Evidently, beer is the most popular sports drink … well, sports spectating drink. In fact, several of the 11 Russian cities where the matches are being played are running low on, or – in at least one case – are entirely out of beer.1,2 Clearly, spectators are raising a mug to the cup. And not just in Russia: with 32 teams from continents involved, the cup matches are estimated to attract more than 3 billion viewers worldwide,3 many of whom will likely be drinking a beer while watching. More to the point, for our purposes as investors, many of them will be drinking branded and premium priced beer.
Throughout the world, the force of mass affluence is enabling consumers to move up the spending pyramid of “Bread, Booze and Bling,” affectionately known on our team as “the George Evans’ Hierarchy of Human Needs Pyramid.” This is why we have long owned one on the world’s major brewers, Heineken, as part of our Bread, Booze and Bling investment theme.
Beer is estimated to comprise 75% of the world’s alcohol market.4 Although the volume of beer consumed worldwide has not been rising, the value of the beer market is growing at roughly 6% annually and is expected to continue doing so at least into the next decade.5 In the global beer market, less is more in terms of profitability for the brewers. Why? In the emerging market world, rising prosperity is enabling beer drinkers to shift from informally produced brews to branded beers that are more expensive but safer.6 In the wealthier regions of the world, beer drinkers are paying more for premium brands and craft beers. This evolution in consumer behavior is further supported by improved transport and storage infrastructure in many regions and by better logistics and supply chain management nearly everywhere, providing choice and availability.78, can benefit from this trend. Heineken sells over 60% of the beer it brews in emerging markets, and earns over 60% of its operating profit from these markets.9 In the more developed markets, the company focuses on its premium brands and on cider, a faster growing segment of the industry.10 Over the past 10 years, Heineken’s annual returns on invested capital have ranged from 7% to 14%. Of that capital, 40%-50% is sourced from the debt markets, an acceptable level for a stable, very regionally diversified business like this one, so Heineken has returned 11% or more on equity during each of the past nine years.11
We do not have any guarantee that these trends will continue. But as we watch so many fans drinking beer as they watch the World Cup, we’re reminded of why we invested in brewing.
- ^Source: “Russia Is Running Low on Beer During World Cup,” Modern Farmer, June 6/25/18; https://modernfarmer.com/2018/06/russia-is-running-low-on-beer-during-the-world-cup/
- ^Source: “Australian Fans Drink Russian City [Kazan] Dry at Fifa World Cup,” Stuff.co.nz, 6/19/18https://www.stuff.co.nz/sport/football/world-game/104819242/australian-fans-drink-russian-city-dry-at-fifa-world-cup
- ^Source: “Soccer World Cup 2018: Global Audience to Hit 3.4 Billion, FIFA Revenue to Reach $6 Billion, The Hollywood Reporter, 6/14/18
- ^Source: Deloitte report, “Craft Beer: A Multisensory Experience,” published 2017. https://www2.deloitte.com/content/dam/Deloitte/mx/Documents/consumer-business/2017/Craft-Beer-in-Mexico-2017.pdf
- ^Source: Deloitte report cited above and Zion Market Research, “Global Beer Market Predicted to Reach $750.00 Billion in 2022, 3/2/2018
- ^Source: “Around the World, Beer Consumption Is Falling,” The Economist, 6/13/17, https://www.economist.com/graphic-detail/2017/06/13/around-the-world-beer-consumption-is-falling
- ^Source: “Global Beer Market in 2018 Set for Rapid Growth, Opportunity till 2025 Trends, Demands and In-depth Analysis by Key Players, Regions, and Application,” Reuters, 3/28/18, https://www.reuters.com/brandfeatures/venture-capital/article?id=31876
- ^Source: Heineken corporate website.www.theheinekencompany.com/brands
- ^Source: Heineken 2017 Fact Sheets (Developed by firm’s investor relations group) http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwil_4fq2fTbAhWSqlMKHWhiCLYQFgguMAE&url=http%3A%2F%2Fwww.theheinekencompany.com%2F-%2Fmedia%2FWebsites%2FTheHEINEKENCompany%2FDownloads%2FPDF%2FFactsheets%2FHEINEKEN-Factsheet-2017.ashx&usg=AOvVaw0wwEA_8GJ03L54dEvUPChS
- ^Source: Allied Market Research, “Cider Market by Product and Packaging – Global Opportunity Analysis and Forecast, 2017-2023https://www.alliedmarketresearch.com/cider-market
- ^Source: Bloomberg
As of 3/31/18, Heineken represented 1.14% of Oppenheimer International Growth Fund’s Holdings.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
The mention of specific countries, securities or sectors does not constitute a recommendation by any particular fund or by OppenheimerFunds, Inc. It should not be assumed that an investment in the securities identified was or will be profitable.
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Emerging and developing market investments may be especially volatile. Eurozone investments may be subject to volatility and liquidity issues. Investments in securities of growth companies may be volatile. Mid-sized company stock is typically more volatile than that of larger company stock. It may take a substantial period of time to realize a gain on an investment in a mid-sized company, if any gain is realized at all. Diversification does not guarantee profit or protect against loss.
These views represent the opinions of the portfolio managers at OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.