Heineken has agreed to buy the Brazilian beer business of Japan’s Kirin Holdings Company for €664 million (£564m) to become the second largest brewer in the country after AB InBev.
Brasil Kirin operates 12 production facilities and has its own distribution network in Brazil. Its brands include value beer brand Schin and Devassa, as well as speciality and premium brands including Baden Baden and Eisenbahn. Brasil Kirin also owns a soft drinks business, which currently holds a 2.1% share of the Brazilian market and includes the Itubaína brand.
However the business has been operating at a loss, with the company today posting full year revenues for the year ending 31 December 2016 of BRL 3,706 million (2015: BRL 3,698 million), equating to a loss of BRL 262 million (2015: BRL 322 million).
“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. I look forward to welcoming our new colleagues from Brasil Kirin into HEINEKEN and working with them to take the combined business forward.”
With this purchase, Heineken will increase its share of the Brazilian beer market to 20% from 7%, according to Euromonitor, strengthening its footprint in what its the world’s third largest beer market with a consumer base of 200 million people.
“This raises Heineken into second-place and goes some way towards closing the gap between it and market leader A-B InBev, although there is still a long way to go,” said Anna Ward, research analyst for alcoholic drinks at Euromonitor International. “Responsible for over 60% of beer sales in Brazil, A-B InBev’s market dominance remains uncontested.
“As well as a higher market share, this transaction also benefits Heineken by strengthening its operational independence in Brazil. It gains ownership of a vastly improved distribution network, as it previously relied on a partnership with Coca Cola.
However, capitalising on its improved position will be far from straightforward for Heineken – it faces considerable challenges including intense competition in the premium segment, the rising popularity of microbrewers and a beer market under pressure from ongoing macroeconomic uncertainty.”
The total value of retail sales in the Brazilian beer market is projected to grow at a CARG 2.3% by 2020, according to Euromonitor, which places the country’s total volume consumption behind the USA and China, but higher than other beer traditional markets such as Germany and UK.
The deal is subject to regulatory approvals but is expected to close in the first half of 2017.