After many weeks of negotiation and renegotiation, the world’s two biggest beer producers are set to merge with today’s, 13th October 2015, announcement that SABMiller has accepted an increased offer from AB InBev. Mintel’s Global Drinks Analyst, Jonny Forsyth, looks at the strategic implications behind the deal… This deal has come about largely because Western markets are struggling from factors such as reduced beer consumption and the preference for craft beer over mainstream brands. Indeed, Mintel’s research shows that more than one in five (23%) of US consumers drink craft beer, one fifth of Brits drink craft beer and almost one quarter (23%) of German beer drinkers have purchased craft beer for drinking at home in the past 6 months. Mintel forecasts that the craft beer sector also has considerable growth potential. This means that growth for mainstream beer players is now about a strong presence in emerging markets where there is still a huge – and growing – demand for more mainstream, affordably priced beer brands. Of the emerging markets, Africa is the biggest prize, and SABMiller currently has the biggest presence in Africa (which accounts for around 30% of its profits) of all the major brewers. In comparison, AB InBev has basically no presence in Africa, and it is desperate for a foothold in a region touted as the “last beer frontier”. Africa is so sought after because it has growth opportunities over the next decade and beyond. For example, 70% of the top 10 growing global economies are African nations (albeit from a low base). Many Africans currently drink home brew beer, so there is much opportunity to convert them into buying low cost, commercial beer as their discretionary spend grows. The deal will also allow the new mega-brewer total dominance of Latin America – a region with plenty of growth opportunities itself. SABMiller’s presence in emerging Latin American countries such as Peru, Colombia and Ecuador perfectly compliments AB InBev’s dominance of Brazil. This will also leave the new group with plenty of scope for efficiencies in this region. The only real downside to the deal is that the anti-competition rules are likely to require divestment of major assets in the US and China – two markets which SABMiller and AB InBev both have a significant presence. Ceding share in the US is less of a concern given market difficulties there, but China – which still has huge premiumisation potential – could prove much more of a strategic loss. SABMiller currently has a very successful joint venture with CR Snow in China, which leads the beer market. Being forced to divest this to competitors is one likely outcome of any deal. Jonny Forsyth, Global Drinks Analyst, is responsible for researching and writing all of Mintel’s UK drinks reports. He brings ten years of experience working in the marketing industry, with roles at Starcom Mediavest, AB-Inbev, and Trinity Mirror. He is a regular contributor in global and national media outlets such as BBC, CNBC and Bloomberg. You might also be interested in: How long will hard soda hit the spot for Americans?