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Durban - Just as SABMiller [JSE:SAB] is losing the premium brands fight in the South African market, mainly to Brandhouse's Heineken, it's also losing premium brand share in the giant United States market.
The effect must eventually come back to its share price on the JSE, if it hasn’t done so already.
For example, since SABMiller reported first-half results about a month ago its share price is up by a marginal 0.5%.
That could be market reaction to the brewer growing larger volumes by 3% in SA but seeing market share drop by 2.5%.
That was taken up by Brandhouse, which currently holds about 12.8% of SA’s total beer market.
As a mainstay in just about every institutional top 10 holdings the share hasn’t been a great performer either, gaining only 9.8% over the past year.
The US picture is more complex to analyse, but chief brands Coors Light – and especially Miller Light – seem under pressure and eating into each other’s markets.
But in the face of that ,SABMiller is cutting back on marketing spend.
Maybe there’s a plan we don’t understand, but traditional marketing wisdom says when you’re losing market share – and when you’re the number two in the market – spend even more on marketing.
By contrast, dominant US brewer Anheuser-Busch continues to spend on its top brands, Bud Light and Budweiser.
As a starting point, that’s how the top beers in the US began 2010 (according to Top Beers by Brand 2009).
Leading by a long way was Bud Light, with 28.3% of the market, a position it’s held since 2007. Second was Budweiser, with 11.9% market share, followed by Coors Light (9.9%) then Miller Light (9.2%).
Coors and Miller have swapped third and fourth place since 2007.
A week or so after SABMiller published interim results MillerCoors, a joint venture between SABMiller and Molson Coors Brewing, reported its results.
Domestic sales to retailers (STRs) were down 3.2% for the six months to end-September, but the company added STRs were down 4% in the second quarter.
Sales to wholesalers (STWs) for the six months dropped 3.1% and for the second quarter were down 2.7%.
Details become vaguer when talking about “premium light volumes” – which MillerCoors says “were down low single digits” over the quarter.
Comparisons with Anheuser-Busch aren’t exact, as its latest report is for its third quarter (and company calculations could differ slightly), but much like MillerCoors, STRs dropped 4% in the third quarter and 3.2% over the nine months.
In North America it said total volumes decreased by 1.5% for the third quarter and 3.6% over nine months.
However, sales in other parts of the world, led by Brazil, saw total volumes up by 4.1% over the quarter.
And while volumes declined in the US, Anheuser-Busch said: “We are, however, encouraged by better mix trends in the US. Bud Light gained share both in our portfolio and in the market place, as some consumers traded back to premium brands.”
The group also noted it’s taking further steps to improve market share trends. “Especially in the US, where we launched a variety of initiatives to support Budweiser through brand reappraisal with a rejuvenated marketing campaign and extensive strategic sampling, kicked off with Budweiser Concentration Week.”
That’s marketing speech – but it’s being backed by spending. The Concentration Week is a variety of marketing and advertising campaigns to support Budweiser.
Yet while Anheuser-Busch is spending to maintain its dominant market position, MillerCoors said “marketing, general and administrative costs decreased 9.8%” – adding that was due to “synergies” and “other cost savings realised”.
It’s unclear exactly how much of the decline was on marketing, but for the quarter marketing, general and administrative expenses dropped to $447.4m from $496.8m in the previous year.
Yet isn’t that exactly when MillerCoors, supported by its two parent groups, should be spending even more on marketing?
If not, it seems as if it’s accepted it will be in second place for a long time.
Which once again questions the old SAB’s decision to buy MillerCoors in 2002.
CEO Graeme Mackay called all the right shots as SAB expanded into developing markets. Though nobody could foresee what was going to happen in the US market, it has so far not been a great venture for SABMiller.
And it’s likely to get worse as the US economy staggers along, unemployment remains high and even its diehard beer drinkers seem to be imbibing less.
It also calls into question the defensive qualities of the share, a major reason that just about all the institutional investors have it in their portfolios.
The decision is different for retail investors. At least the 2.3% dividend yield is attractive in the current market, but is it worth a forward earnings multiple of 16 times?
Maybe SABMiller is playing a long-term patience game in the US that might suit a very long-term investor. Right now, though, there are other large cap shares on the JSE that offer better value and growth prospects.
- Finweek
This article first appeared in Finweek.
Click here to read more Finweek articles.
The effect must eventually come back to its share price on the JSE, if it hasn’t done so already.
For example, since SABMiller reported first-half results about a month ago its share price is up by a marginal 0.5%.
That could be market reaction to the brewer growing larger volumes by 3% in SA but seeing market share drop by 2.5%.
That was taken up by Brandhouse, which currently holds about 12.8% of SA’s total beer market.
As a mainstay in just about every institutional top 10 holdings the share hasn’t been a great performer either, gaining only 9.8% over the past year.
The US picture is more complex to analyse, but chief brands Coors Light – and especially Miller Light – seem under pressure and eating into each other’s markets.
But in the face of that ,SABMiller is cutting back on marketing spend.
Maybe there’s a plan we don’t understand, but traditional marketing wisdom says when you’re losing market share – and when you’re the number two in the market – spend even more on marketing.
By contrast, dominant US brewer Anheuser-Busch continues to spend on its top brands, Bud Light and Budweiser.
As a starting point, that’s how the top beers in the US began 2010 (according to Top Beers by Brand 2009).
Leading by a long way was Bud Light, with 28.3% of the market, a position it’s held since 2007. Second was Budweiser, with 11.9% market share, followed by Coors Light (9.9%) then Miller Light (9.2%).
Coors and Miller have swapped third and fourth place since 2007.
A week or so after SABMiller published interim results MillerCoors, a joint venture between SABMiller and Molson Coors Brewing, reported its results.
Domestic sales to retailers (STRs) were down 3.2% for the six months to end-September, but the company added STRs were down 4% in the second quarter.
Sales to wholesalers (STWs) for the six months dropped 3.1% and for the second quarter were down 2.7%.
Details become vaguer when talking about “premium light volumes” – which MillerCoors says “were down low single digits” over the quarter.
Comparisons with Anheuser-Busch aren’t exact, as its latest report is for its third quarter (and company calculations could differ slightly), but much like MillerCoors, STRs dropped 4% in the third quarter and 3.2% over the nine months.
In North America it said total volumes decreased by 1.5% for the third quarter and 3.6% over nine months.
However, sales in other parts of the world, led by Brazil, saw total volumes up by 4.1% over the quarter.
And while volumes declined in the US, Anheuser-Busch said: “We are, however, encouraged by better mix trends in the US. Bud Light gained share both in our portfolio and in the market place, as some consumers traded back to premium brands.”
The group also noted it’s taking further steps to improve market share trends. “Especially in the US, where we launched a variety of initiatives to support Budweiser through brand reappraisal with a rejuvenated marketing campaign and extensive strategic sampling, kicked off with Budweiser Concentration Week.”
That’s marketing speech – but it’s being backed by spending. The Concentration Week is a variety of marketing and advertising campaigns to support Budweiser.
Yet while Anheuser-Busch is spending to maintain its dominant market position, MillerCoors said “marketing, general and administrative costs decreased 9.8%” – adding that was due to “synergies” and “other cost savings realised”.
It’s unclear exactly how much of the decline was on marketing, but for the quarter marketing, general and administrative expenses dropped to $447.4m from $496.8m in the previous year.
Yet isn’t that exactly when MillerCoors, supported by its two parent groups, should be spending even more on marketing?
If not, it seems as if it’s accepted it will be in second place for a long time.
Which once again questions the old SAB’s decision to buy MillerCoors in 2002.
CEO Graeme Mackay called all the right shots as SAB expanded into developing markets. Though nobody could foresee what was going to happen in the US market, it has so far not been a great venture for SABMiller.
And it’s likely to get worse as the US economy staggers along, unemployment remains high and even its diehard beer drinkers seem to be imbibing less.
It also calls into question the defensive qualities of the share, a major reason that just about all the institutional investors have it in their portfolios.
The decision is different for retail investors. At least the 2.3% dividend yield is attractive in the current market, but is it worth a forward earnings multiple of 16 times?
Maybe SABMiller is playing a long-term patience game in the US that might suit a very long-term investor. Right now, though, there are other large cap shares on the JSE that offer better value and growth prospects.
- Finweek
This article first appeared in Finweek.
Click here to read more Finweek articles.
