Last week the Justice Department gave their blessing to AB-InBev's takeover of SABMiller. The world's two largest beer making companies will be folded into "Megabrew," a nickname coined by its detractors (Newco is the name AB-InBev has floated).
Does this mean that one company will control most of the beer market in the United States? No. For a long time the two largest brewing companies in this country were Anheuser-Busch and Miller Brewing Company. In 2008, all of that changed. In June of that year Molson Coors and SABMiller formed a joint venture in North America called MillerCoors. A month later, Belgium-based InBev purchased Anheuser-Busch to form AB-InBev. Two big combinations following two different models, but in the end the consumer still saw two big brewing companies. Another transaction will keep the big brewer duopoly in place. When the transaction for AB-InBev to purchase SABMiller occurs, Molson Coors will purchase SABMiller's stake in MillerCoors.
So if AB-InBev is going to sell off Miller, why buy SABMiller? This is a transaction about global market share. It turns out that there are places where one has the bulk of the market, some places where the other has the bulk of the market, and some places where they compete. It turns out that when all of those places are mapped, Megabrew/Newco will have most of the world covered.
The Brewers Association (a trade group of the nations small breweries) and others have been quite concerned that this combination will have negative impacts on them, particularly in the area of distribution. AB-InBev has been buying distributors as they become available and has long administered incentive programs for distributors who promote AB-InBev's brands over other brands that distributorship carries. Given that in most states, once a brewer selects a distributor, it is a very long process to switch from one wholesaler to another, these programs can leave small brewers feeling neglected by the very people who are supposed to be promoting them in the marketplace.
Are the concerns of the Brewers Association and others warranted? I think so. While parts of the three-tiered system of alcohol distribution put in place at the end of Prohibition is starting to break down in different ways state-to-state, a small package brewer tied to a distributor who doesn't want to sell their beer can kill sales for that brewer and eventually mean that consumers have fewer choices. It will be interesting to see what happens...
Does this mean that one company will control most of the beer market in the United States? No. For a long time the two largest brewing companies in this country were Anheuser-Busch and Miller Brewing Company. In 2008, all of that changed. In June of that year Molson Coors and SABMiller formed a joint venture in North America called MillerCoors. A month later, Belgium-based InBev purchased Anheuser-Busch to form AB-InBev. Two big combinations following two different models, but in the end the consumer still saw two big brewing companies. Another transaction will keep the big brewer duopoly in place. When the transaction for AB-InBev to purchase SABMiller occurs, Molson Coors will purchase SABMiller's stake in MillerCoors.
So if AB-InBev is going to sell off Miller, why buy SABMiller? This is a transaction about global market share. It turns out that there are places where one has the bulk of the market, some places where the other has the bulk of the market, and some places where they compete. It turns out that when all of those places are mapped, Megabrew/Newco will have most of the world covered.
The Brewers Association (a trade group of the nations small breweries) and others have been quite concerned that this combination will have negative impacts on them, particularly in the area of distribution. AB-InBev has been buying distributors as they become available and has long administered incentive programs for distributors who promote AB-InBev's brands over other brands that distributorship carries. Given that in most states, once a brewer selects a distributor, it is a very long process to switch from one wholesaler to another, these programs can leave small brewers feeling neglected by the very people who are supposed to be promoting them in the marketplace.
Are the concerns of the Brewers Association and others warranted? I think so. While parts of the three-tiered system of alcohol distribution put in place at the end of Prohibition is starting to break down in different ways state-to-state, a small package brewer tied to a distributor who doesn't want to sell their beer can kill sales for that brewer and eventually mean that consumers have fewer choices. It will be interesting to see what happens...