3 Beer Makers You Shouldn’t Miss This Summer

Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The beverage industry is expected to reach a market value of $1,347 billion by 2017, with a compounded annual growth rate of 4.6%. The global demand of beverage products is rising, and the beverage companies are using various strategies like acquisition, packaging innovation, expansion, etc. for long-term growth. I have discussed three such beverage companies that are working on the above stated strategies in order to maximize growth.

Acquisition and innovation will strengthen the position in market

Anheuser-Busch InBev (NYSE: BUD) received U.S. court permission in April, 2013 to take over a 50% stake in Grupo Modelo -- one of its competitors, for $20.1 billion. Grupo Modelo is a Mexico-based brewer that produces Corona and Pacifico beers. Under the terms of the merger, Anheuser-Busch InBev will sell Modelo's U.S. business and the Modelo brewing facility in Mexico to Constellation Brands, a wine and liquor producer, in order to preserve competition in the American beer market. This will give Constellation exclusive rights to sell Modelo products in the U.S., for which it will pay $4.75 billion to Anheuser-Busch InBev.

This acquisition will help Anheuser-Busch InBev  expand in fast-growing emerging markets, as high rates of unemployment and slower economic growth restricted its sales in Europe and North America. This deal will give the company an opportunity to export Corona beer outside the U.S. and Mexico. The Modelo acquisition will deliver cost and revenue benefits of $1 billion annually.

Product innovation played a key role for Anheuser-Busch InBev, resulting in revenue growth of 7.2% in 2012. Platinum and Lime-A-Rita were the top two new beer products launched last year, as well as Straw-Ber-Rita launched this year. It is now focusing towards packaging innovation. The company is trying to attract consumers in Brazil with one-litre and 300-ml (about 10 oz.) returnable brand bottles, including Brahma and Skol. Returnable bottles appeal to the consumers as a value, against the standard 600-ml can. 

The company also recently came up with a bowtie-shaped “Budweiser can” to attract young adults. Due to the can’s slimmer middle and sleek design, it holds 11.3 ounces of beer against the traditional 12-ounce can of Budweiser. More than 10 million bowtie cans were produced for an initial run in March 2013 for the spring introduction. The company started the sale of its bowtie-shaped Budweiser can from May 6, 2013.
Such innovative strategies will help in contributing revenue growth of 11.3% in 2013, in comparison to the 7.2% of 2012.

Strong volume growth with better cash flows due to World Cup

Companhia de Bebidas Das Americas, AMBEV (NYSE: ABV): The upcoming 2014 FIFA World Cup will boost beer sales in Brazil and is expected to be a strong year for AMBEV. The World Cup will start in the winter and games will be played in the afternoon and early evening. Around 60,000 fans are likely to come, and government allowance of alcohol at stadiums will help to increase beer sales. 

AMBEV has been sponsoring the World Cup since 1986. In the 2010 World Cup, organized in South Africa, AMBEV’s beer brand “Brahma” sponsored the event for the first time. Brahma will continue to sponsor the 2014 World Cup.

Brazil continues to be a growing and profitable unique market for AMBEV. Looking at medium and long-term growth prospects for organic growth, the company plans to increase investment in Brazil to $1.5 billion this year, which was $1.07 billion last year. It will invest in building breweries in Minas Gereas and the Parana states to improve its supply chain system for maximizing distribution. As a result, the company's capex will rise to $3.6 billion in the current year.

Oxxo new openings and bond issue will contribute to growth of Femsa

Fomento Econ’s (NYSE: FMX) commercial division, Oxxo, is the largest and most profitable convenience store chain in Latin America. Oxxo is serving around 8 million customers daily. It provides 24-hour service with fast and comfortable shopping, easy access, facility to pay utility bills directly to stores, air ticket bookings, and many other services. Oxxo is planning for expansion at a rate of opening three new stores every day. Oxxo's intention is to open around 11,600 stores in 2013 and 12,000 stores in Mexico by 2014.

FEMSA plans to invest $400 million on expanding and improving its retail unit in 2013. Oxxo is continuously posting double-digit, top-line growth due to its facilities and services. It reported revenue growth of 14% year over year in 2012, which will increase to 17.5% in 2013 due to new store openings.

On May 10, 2013, FEMSA announced successful issuance of $1 billion in bonds in the U.S. bond market. It issued $300 million in a 10-year bond at a yield of 10-year treasuries plus 1.125% and $700 million in a 30-year bond at yield of 30-year treasuries plus 1.45%. The proceeds from the issues will be used for acquisition of a fast food chain, a drugstore chain, and pharmaceutical wholesalers.

Conclusion

Anheuser-Busch InBev’s deal with Modelo and packaging innovation will strengthen its position in emerging markets and attract more consumers.

The 2014 World Cup will lift AmBev's beer volume, and further decline in capex by 2014 will lead to strong results in that year.

Oxxo's positive, top-line growth with new store openings and bond issuances will help in the long-term growth of Femsa.

I recommend buying all three stocks.


Madhu Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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