Roll out the barrel: Positive signs for the beverage sector?

November 20, 2018

Roll out the barrel: Positive signs for the beverage sector?

The beer market is highly concentrated with the top five brewers producing around 50% of global volumes and controlling approximately 65% of industry profits. Volume growth has slowed and has been broadly flat in recent years due to both macro and more structural issues within the sector.

A recovery in emerging markets, where per capita consumption of beer is still relatively low, should see the category return to growth. But more structural demand headwinds, particularly in developed markets persist. In many developed markets, demographics are less favorable, per capita consumption is mature, and younger generations of consumers are drinking less alcohol than their parents and grandparents.

However, it is not all doom and gloom for brewing companies in these markets. While volume growth has stagnated, consumers are aspiring to “drink better”, trading up to more expensive craft beers, low/no alcohol beers and flavored malt beverages. Emerging markets have also seen increasing demand for premium products, and the roll out of higher-priced global brands has accelerated.

In our view, this desire for more premium beverages in both developed and emerging markets has driven category value higher, even as volume demand remains flat.

Paul Flood – Portfolio Manager at Newton Investment Management, a BNY Mellon company

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Views expressed are those of the authors stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. This material has been distributed for informational purposes only and should not be considered advice for investments or a recommendation of any particular investment, strategy, investment manager or account arrangement. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be produced in any form, or referred to in any other publication, without express written permission. The Dreyfus Corporation, and MBSC Securities Corporation are companies of The Bank of New York Mellon Corporation.

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