Understanding the Global Beer Market

How does demand for a category or industry change with disposable income and how do you go from analysis to strategic implications?

I use global beer demand to illustrate. The World Health Organization’s alcoholic beverages database (GISAH) and Tellusant’s TelluBase provide data.

The way to answer the first question is to quantify the income elasticity = how much percentage increase in demand is caused by percentage increase in disposable income: ΔD/D = ϵ⋅ΔI/I.

The graph shows the astonishing decline in global income elasticity. It used to be close to 1 (a 1% income change leads to a 1% demand change).

It is now, más o menos, around 0, (global income has no impact on global beer demand).

Interesting, but how should global players Heineken, AB InBev, Asahi, or Carlsberg react to this?

There are fundamental strategic implications:

1. The elasticities are different at country and subnational levels. Quantify the elasticity for each geographic unit to see where the opportunities are. E.g. African countries have high income elasticity.
2. The elasticity varies by price segment and beer style. Understand this at a granular level; and why. E.g., premium beer has high income elasticity in some countries like the U.S., but not in many emerging countries.
3. A dramatic change like this has profound strategic implications. Scrap the old strategy; Firm up resource allocation; Diversify.

Dolf van den Brink, Heineken CEO: “From scaling premiumisation to pioneering choice in low and no alcohol products, expanding beyond beer to building our route to consumer.” But all brewers use these words. Necessary, but not sufficient.

Thus, the strategic canvas needs to be larger. What are these companies good at apart from selling beer?

• Could they become distribution and retail companies given their distribution excellence? FEMSA used to be a beer company but made the transition many years ago.
• They are world class at marketing. Can they diversify into more than “beyond beer”? E.g., PepsiCo diversified from CSDs to snacks.
• Do they have hidden tech opportunities? E.g., AB InBev is rapidly scaling its cloud-based platform BEES. It would not surprise me if, with good execution, BEES is worth much more than the rest of the company.

We see a world in 25 years where people will say: “Look at SuperCorp. Do you remember they used to be called BeerCo. They are so much more than a beer company now.

This illustrates how you go from one fundamental analysis to massive implications.

This is UNIQUELY TELLUSANT. No other company can do the analysis and draw the implications.

Why is the analysis difficult?

1. You need to have the analytical vision for what needs to be done and invest the time to realize the vision.
2. Collecting, cleaning, and harmonizing the datasets is nontrivial.
3. The statistical LOWESS approach is not easy.

Of these, #1 is by far the largest hurdle.

To learn more, contact us by filling out this online form.

Usage terms: CC BY-NC-ND 4.0