Great Northern points the way for Japanese beer giant

Peter Margin, the executive chairman of Asahi Beverages in Australia, says CUB's product innovation and marketing sizzle in elevating Great Northern to one of the biggest-selling beers in the country now from humble beginnings in Queensland, has been a big reason why Asahi made its move.

It showed there was life in the beer category and gave Asahi confidence.

Great Northern, with a lighter, crisper style, has taken off after a national marketing push, which began in 2017. With two main products – with alcohol levels of 3.5 per cent and 4.2 per cent – it has become hugely popular.

Waking Up

"I'm not sure the rest of the market has woken up to what has happened,''  Margin says.

Asahi in Australia has also made solid inroads with its own craft beer brands, Mountain Goat out of Melbourne, which it purchased in 2015, and Cricketers Arms, acquired two years earlier.

The Asahi beer business in Australia, albeit small with brands such as Asahi and Peroni, was in the right categories, all showing robust growth.

"They are in a bit of a sweet spot to some extent,'' Margin says.

"They've made life pretty comfortable for us''.

The Asahi beer brands have been generating double-digit growth for the past couple of years, Margin says.

Margin earlier in his career was immersed in consumer goods, as a chief executive of yoghurt and milk company National Foods, and then as the boss of Goodman Fielder, which makes Meadow Lea margarine, White Wings cake mixes and Helga's bread.

Mature markets

Mature markets where serious growth would appear to be elusive holds no fears, with innovation, marketing sizzle and new product development showing the way.

"I think it's all about managing the category,'' he says.

Australia isn't the only Western country where mainstream beer is in decline.

Asahi has been wrestling with that conundrum for years in Japan, where beer consumption has been falling for the past 14 years.

Margin also says Asahi has now been a serious operator in Australia for more than a decade and having that on-the-ground experience under its belt has also delivered extra confidence to make such a large acquisition.

"It would be fair to say when they made their first entrance into the Australian market they had limited understanding and didn't have the people on the ground they've now got."

The Schweppes soft drinks business has been a bedrock performer for Asahi in Australia for many years.

Asahi aggressively expanded into the alcohol sector in 2011 with the $1.2 billion acquisition of the Independent Liquor business from private equity firms Pacific Equity Partners and Unitas Capital. That brought ready-to-drink brands, such as Vodka Cruiser and Woodstock bourbon and cola, into the stable.

It delivered a bad hangover though. A court battle raged over what was promised in the lead-up to a deal being struck.

In 2014, Asahi secured $199 million in a legal settlement, about 30 per cent of what it was originally seeking, after launching court action against the private equity firms, which it accused of lying about the profitability of the business.

The past few years have been more pleasant for Asahi in a broader business, which has a workforce of 2100 people across Australasia.

Moody's angst

Mind you, not everyone is happy with the CUB buyout, largely because it is such a full price at 14.9 times earnings. Ratings agency Moody’s placed Asahi Group's credit rating under review for a potential downgrade on Monday because the debt-financed acquisition would raise Asahi’s financial leverage.

Moody’s estimated the purchase would increase Asahi’s gross debt to EBITDA ratio to five times once the deal closed in early 2020.

For CUB staff, it is set to deliver yet another corporate owner against a dizzying global backdrop of large-scale M&A. Current owner AB-InBev came into the picture in 2016 with a $145 billion mega-merger with SABMiller, which itself became owner of CUB in 2011 after the $12 billion buyout of Foster's.

A little over a week ago, AB InBev surprised the market by pulling plans for an initial public offering of Budweiser Brewing Co. Asia Pacific on the Hong Kong stock exchange, which included CUB.

The IPO would have been the biggest of the year, which aimed to raise as much as $US9.8 billion. But that IPO may still proceed in some form in Hong Kong without the CUB assets, which also include Sydney craft brewer 4Pines and Adelaide-based Pirate Life, both of which AB InBev snapped up in late 2017.

The proceeds from IPO were intended to be used to pay down the company's $US100 billion plus in borrowings.

Craft beer brands across the industry now make up close to 10 per cent volume of Australia's beer market.

CUB in October of 2016 resumed its position as the No.1 player in the $14 billion Australian beer market after assuming distribution rights for the biggest-selling imported beer brand in Australia, Corona. The success of Great Northern, combined with regaining the Corona distribution, has lifted its market share to 48.8 per cent.

CUB took over the rights for Corona from rival brewer Lion, owned by Japan's Kirin Corporation. Lion collected $300 million in compensation payments for letting go of Corona and a handful of other beer brands, which also sprang free from the global mega-merger in 2016.

Kirin moved to 100 per cent ownership of Lion in 2009 through a $3.4 billion buyout of the remaining 54 per cent of the beer group, which it didn't already own. Kirin first began building up a stake in Lion in 1998 when it picked up a 16 per cent share in the group from New Zealand businessman Sir Douglas Myers.

The beer landscape in Australia now has even more of a Japanese flavour.