It's Last Call, and Molson Coors is Lonely
Chase is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Today, Molson Coors (NYSE: TAP) finalized their $3.5 Billion buyout of StarBev and officially created Molson Coors Central Europe. This acquisition brings aboard such recognizable brands as Apatinsko, Kamenitza, and Staropramen. Huh? I'd never heard of them either. Apparently, Starbev had $1 Billion in sales last year, mostly in its home countries of Czech Republic, Hungary, Bulgaria, Romania, Croatia, Serbia, and Montenegro. This would constitute (according to a Euromonitor report in the Wall Street Journal) 0.7% of the world's largest beer companies by volume, compared with the 2.7% held by Molson Coors. So, Starbev, with its lack of globally recognizable brands and distribution in several small European countries has 0.7% of the world's beer market and $1 billion in sales, and Molson Coors, with worldwide distribution and brands like Coors, Grolsch, Molson Canadian, Blue Moon, and Killian's, has 2.7% market share and $3.5 billion in sales. How is this possible?
Only one answer really: Central Europeans drink a lot. A whole lot. The Czech Republic has the highest beer consumption in the world, per capita. In 2010, Czechs consumed 132 liters of beer per person. The US came in at a paltry 78 liters. So, Molson may have some pretty well-known brands in the US but if only a few are drinking them, it doesn't make much of a difference.
Still, though, Staropramen (the most valuable brand in the deal and well-known in the Czech Republic) is number two among Czechs and only has 15.3% of the domestic market. Starbev held top 3 positions in all of the other 8 countries in its market but this only represents 22% of Molson's current total volume output. So, based on current production, the deal seems a little iffy. Perhaps Molson was accounting for market growth? The StarBev market is expected to grow GDP by 3.1% in the 2011-2016 period. Not incredible, considering the US is expected to grow 1.7% and Canada 1.4%. One promising figure, though, is to look at actual beer consumption. In the US, beer consumption is declining and is projected to continue to shrink by 1% annually over the next 5 years. In StarBev's market, consumption is actually expected to grow by 2% over the same period.
Taking a look at SABMiller's (NASDAQOTH: SBMRY.PK) similar market, you actually see contraction in Europe. In 2011, they saw a 9% drop in EBITDA in the European market and flat growth in lager volumes in the Czech Republic.
So, did Molson Coors jump into the StarBev deal too quickly? Sure, they were a bit late in becoming a truly global company (up until the acquisition, 98% of sales came from Canada, the US and the UK). But any time a CEO says "we came to this party relatively late," you have to be a little worried. The true growth markets of Latin America and Asia are pretty much already picked over and according to the June 6th Wall Street Journal, "there are far fewer takeover targets than a few years ago." When Peter Swinburn, CEO of Molson Coors, called beer globalization a "party," let's hope he understands that the only people that actually make money at parties are strippers.
TheLaowai has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Molson Coors Brewing Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.
