The beer world shook with the September 16th announcement that brewing giant Anheuser-Busch InBev was weighing financing options for a takeover of fellow behemoth SABMiller. Rumors and speculation about such a merger have swirled since at least 2008, when St. Louis based Anheuser-Busch was purchased by the Belgian-based InBev in a hostile takeover. This time though, AB InBev released a statement confirming that the Miller board has been approached about a deal.
It seems that craft beer’s Goliath is about to get even bigger. The two are currently worth a combined $245 billion dollars and control two-thirds of the U.S. beer market. AB InBev alone has 45% market share. Everyone wants to know what this means for the small brewer.
Brewers Association Director Paul Gatza weighed in on the implications of the merger in a post this past Wednesday on the BA blog. I talked with Gatza to see if I could dig a little deeper into those questions.
Michael Agnew: Everything I have read talks about how attractive this kind of deal is and has been to these big brewers for a long time. But anti-trust regulators will likely require a sell-off of brands for this deal to go through. It’s not like there will be one mega-corporation selling Bud Light, Miller Lite, and Coors Light. Given that, what makes this kind of merger so attractive?
Paul Gatza: I think it’s the rest of the world that makes it attractive. For instance, Anheuser-Busch InBev has a small profile in Africa, and this gives them a chance to basically open up that continent in a major way. I think there has been some talk about South America also being somewhere that there will be some synergies that they can really save some money on. I think it’s really the rest of the world is what is making this deal attractive.
MA: So that makes it sound like the impact in this country, at least on craft brewers would be minimal.
PG: Most likely, yes. I agree with you that regulators would probably find themselves at a point where they want to separate it from “concentration of market” issues. But then the question comes up, who gets Miller? That’s where there could be a small concern or it could be a larger concern. If someone other than Molson-Coors gets Miller for the U.S., that would then mean that there could be an effort to start to move those brands between distributors. Say it was Heineken for example. Would they make an attempt to align those Miller brands into the houses that have Heineken in distribution territories? In many cases there would be a lot of crossover and they’re already in the same house. In other cases there wouldn’t be.
MA: That brings me to a question that I had about the potential impact on smaller brewers. I know that in past the big breweries have tried to use various schemes to leverage distribution power to keep smaller brewers at bay. Would this give them a better ability to do that, or are they already so big that this really wouldn’t matter in that regard?
PG: My guess is it probably isn’t going to matter a whole lot and that there probably won’t be a lot of disruption going on there from those standpoints.
MA: In terms of consumer perception do you think this will impact small breweries?
PG: You know, it may actually have a bit of a benefit for small breweries if it sends more people from the large brewer world to start to check out small [breweries]. There might be a perception that standard lager and light lager have all gone global, it’s all one company, and there might be a sense of, “You know, I might try one of these craft pilsners or lagers and see if that’s a little different, because I’m not too hip on the ‘world should be global’ thing.”
MA: So kind of an accelerated reaction against big, bigger, biggest.
PG: Yeah. So there could be a little bit of benefit there. It could be small. The large brewers are run by very sophisticated banking types who do serious analysis when it comes to pricing their products, so there could be some pricing strategies that come out later on that also impact craft brewers.
MA: So undercutting?
PG: Maybe. Or what we’ve seen with the big brewer mergers is the pricing strategies have fit a model that maximizes profitability for those companies at the expense of [market] share to some degree.
MA: We’re seeing in craft brewing some breweries trying to go national or even global. I’m thinking breweries like Stone, Sierra Nevada, Deschutes, and some of these that are opening breweries in other parts of the country and even in other countries. Do you see this kind of extreme, global merger having any impact on that momentum?
PG: It very well could. Each country would have their own set of laws regarding beverage alcohol and how it gets from a brewer to the public is different in a lot of places. And so there may be some abilities created by this merger through that larger scale that do give an AB InBev–SABMiller joint entity more leverage to dominate getting beer to customers.
MA: So you would see a potential negative affect on breweries that are trying to expand globally?
PG: It could be. In theory I guess there could be some schemes out there that might be positive. I just don’t know. But there could be something there that changes the dynamic a little bit country by country.
MA: In an edit to your post you talked about potential impact on craft brewers in terms of raw materials, malt, hops, and et cetera. What do you see possibly coming down in that realm?
PG: Before the big mergers and acquisitions in 2008, each company sort of had their own research, particularly in the barley area. The way that would work out was that Coors would work on barley lines aimed at beers with Coors flavor profiles. Miller would do the same. Anheuser-Busch would do the same. And then when Miller and Coors formed their joint venture, those research pieces got closer together. I don’t think they entirely overlapped. With this potential, we could see that the research on barley is more of a global thing rather than a nation by nation concept. So the idea that SABMiller’s research would then fall under Busch AG or get closer to the AB InBev thing could change the dynamics. It could affect what barley lines move forward in the research and development phase.
And maltsters generally like things efficient and to not have too many barley lines that are in production. It just helps them maximize their own profitability. So that’s the piece that on a long-term basis could impact the small brewers and the small brewers are really going to have to stand up for themselves and not just accept sort of a backwards path of barley research that isn’t aimed at all-malt beers and full-flavored beers.
On the hop side, less so. There are dynamics in the hop world, but not too much that isn’t being handled by contracts right now. And a lot of the research really isn’t being driven by the brewers as much as it’s being driven by the growers. And some proprietary hop varieties have been the latest trend.
MA: Do you see it having an impact on pricing of any of these raw materials?
PG: Possibly. More so on the hop side. But that’s one area as a trade association representative we have to be very careful about what we say so that we don’t influence the market in a way that could be seen as fixing a price. So I’m going to let that one stand.
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