The U.S. beer market today is already hyper-consolidated, and a proposed merger will only make matters worse. Today, the top two companies—AB InBev, better known in the U.S. as Anheuser-Busch, and SABMiller— already control 70 percent of the market. The next two companies, Constellation and Heineken, only account for 11 percent combined.
With the increased visibility and popularity of craft beer in the United States, it seems as though consumers have an endless variety from which to choose. However, many of the larger craft brands have actually been acquired by one of the top national companies.
Big players are buying up innovative craft brewing brands once they begin to pose a threat in local markets. AB InBev, for one, has been snapping up craft breweries [1] since it bought Goose Island in 2011. This dominance in the beer market has given AB InBev and SAB Miller not just massive political power, but also the power to decide which beers reach store shelves, due to their command of many local distribution systems. Combined, the 3,400 craft beer companies only constitute an 11 percent share of the national market.
So what will the proposed AB InBev-SAB Miller merger change? In the U.S., just the names of the two biggest players. SAB Miller proposes to sell its majority share in MillerCoors to its joint venture partner, Molson Coors. This includes the global Miller brand and the import of brands MillerCoors has license to distribute in the U.S. — Peroni, Pilsner Urquell and more. SAB Miller would still own these beers globally, which in turn would become AB InBev beers. After the merger, instead of AB InBev and SABMiller selling 70 percent of U.S. beer, AB InBev and MolsonCoors would sell 70 percent of U.S. beer—different names, same level of control.
AB InBev's current global reach
What really changes with this deal is the global footprint of AB InBev. The new company will command 29 percent of the global beer market, and would be the top company in the United States, Mexico, Brazil and all of Latin America and Africa. The next largest competitor, Heineken, accounts for 9 percent of the global market, just one-third the size of the new merged company.
According to the Wall Street Journal [2], AB InBev’s strategy in other countries is to buy up regional beers, discontinue them and lead consumers toward Budweiser. By adhering to this strategy, the ubiquitous Bud becomes a fancy import that fetches a higher price than AB InBev can charge in the U.S. With market power secured throughout most of the world, this trend will only increase, driving up local prices and eliminating competitive choices.
AB InBev's global reach, post merger
AB InBev’s predatory acquisitions, its extreme cost-cutting strategies and its global reach derive in part from its mega-merger roots. AB InBev is itself the product of a merger—InterBrew’s takeover of Anhueser-Busch, which was facilitated by 3G Capital, a Brazilian private equity firm. Five of AB InBev’s board members are founding partners of 3G, which also orchestrated the merger between Tim Hortons and Burger King, and was instrumental in Berkshire Hathaway’s takeover of H. J. Heinz. After acquiring a majority stake in Heinz, the companies took over Kraft late last year, just one of many recent high profile mergers.
Ultimately, corporate executives, who will see substantial pay increases, are the real beneficiaries of this merger between AB InBev and SAB Miller. But other employees at these companies won’t fare as well. In order to make an acquisition cost-effective, operations must be streamlined and “redundancies” eliminated. This means job loss across the board. This will be especially true for this merger, as AB InBev raised the price for the deal five times before SABMiller would accept the offer — this bidding drove SABMiller’s share price up by more than 17 percent. AB InBev will have to cut costs dramatically to be able to afford that price hike.
And as for the everyday consumer worldwide, we can expect to see rising prices and diminishing choices as the beer market becomes ever more consolidated.
The Department of Justice should block this merger to prevent the extreme consolidation of the beer industry both in the United States and the world.