The Facts of Brewery Consolidation

I was in Germany when it happened, spending most of my time drinking in biergartens, but even then I could scarcely avoid hearing about it. The purchase by Anheuser-Busch InBev of the half of the Mexican brewery Modelo they don’t already own, that is. For an astounding amount of money: over 20 billion dollars.

A Reuters story published Friday explained why the deal was such a big thing in corporate beer circles, and went on to speculate as to what other acquisitions might follow, and by whom. I’ll let you read all the greasy details for yourself, like how AB InBev might take a long-rumoured run at SABMiller in a few years, or how prominent family-operated brewing companies like Castel (Africa), Mahou (Spain) and Petropolis (Brazil) might wind up being offered huge sums of cash to exit the business. Instead of rehashing all that, I’ll just offer this quick look at what might be described as the moral of the story.

Back in the days just following Prohibition in North America, this kind of consolidation strategy was popular on a national rather than an international scale. And it worked, for the most part, with the total numbers of breweries in Canada and the U.S. shrinking in the decades that followed and the market shares of the biggest corporations growing. But as we know, that didn’t last, and for the last couple of decades the craft breweries have eaten into the market share of the two countries’ respective Big Two breweries, MolsonCoors and AB InBev-owned Labatt in Canada and AB InBev and MillerCoors, the bastard stepchild of MolsonCoors and SABMiller, in the U.S.

This marketplace erosion has continued in North America, Europe and parts of Asia to the point that these multinational breweries seem to have all but given up on growing sales in their home countries, preferring instead to increase profits through “efficiencies” — read: layoffs and cuts — and price rises. But that’s a limited strategy, so they turn also to acquisitions, and here is where things get interesting.

Leaving aside for a moment how cynical growth through takeover might be, it’s a game plan that is not without considerable risks. As happened in Canada and the U.S., the massive growth of big companies leaves plenty of room for smaller ones, and also leaves those mega-corporations open to cyclical downturns. So while the South American, Russian, Indian and Chinese markets might seem ripe for growth and exploitation, the global Big Four — AB InBev, SABMiller, Heineken and Carlsberg — should remember that circumstances can shift on a dime in this modern world, and that the market which today seems poised for continued growth — say, Brazil — might tomorrow transform instead into the North American model, in which the big players start losing sale to the smaller contenders. And when you have hundreds or even thousands of competitors, buying them all off becomes a  futile proposition.

I’m not saying any or all of this might happen tomorrow or even five years from now. But from what I’ve been able to gauge from developing markets while researching The World Atlas of Beer, the future is not quite so cut-and-dried as the M&A guys at the big breweries seem to think.

7 Replies to “The Facts of Brewery Consolidation”

  1. Stephen, sorry but I don’t agree with this comment:

    “But as we know, that didn’t last, and for the last couple of decades the craft breweries have eaten into the market share of the two countries’ respective Big Two breweries, MolsonCoors and AB InBev-owned Labatt in Canada and AB InBev and MillerCoors, the bastard stepchild of MolsonCoors and SABMiller, in the U.S.”

    Your statement ignores the much more influential role played by imports. According to industry statistics, in 1980 imports had a three percent market share. In 2010 (latest statistics), imports had a 13 percent share. To put that another way: in 1980, imports accounted for 4,566,646 barrels and in 2010 for 27,142,394 barrels.

    This clearly took away far more market share than even the BA claims.

    1. Fair enough, Mike, but it needs also be acknowledged that the imports eating into said market share are, in the most part: a) Of similar taste profile to those beers they are replacing in consumer purchases; and b) Owned by the same companies that own the top-selling domestics. Even more so now that ABI is buying the rest of Modelo.

      1. Even assuming that is true, imports have taken far more market share away from the companies you listed than the BA crew, which, as we both know, had to redefine “craft” in order to keep from dropping under four percent share. The fact that these mega-companies are buying each other up is further evidence of whom these see as the competition. If these companies saw “craft breweries” as a challenge, they’d be buying them up for pennies and shutting them down.

        1. You need a willing seller in order to buy a business, Mike, and as Sapporo has found, that’s hardly a given in North America. And as I said, the imports are more about a market shift than they are a claim of market share.

          The fact remains that domestic craft breweries, however much you might malign the term, are growing at a far swifter rate than are any of the imports save, perhaps, for two or three Mexican brands, plus a bunch of European beers, all equally craft..

  2. Stephen, for the time period I posted (1980-2010), very few of the conglomerations existed, so your point B (above) I do not see as valid. Because that is true, imports took money out of the American industrial breweries’ pockets and at a much higher rate than “craft breweries”. Which was, after all, my original point.

    Wasn’t Goose Island bought by one of the conglomerates? Don’t tell me that if InBev went to Lost Abbey or Dogfish or even Samuel Adams that the owners would refuse a multi-million dollar sell-out.

    You are quite correct that “craft breweries” “are growing at a faster rate” simply because no one begins as an industrial brewer. All breweries started small.

    Why do I dislike “craft brewery”? Because it is purely a marketing term. What is wrong with industrial breweries and breweries? Gives exactly the same distinction without implying that breweries are anything more than that.

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