THE GLOBALISATION IN BREWERY INDUSTRY

Joanna Smoluk, Sławomir Kalinowski, Władysława Łuczka-Bakuła

ABSTRACT

This paper shows the recent changes in brewery that were influenced by the globalisation, both on Polish and world market. It presents the high level of capital concentration as well as the condition and perspectives of small local breweries. It also indicates the changes in consumption and consumers’ preferences connected with the unification of habits. The article describes the impact of VAT and excise tax on Polish beer producers.

Key words: brewery industry, globalisation, beer producers, beer consumption, international brewery corporations, tendencies on beer market..

INTRODUCTION

The brewery industry was one of Polish industry sectors in which it came to the fundamental change after 1989 simultaneously with the economic transformation. Former public breweries were privatised and restructured. Now, the results of those activities are: the up-to-date organizational and technological structures of beer production, efficient distribution channels, changes in the assortment, modern capital structure and the companies’ image improvement.

According to Wilkin [9], the restructuring activities, connected with the occurring globalisation processes, are influenced by the liberalisation of national economies, computer improvements, progress in transport and the growth of the corporations’ meaning. In brewery industry, the significant share in economic integration has been gained by the commercial beer concerns. Among them are: Interbrew, Carlsberg, and SABMiller (South African Breweries-Miller). Their participation in restructuring Polish brewery sector contributed to more efficient functioning of Polish breweries, both in the production and management area.

The capital concentration process in Polish brewery industry can be considered as completed. Forming the structure of brewery industry led to the situation where 84% of beer production is controlled by foreign capital (Fig. 1).

SOURCES AND METHODS

The objective of the article was the analysis of the globalisation process in brewery industry and its aspects in the production and consumption sphere in particular countries, involving Poland. The analysis was based on the available data originating from the beer market and the breweries. The source data were gained from such institutions as The Union of Brewery Industry Employers, Piwochmiel, The Union of the Polish Regional Breweries, Central Statistical Office, Demoskop. The research embraced the years 1990-2003 with the special involvement of the second half of the 90’s and the beginning of the XXI century.

THE GLOBALISATION PROCESS IN WORLD BREWERY

The beer production concentration process progressively influences the industry infrastructure. Small breweries have more and more diminishing significance and the international corporations gain much more meaning. The elements influencing the globalisation of the world beer market are:

• for the beer companies - the increasing possibilities of influencing Polish consumers and inversely – the consumers impact on the producers,

• the mutual dependence between the world potentates and consumers,

• the unification of the consumers decisions and lifestyles,

• the vertical integration and specialisation of the producers,

• the obtaining of immaterial advantage concerning the brand recognisability, creating the positive firm image, consumers’ loyalty etc.

The occurrence of capital accumulation connects with the concentration process. The not-consumed capital is assigned for investments, strengthening the production sphere and also taking over the other enterprises. In relation to this, the oligopolies have been formed on most national markets. They sometimes concentrate even 75% of domestic production.

The countries that are traditionally engaged in beer production are the world potentates in brewery sector. Their brands dominate in the entire beer consumption. In 2000 the USA and China were the greatest beer producers, which in respect to their large area and population number, are the main beer consumption markets. Western Europe, where the dominating countries are the Great Britain and Germany, has s great significance as well (Fig. 3). The greatest twelve beer producers generate jointly over 70% of total beer production amount. Poland has 2% share in that amount and is the tenth beer producer in the world.

The USA were the greatest beer producer until 2001, however, in 2002 China outdistanced the USA and became the largest beer market in the world with the annual beer production of 236 million tonnes. Due to that fact and the huge potential, currently China has become (besides the USA) the most significant market for brewery companies. Jointly both countries produce about 1/3 of world beer production. In spite of such promising data, Chinese market is relatively immature and the beer consumption per person is rather small.

At present main significance among beer producers have the international companies. The globalisation of brewery industry caused that ten main beer producers concentrate approximately 50% of the market share (Fig. 4).

Mergers and unions have become the characteristic features of recent years. Clear consolidation tendency can be noticed. It enables the potentates to strengthen their position by pushing the smallest producers out of the market. These occurrences are caused by cost reduction, willingness to dismiss the competition, gaining new markets and consumers and finally aiming at obtaining the higher profits. Despite taking over the entire control in the purchased enterprises, they do not eliminate the former beer brands, but still produce and promote them. They hardly ever start the production under their own brands. Usually the known international brand is a kind of supplement to the former assortment.

The mergers concern the producers with the similar production amount and similar market share. The reason for their joining is to gain the higher number of consumers, dismiss the competition and obtain the whole monopoly profit. Lately, one of the largest mergers has been the purchase of the American Miller by South African Breweries and creating the SABMiller concern, which gained about 8.7% share in the world beer market. In 2002 it gave them the first position among beer producers. This company dominates in Northern America, Africa and Eastern Europe [2].

The second brewery company in the world is still Anheuser-Busch Inc., but their advantage gets smaller in relation to permanent development of other brewery enterprises, which also get consolidated. In 2002 Anheuser-Busch had about 10.5% of the market share. The third place belongs to Heineken and the fourth to Interbrew. This producer is known for several activities undertaken recently. At the end of 2001 they purchased the British brewery Whitbread and Bass what gave them the position of leader on local market. Interbrew also accomplished some purchases on German market, for example the Beck’s brand. In the same ranking the fifth place took Ambev and Carlsberg was on the sixth [13].

The analysts anticipate that in future there will be a successive decrease of beer consumption in the USA and Western Europe. This occurrence will be caused by tightening the traffic regulations. Beer also loses with other popular alcoholic drinks; therefore beer producers try to gain the markets of the Eastern and Central Europe as well as the Asian market since they not completely saturated. Due to these markets the producers can extend the production and sale, which means the profit increase.

Table 1 shows that the consolidation on these markets is very obvious. Strong producers rapidly achieve high position on the market. More saturated markets, such as Poland and Czech Republic are a bit less consolidated. The reason for such situation is that there are produced large amounts of beer and it was difficult to take over such markets. However, in countries where the capitalistic economy is not completely formed and the market is still immature most shares are held by one or two companies. However, after some time that market niche will be filled and the producers’ engagement will grow. The Eastern Europe market is still open to accept more beer producers. The beer sale rapidly increases in that region. Formerly popular high grade drinks get beaten by beer. It is connected with the fact of adopting the western lifestyle. Such a clear tendency takes places in Russia, where in years 1997-2002 the beer consumption grew from 20 up to 48 litres per person. The larg est Russian brewery – Baltika is a property of the Carlsberg Breweries and Scottish&Newcastle joint venture. They control 22,5% of Russian beer market. The globalisation process is still in progress, because five brewery groups have gained 50% of beer market and there still remain about 300 small breweries to take over [6]. Besides that, the profits of Baltika increase. One can come to the conclusion that there occurs larger interest in Russian beer market and it surely will attract many investors.

Similar situation appears in Bulgaria where the beer market grows fairly 5% annually and the consumption reaches almost 50 litres per person. It is estimated that the largest part of the market (over 40%) is controlled by Interbrew. Heineken is on the second position with 28% market share. Bulgarian beer market gets consolidated and it will surely be a long-lasting process because there still remain many small breweries in that country. Their market shares sometimes reach even more than 10% per cent. Therefore Bulgarian market will certainly attract new investors. Moreover, it is a country which gains much of its income from the tourism, which makes it more attractive to the investors [3].

THE SITUATION IN POLISH BREWERY INDUSTRY

In 1991 twenty eight public enterprises functioned in Polish brewery industry. That year the privatisation process of the breweries began. It consisted of the public offering joint with the blocked share sale to the active investors in negotiation mode and capital privatisation in a way of making shares available in an auction, or negotiation, or whole liquidated company sale. The privatisation process was made easier by few elements such as: recognisable quality of Polish beer brands, lack of barriers limiting demand and high economic efficiency of brewery enterprises. Therefore the restructuring of Polish brewery sector proceeded with the significant share of international brewery concerns such as SABMiller, Heineken, Carlsberg, Brewpole Ltd., Bitburger and Holsten. Large share of foreign capital caused that currentlythe products quality of most Polish breweries is on the European level [7].

At present the brewery sector in Poland is an attractive branch in the growth phase, in comparison to the spirit products sector. Recently some serious changes caused by the brewery sector consolidation have occurred. In regard to the high market value of the sector (connected to the constantly growing demand amount), it came to the mergers and continual changes in strategic groups. As a result of those activities, Polish brewery sector has got the oligopolistic structure, similarly to the corresponding sectors in the world. Currently the share of three brewery groups surpasses 80% of market share. These groups are Kompania Piwowarska, Żywiec Group and Carlsberg-Okocim.

At present there are two equivalent leaders in domestic brewery sector, which joint market share amounted at 62% in 2000 and grew up to 71% in 2003. Kompania Piwowarska is most expansive. They are owned by consortium consisting of SABMiller and domestic company – EUR Agro Centrum. Kompania Piwowarska originated from the union of Tyskie Breweries and Lech Breweries of Wielkopolska. In 2003 they took over the Białystok Dojlidy Brewery. Now they slowly catch up the Żywiec Group results. During four years Kompania Piwowarska noted down the 5% growth of market share, from 29% in 2000 to 34% in 2003 [4].

Żywiec Group still remains the leader on the market. They have 37% of the market share, despite the fact that in the 90’s they lost the part of the market share as a result of the drastic beer sale decrease of the EB brand. The main stockholder of Żywiec is Dutch Heineken. The Żywiec Group currently consists of the breweries in Żywiec, Elbląg, Leżajsk, Warka and starting from 2003 also Warsaw Breweries (Królewskie) and Kujawiak from Bydgoszcz (formerly belonging to the Austrian BBAG which was taken over by Heineken). The including of the last two producers gave Żywiec Group almost the 5.5% growth of market share.

Carlsberg-Okocim Group the third on the market. In 2003 their share amounted at 14% and in comparison to 2000 fell down by 2%. The company came into being as a result of the union of Okocim Brewery, Dolsnośląskie Browary Piast, Bosman Szczecin Brewery and Kasztelan Sierpce Brewery. The owner of the Carlsberg-Okocim Group is a Danish brewery concern Carlsberg [5].

Small breweries realising the regional breweries building program are far behind the leaders concentrating 85% of the market share (2003). There are about 50 small breweries in Poland. Among them are Polish Breweries Brok, Lubelskie Browary Perła, and Browar Belgia.

Among smaller producers the Strzelec Brewery from Malopolska is worth mentioning. They took over the Brok Brewery (Koszalin) from German Holsten and the Rybnik Brewery - formerly belonging to Górnośląskie Breweries. Strzelec also has 48% share in Lubelskie Brewery Perla (3% of domestic market share), however, the taking over of the entire company is blocked down by the owner of the other shares.

Belgia Brewery from Kielce is worth considering as well. They are owned by the Belgian Palm Brewery which in 2003 gained 45 % of market share. They are one of the most dynamically developing producers.

Despite such an advantageous economic situation in Polish brewery sector, some foreign investors have backed out of Poland. They did not achieve the significant profits. Among them were German producers, such as: Bitburger (Kasztelan, Bosman), Binding (Dojlidy) and Holsten (Brok). Their infrastructure was purchased by the main brewery groups.

Besides large companies, many smaller breweries producing beer function on Polish market, which brands are very popular in their own regions. Mentioned enterprises have quite good position on local markets. However, those companies are afraid that now, when Poland is a EU member, Poles will choose much cheaper Czech and German beer in regard to the nearly twice lower excise tax in those countries. Therefore beer producers postulated (without any success) the excise tax reduction by 20% annually in 2003 and 2004. It would lead to the excise duty decrease to the adequate rates that are valid in other European countries.

The financial condition of the brewery sector is mainly built by the results of the three leading brewery groups. These companies have just started to profit. The Żywiec Group achieved the best financial results. In 1998 they took over Brewpole (including EB brand). Due to the merger the sale clearly increased, however, forming the new capital structure took a lot of time and expenses. In 2001 the sale obviously grew and the first net profit appeared a year later. Carlsberg-Okocim encountered the similar situation. They recently had to include three additional breweries and have just started to profit. Kompania Piwowarska reports the highest profits (Fig. 7).

The financial condition of beer producers is quite stable, which is shown by the profitability indicators. Kompania Piwowarska achieves the highest indicator level again. The second is Żywiec Group. High profitability indicators prove the high profit share in total sale value.

Smaller local breweries are in much worse situation. They do not have the access to the cheaper sources of financing and the support from foreign investors. Earlier mentioned brewery Brok-Strzelec Company (former Małopolski Strzelec Brewery) can be used as an example. They increased the sale after taking over the Brok Brewery. The larger company came into being, but still they were deeply in debt and with small working capital. In 2003 the company reported a loss amounting 6.2 mln PLN. One can expect that after selling the bonds and new shares, the company will finish the restructuring and start to profit. It means that small breweries lose in globalization process and in spite of bearing the charges they often get beaten by the stronger corporations [4,5].

All beer producers have two main problems. First of them are the high fiscal charges. The excise tax and the 22% VAT constitute 2/3 of the beer price. It is one of the highest assessments in Europe. That situation can cause the growth of private beer import in future. That may be the reason of the decrease of the budget incomes and reduction of domestic beer production which is related to the work places’ liquidation.

The second significant problem for beer producers are the beer advertising limitations. The Law on Bringing up in Sobriety and Counteracting Alcoholism introduced the beer advertisement but it has a lot of limitations which diminish its range and efficiency. In March of 2003 the Parliament passed the law amendment which liberalised the rules of the beer advertising. The companies are obliged to designate 10% of their profits of their promotion budget to the special fund financing the after-school activities for children and youth in return for the law liberalisation. It is very unfavourable for the breweries because they cannot include this charge to the activity costs [4].

Besides clear globalisation process on Polish market, one can notice the opposite situation. The example may be Van Pur Brewery, which became a Polish local firm again. In the 90’s they were taken over by the Austrian Brau Union Group, which also included Królewskie Breweries and Kujawiak Brewery. Brau Union Group was on the fourth position among beer producers in Poland. Recently it came to another regrouping: Heineken took over the Brau Union Group and both companies joined. Żywiec Group had already had the Leżajsk Brewery in their structure, which was also situated in the Rzeszów region. There was a threat of liquidation on the Van Pur Brewery, because functioning of two neighbouring breweries would not be efficient for Heineken. This situation caused that the brewery was repurchased by the former owners. Van Pur Brewery defending itself against liquidation became an example of the process opposite to globalisation [14].

CHANGES IN BEER PRODUCTION IN POLAND

It can be noticed that there has been the systematic beer production growth in Poland in the last decade (Fig. 12). During 14 years the production amount has changed by 140%. Many analysts believe that still it is not a culminant point and Polish market is considered to be perspective. Therefore in following years the production can still grow; however, it is believed that dynamics will not be a two figured number.

At the beginning of the 90’s the differences between Poland and Western Europe were very obvious. However, recently Polish producers have made up the distance. The successful advertising campaigns promoting beer as an alternative to high-grade drinks caused the production growth. In 1993 Poland’s share in total European beer production amounted at 2.95% and in world production at the level of 1.09%. In 2002 those numbers increased to 5.34% and 1.84% [10].

Beer production growth in Poland is a result of the traditional markets saturation. This phenomenon causes the stagnation and sometimes even a small decrease in world beer production. This situation is conditioned by the unfavourable changes in population amount. In regard to that, the Eastern European countries, with constantly growing beer consumption, became a significant market for the international corporations. In the middle of the 90’s, beer started to replace the high-grade drinks. Vodka, which formerly had the most significance among alcoholic drinks, recently has lost many consumers. It was a result of the fact that the excise tax is too high. The process of lowering that kind of tax would make beer relatively cheaper. Additionally breweries reduced their costs to acquire in consumers the habit of drinking beer and to stimulate the beer demand.

As a consequence of the saturation of the traditional markets the advertising, product and service quality became more significant. Those activities lead to the fixation of the brewery sector and brand images, what may cause the advertisement cost reduction and profit increase. The saturation of the traditional markets makes the breweries export to the foreign markets. Such an example may be Denmark, where during 5 years (1990-95) the consumption per person fell down by 4.8%, while the export grew by over 90% [7].

BEER CONSUMPTION

Recently it can be noticed that the preferences in alcoholic drinks consumption have been changing. Consumers very often give up the high grade products and start to purchase beer. That situation is mainly related to the consumers’ income growth and life standards improvement. This element is one of the most significant determinants of the beer consumption growth (Fig. 10).

Since 1990 the systematic relative beer consumption growth, in comparison to other alcoholic drinks consumption, is obvious. At the beginning of the last decade the beer share in all alcoholic drinks consumption did not reach the quarter. Currently it has grown twice. At the same time the consumption of 100% alcohol per person fell from 10 to 6,1 litres [3].

According to CASE advisors, in the nearest future the consumption growth trend will remain stable up to 75-77 litres per person. The anticipated growth can be disturbed by the external elements only. In 2004-2005 the cumulating of several unfavourable phenomena may influence the consumption dynamics growth. There may occur a temporary decrease period [1]. The situation on the exchange market or significant life standards drop may cause that fall. The potential changes in law or taxes (higher excise duty) are less dangerous for the beer market, because brewery industry is characterised by strong activity competence. However, the enterprises acting in the sector have to take into account those potential changes while optimising the incomes to prevent from the market weakening.

Despite the rapidly growing beer consumption trend the average Pole consumes less beer than a Western European, who drinks meanly 80 litres per person annually. Greater consumption amount occurs in countries, where the beer drinking culture is much deeply routed than it is in Poland. These are the Czech Republic, Germany, Denmark, Austria, and Ireland. The consumption per person in those countries is over 100 litres per person annually [1].

The significant elements influencing the brewery industry development are the market saturation periods. In regard to these problems, it is necessary to create the protective programs to counteract the economic troubles bringing the constant cost increase which means the reduction of gross profits and the decrease of sector financial potential. The aims of the programs would be counteractions against the potential crisis in the sector. The program efficiency depends on the estimation of the crisis duration. Their main goal would be to introduce the solutions limiting the risk of going bankrupt, which also means preserving beer brewery workers from losing their job.

In spite of existing threats, the brewery industry is one of the best acting sectors. The continuous development of the sector is foreseen, which in going to be influenced by [1]:

• constant globalisation process and concentration in brewery industry,

• strong position of the beer sector,

• favourable financial-economic situation of brewery industry,

• the proper policy in enterprises causing the scale effect advantages,

• high level of management sector which is noticeable in cost reduction and the efficient sale and distribution organisation,

• favourable consumers’ structure.

In the nearest future, the termination of the Polish brewery industry to the European standards adjustment is foreseen. That process will reinforce their competitiveness on the common market. However, the former advantage coming from the investments, introducing know-how and new technologies will recede into the background.

Although small breweries have accomplished the quality requirements, they are afraid of extension of the competition. The most significant threat is the import duties liquidation. This situation will cause the Czech and German beer cheapening and the import amount growth. In case of large beer producers, the threat is smaller. However, if there is not any change in state fiscal policy regarding the excise tax and VAT the market situation may get worse. In the Czech Republic and Germany the level of those both kinds of taxes is twice smaller than in Poland. The excise duty per 1 hectolitre in those countries amounts 9.61 EUR and 9.44 EUR correspondingly. In Poland the excise tax amounts 18.92 EUR per 1 hl (Fig 11).

It is estimated that the lack of fiscal changes can cause the loss of 1.1 billion PLN in state budget. That situation may also cause the increase of private import, estimated at 20% of beer market. It will result in liquidation of small border breweries and loss of 11000 work places [8]. According to that fact it is vital to introduce the fiscal solutions guaranteeing the price competitiveness of Polish beer. Despite the announced excise duty reduction it still remained at the same level. The 1.1% excise duty increase may lead to the fall and beer trade recession, comparable with the one from 2001, when the growth amounted at 1% only.

Additionally the situation of Polish breweries is worsened by the too high VAT level (Fig 12), which together with the excise duty may lead to decrease of Polish brewery sector competitiveness. The VAT and excise duty reduction, according to Żywiec Group data, could lead to 55% production growth, 11% budget income increase and creating about 300 new work places.

The globalisation phenomena, such as Poland’s EU accession can have also positive results for Polish brewery market. That situation will increase the consumption level and structure unification, both in spatial and social-vocational sectors. It is anticipated that together with the accession the beer consumption interest will grow and the taking over the habits constituting the permanent elements of “beer culture” in Germany, Ireland and Czech Republic will happen. The anticipated financial situation improvement of the society will also be one of those elements. The consumer preferences may change as well. The consumers will more often reach for the local brands and beer of more sophisticated taste. Beer with the addition of herbs or juices has 0,2% of market share only. In the EU countries that share is at the level of 3%. Those tendencies will probably be transferred into the Polish ground.

CONCLUSIONS

The characteristic symptoms of the economic globalisation are complex combinations of production networks. Such a cooperation and taking over the enterprises describe the brewery industry. Recently, in that economic area, the creating of “mega market” is quite noticeable. Such companies as SABMiller, Heineken or Carlsberg produce beer on all continents. In developed countries it comes to some regroupings (mergers and takings over) only. As a consequence of those phenomena the larger producers gain an advantage on the market and local breweries lose, however they defend against the liquidation by creating more and more sophisticated tastes and brands. However, the most promising markets are Eastern Europe and Asia, where the world potentates make the first steps. The part of the market still belongs to the small producers but they started to get taken over by the largest companies. These are also large markets in regard to the population number. The considerable part of the population abando ns the high-grade drinks consumption and starts to consume beer.

The results of the world globalisation process are permanent extension of unifying products and brands, also in regard to the standardisation of tastes and preferences all around the world. The western lifestyle gets adopted. Therefore the consumers also are globalised. Therefore there exists some kind of feedback between producers, who promote and provide the global beer brands and the consumers, who get suggested by the advertisement and make the demand for the known brands. Those occurrences are supported by the reduction of transport costs, telecommunication development and growing similarity in legal systems, unification of management and data processing systems.

REFERENCES

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11. www.johbarth.com/report04/Report04_WorldBeerProduction.pdf

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Sławomir Kalinowski
Department of Economics
Agricultural University of Poznań
ul. Wojska Polskiego 28
60-637 Poznań, Poland
e-mail: skalin@au.poznan.pl

Władysława Łuczka-Bakuła
Department of Economics
Agricultural University of Poznań
ul. Wojska Polskiego 28
60-637 Poznań, Poland
e-mail: luczka@au.poznan.pl

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