2025 when the current turbulence hopefully abates. This leaves good prospects for brewers. Aujla sees a return to lower input costs at elevated beer prices and normal growth rates of the industry as in the decade before.
In the coming years, volume growth in high single digit numbers will mainly come from developing markets with low per capita consumptions and attractive demographics like Africa (excl. South Africa), South East Asia and India.
Developing markets like Latin America, China and South Africa, which were the developing markets 20 or 30 years ago will show only minor growth rates as per capita consumption levels are already at decent levels. The name of the game in those markets is premiumization, with customers looking for higher prestige brands which leave brewers with higher margins.
Developed markets like the U.S., Canada, Europe (East, Central and West) and Australia, if anything show only declining alcohol consumption. Premium is the only game in town and you see a lot of fragmentation as customers look for new products and categories as can be seen by the rise of non-alcoholic beers and hard seltzer in the United States.