Australians are famously inclined to support the alcohol industry. Thankfully, this reputation has shifted from quantity to quality. Australia now has the lowest rates of per capita drinking since 1961. Consumers are now favouring premium beverages over cheaper options, making for a very exciting environment for independent alcohol companies.
The landscape for companies involved with beer, wine, and spirits has changed dramatically over the recent decades. In this article, we investigate these market trends, analyse key value drivers that make businesses popular with buyers, and take a look at some notable transactions from the last 24 months.
Nash Advisory has distilled everything you need to know about the changing alcohol industry. For more insider knowledge and expert analysis on market segments using real world examples, visit our Industries page.
What's brewing in the alcohol industry?
Before 2000, Australia’s liquor markets were dominated by a handful of major beer companies with high market share, and a limited selection of offerings. These players had large scale manufacturing and large distribution.
The spirits market was dominated by international spirits conglomerates which distributed a relatively light selection of spirits. Take vodka, for example. Most Australians would have only been familiar with Stolichnaya, Grey Goose, and Smirnoff.
In the wine market there were a handful of major Australian names making waves, such as Penfolds, Jacob’s Creek, and De Bortoli.
Nearly two decades on, and the alcohol market has fundamentally shifted:
- Consumers have reduced their beer intakes considerably.
- People drink less at home, and more out at dinner or a bar.
- Traditional pubs are being converted into trendy food and wine bars.
- Even at the football, full strength beer has been replaced by low-carb and lighter offerings.
Key value drivers for the alcohol industry
The attractive qualities of an Australian alcohol company comes in the form of a key value driver. In 2019, the key value drivers for the alcohol industry are:
- Growth and current trajectory
- Brand awareness and presence
- Ability for the brand to expand overseas
- Ability to provide a new offering for consumers in different markets
- Category of the product and how it has tracked over the years
- Difficulty in obtaining the ingredients for the supply chain, and the rarity of the product
- Ability to increase prices and the effect on demand
- Gross margins being achieved
- Size of the management team and their particular roles
To learn more about how how key value drivers affect business sales, visit our resource on business valuation by the multiples approach.
Key value drivers in practice
Take a unique whisky from Tasmania which has stellar growth and brand awareness. This company could command a strong multiple of profit of around 10x.
However if the company has a limited supply chain and a small inventory, then the business is likely to sell for considerably less.
What is less important in 2019 versus 2000 is:
- Owning the manufacturing facility
- Taps or tap contracts in establishments across Australia, although these are still of some value in assisting in branding and distribution
- Export sales
- Memorable TV advertising
What buyers are looking for
Essentially, a large multi-national alcohol company is always on the look out for the next big brand or product. Whether it be a ginger beer, a cider, a boutique gin, or a whisky, the multi-national will be trying to establish:
- Would this product and brand sell in the other 100+ countries in the world that they operate?
- If it would sell through strongly, could they actually supply such volumes?
- How long would it sell for? Is it a fad? Or can this have longevity?
- If all of the above answers were positive, then who would they need to execute this plan?
Recent transactions in the alcohol industry
Listed below are some transactions that have occurred in the last 24 months:
- Sale of CUB by AB InBev to Asahi
- Four Pillars 50% acquisition by Lion
- Accolade Wines sale by CHAMP Private Equity to Carlyle Group
- Pirate Life Brewing Company sale to AB InBev/CUB
We found these interesting, especially considering that some of these companies were yet to achieve a stable level of profitability.