February 17, 2017

Heineken announced that it has agreed to acquire Brasil Kirin Holding S.A., one of the largest beer and soft drink companies in Brazil, for US$704 million.

The move by Heineken was undertaken as a means to gain market share in the world’s third largest beer market after China and the U.S. With a population of 200 million, the people of Brazil drank 118,451,339 barrels, or 129 hectoliters of beer in 2015.

Although beer is considered a non-essential item, as is often the case during periods of economic downturns, certain non-essential “indulgence” products show surprising resilience and strong sales during times of economic recession or depression. Termed the “Lipstick Index” by Leonard Lauder, chairman emeritus of Estée Lauder, small, affordable indulgences take on more importance to consumers when money is tight. For example, movie ticket sales spiked during the Great Depression of the 1930s, and sales of nail polish jumped 65 percent in 2008 during the Global Recession, according to research by NPD Group, reports Time.

This may be the dynamic behind the Brazilian beer industry’s resilience  – despite the economic slowdown Brazil has been experiencing in recent years, beer is expected to see a marginal compounded annual growth rate (CAGR) in sales volumes, reaching 1.8 billion liters by 2020, according to Euromonitor.

“This transaction marks a step-change in scale in an exciting beer market, building on our success to date in the premium segment and strengthening our platform for future growth,” said Jean-Francois van Boxmeer, chairman and CEO of Heineken. “It reiterates our commitment to the Brazilian market and confidence in our ability to generate attractive returns over the long-term across all segments of the market.”

Heineken’s first foray into Brazil’s beer market was in 2010 with the acquisition of Fomento Económico Mexicano (FEMSA) in a deal that gave the enterprise a total valuation of US$7.6 billion. In the ensuing years, Heineken has grown to operate five breweries and hold a 10 percent market share in Brazil. With the addition of Brasil Kirin, which held a nine percent share of the Brazilian beer market in 2015, Heineken is now the second biggest beer company in the country.

Indeed, the deal for Brasil Kirin will transform Heineken’s Brazilian business by expanding its footprint, strengthening its portfolio and increasing scale, while providing a strong platform from which the company will be well positioned to capitalize upon future growth opportunities in the growing, emerging market. Brasil Kirin brings with it 12 production facilities and a strong presence in the North and Northeast regions of the country where Heineken had been less pronounced. Its extensive portfolio includes the Devassa brand; the specialty brands, Baden Baden and Eisenbahn; and Schin, one of the largest beer brands in Brazil on both the mainstream and value segments.

Brasil Kirin also brings its soft drinks portfolio, including carbonated beverages, bottle water, and other drinks. The addition of the soft drink division, which controls a two percent market share and includes the popular Itubaína brand also will be complementary to Heineken’s strategic distribution partnership with Coca-Cola bottlers. The deal will need to secure al regulatory approvals, but is expected to close in the first half of 2017.

“I look forward to welcoming our new colleagues from Brasil Kirin into Heineken,” said van Boxmeer, “…and working with them to take the combined business forward.”

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com