What could be more Canadian in the festive season than a look at the beer market?
Global analysts at UBS Ltd. have produced a lengthy investment report on the global beer market that, overall, projects growth in volumes with emerging economies as the "sweet spot." The big Swiss bank also outlines its study of "Beeronomics," and the strong relationship between GDP per capita and consumption per capita.
So, with a nod to Bob and Doug McKenzie, the beer-swilling duo of SCTV fame, here are some of the economics-related pieces of the global beer puzzle from UBS.
Growth, income and GDP
The UBS analysts, using historical data and a mathematics formula, analyzed how beer volumes relate to the economy, finding the "strong relationship" between GDP per capita and beer per capita. "The correlation between GDP and beer volume growth is highest in emerging markets. Therefore we continue to see emerging markets as the sweet spot for global beer," they wrote.
As economies grow, so too does consumption, and thus the outlook for emerging markets.
"As income rises, beer consumption will also rise. We use GDP/capita as a proxy for wealth compared to beer consumption … For emerging markets, increases in wealth drive a sharp increase in beer consumption. However, the relationship changes as wealth reaches higher levels as there are limits to how much beer can be consumed per year per person, so consumption levels out. A key point is that in emerging markets, alcohol consumption is generally not affected by wealth. While we do not have the data to prove it, we believe if we include all types of alcohol, including cheap, grey market and home-made alcohols, the curve would be a flat horizontal line. Consumers who rise from poverty to even lower middle class will trade up from low-quality alcohol to a branded product, such as beer."
Market share
Beer has a very healthy share of the overall world market for branded alcohol, of just more than 54 per cent. "Not all regions have an equal preference for beer (calculated on a litre of pure alcohol basis). In mature markets, tastes and preferences drive the differences in beer's share of throat. In emerging markets, beer is one of the first categories traded into from the informal alcohol market."
Other regions
The UBS analysts forecast that the North American market (cue Bob and Doug) will return to the long-term trend as jobless levels improve. North American beer volumes suffered "two torrid years" of decline this year and last, but that should turn around as the labour market stabilizes "given that the average beer drinker in North America is particularly impacted by higher-than-average unemployment."
Western Europe's beer market has slipped by more than 2 per cent a year. And this may come as no surprise: Greece and Ireland are among the weakest. Denmark, too, but the UBS analysts noted that labour disruptions have played a role. "The slow macro recovery and austerity measures across many countries mean that the volume outlook will remain subdued, in our view."