Rise of the Macro-Brewery: How are Beer Companies Impacted?

Freshman year of college I met my roommate and we went through the standard introductions:

Which bed would you like?

Top bunk.

Do you play Frisbee?

Yeah, and I breathe.

What do you like to drink?

Coors Light.

WHAT???

Coors Light!!

This would prove to be the first of many room share related misunderstandings.  Rich-dog grew up amidst the snow capped peaks of Evergreen, and was loyal to the then Golden based Coors Brewing Company.  I spent my formidable years in the gently pitched the wheat fields of Colorado’s eastern plains, which might as well be Kansas; so I drank Budweiser.  Periodically, Rich and I would revisit this argument, but neither of us could convince the other of our own brands superiority.

Flash forward 7 years.

 The Coors Brewing Company is now a regional division of the world’s seventh-largest brewing company, Molson Coors.  Molson Coors is headquartered in Denver Colorado, (and Montreal Quebec,) and trades on stock exchanges in the United States (and Canada).

Anheuser-Busch InBev (Photo credit: Wikipedia)

Anheuser-Busch is now a wholly owned subsidiary of Anheuser-Busch InBev, the world’s largest brewing company.  Anheuser-Busch InBev is headquartered in Leyven, Belgium.  The company has a 25% global market share, manages over 200 brands, and employees more than 116,000 people in 30 countries.

In 2005 Rich and I were both very loyal to a brand, and our loyalty was based completely on personal geography.  I have to wonder what we would be drinking if we were college freshmen in 2012.

A Colorado microbrew like Odell or New Belgium?  Not likely, we didn’t have any money, and every CU freshman class hates all things Fort Collins.

Proud to be made in the USA Miller Light, MGD or Highlife?  Not a chance.  Miller Brewing Companyis owned by SABMiller, headquartered in London, and traded on a stock exchange in Johannesburg.

The answer to my question is painfully obvious.  College freshmen are going to pick up 30 of whatever’s cheapest.  And apparently, the best way to make cheap beer is to grow your brewing conglomerate as large as humanly possible.

Anheuser-Busch InBev is illustrating the giant snowball business plan with its attempt to purchase the remaining 50% of Grupo Modelo, the Mexican beverage company that controls many brands, including Corona.  On June 25^th, the New York Times and the Wall Street Journal reported that negations between the companies were underway, and that a deal could be struck before week’s end.

Analysts are predicting the price tag on this deal will be in the 12 billion dollar range. Grupo Modelo is valued at 23 billion dollars; Anheuser-Busch InBev already owns 50.2 percent of the company, and 43.9 percent of Modelo’s voting rights.

Want additional insight? Download Hiring a Business Coach for Your Small Business now 

This is not to say that Anheuser-InBev’s ownership stake has made for a cooperative merger.  When InBev purchased Anheuser-Busch, Anheuser-Bush already owned a 50 percent stake in Grupo Modelo.  Grupo Modelo thought the major merger was a violation of its purchase agreement with Anheuser-Busch, and the two companies underwent two years of arbitration in New York City.  Eventually, the arbitrator ruled in favor of InBev.

The New York Times stated that as June 25, 2012, the two companies were still discussing purchase price, and hashing out antitrust issues.

Baring major change, we are heading towards a future where two, (or three,) enormous conglomerates are responsible for the worldwide production of beer, (think Pepsi, Coke, and 7-Up).  It seems inevitable that Anheuser-InBev is going to make a play for SABMiller, or Molson Coors, and the brewery that doesn’t get acquired will file an antitrust suit.  I know that I will be following the legal ramifications closely.

In the mean time, I don’t think the continued emphasis that beer companies are placing on acquisition is negative.  I am hoping that the so called middle market in good beer will be squeezed out entirely.  This will force microbrewers to be more local, more artisanal, and more focused on quality.  Imagine a future where there is a price race to the bottom on cheap beer, and a quality race to the top for microbrews.  Sounds good to me…

The United States Department of Justice disagrees.  On Thursday, January 31 the DOJ sued Anheuser-Busch Inbev, citing antitrust concerns.  From what I can gather, the Department of Justice is worried that Inbev is going to jack up the price of Corona Extra, a beer the antitrust watchdogs have called a “low price alternative.”  The DOJ would like to preserve The Model Group as an important competitive force in the beer industry.

I think this sounds crazy.  In a blind taste test, I could certainly tell you the difference between a Corona and a Bud Heavy.  A Corona and a Bud Light?  I’d like to think so, but probably not, especially if you dropped a lime in the beers.

This goes back to the point that I was making at the beginning of the article.  Sure, high quality and low price can go a long way towards fostering brand loyalty, but there are other factors to consider.  Factors like the history of your product, the location of your headquarters, and a traditional niche market for what you’re selling.

This might be because I’m a filthy hillbilly, but I have always, and will continue to ignore two-for-one Coors Light specials so that I can drink Shiner Bock, and I know that lots of other people do the exact same thing.  Is Shiner Bock 2.5x better than Coors Light?  Probably not, but what kind of a man changes his beer brand?

Forging loyalty amongst consumers is anything but straight forward.

I don’t think that A-B Inbev’s acquisition of Groupo Modelo will have any impact on the American or the global beer market.

Want to talk beer, brand loyalty, or antitrust concerns?  Chime in on our Facebook page…