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Why You Should Care about the ABInbev-SABMiller Merger

abinbevsabmillerSo over the weekend it became official. Global giant ABInbev has purchased another global giant, SABMiller, for $100 billion (US). The joint company will hold about 28% of the global beer market, far outstripping its next largest competitor, Heineken, who hold about 10%.

Most of the business press and mainstream media have focused on the fact this deal is mostly about developing markets, in particular Africa and China, and the positioning of the new company in these markets. There is some talk about corporate concentration in North America and Europe but much of that died down on news earlier this year the new entity is selling off some popular brands, including Grolsch and Peroni, to appease regulators.

Many in North America have reacted to the deal with a shrugging of shoulders. I understand why. ABInbev already owns half of the North American market, what is a few points more? Plus with craft beer continuing its ascendancy across the continent, it seems there is little the behemoth can do to harm the feisty little guys and gals growing the craft segment.

Maybe.

I prefer to take a long view on this. Sure, very little will change for consumers in the short term. That pint of Pilsner Urquell you buy will now line the pockets of ABInbev rather than SABMiller (whose name will cease to exist), but the world will keep turning.

But I see three reasons for craft beer consumers to be concerned about this deal for our favourite locally and regionally made suds.

First, concentration always creates power imbalances. Regardless of the industry when one player is three times larger than its next competitor, the market becomes distorted. The pumped-up ABInbev will exert disproportionate power over the market. At this point I refer to macro-economic forces. That much heft will bring with it practices that benefit ABInbev’s shareholders. I can’t predict exactly what it will look like but they have a wide range of options. They could start a price war to squeeze out competitors, or, alternatively, nudge prices up a bit to increase margins. They can swamp the airwaves with advertising to an extent their competitors can’t.. And – reminding us that economics is always about politics – they can use their market power to feed into lobby efforts to create laws that work in their favour.

That is at the level of theory. More practically, ABInbev will have more ability on the ground to influence the decisions of stores, restaurants, bars and events. Inducements, legal and illegal, already mar the retail market. Everything from free glassware and tap handles to price reductions, “bonus” product to raffle prizes are used – mostly but not exclusively by the big boys – to entice retailers to stock their product and/or delist their competitors. There are multiple reports of the corporate breweries of paying for tap system installation or straight up paying for taps.

When someone is as big as ABInbev is now, do we really expect that practice to diminish? Plus, the ability of the already under-resources AGLC (and other regulators) to police such practice makes it unlikely they will ever be caught. The result will mean it will be harder for independent players, even in this atmosphere of growing openness to local and craft, to create space for themselves. Looking for craft beer at Edmonton’s new Roger’s Place? This merger makes that an even more remote possibility.

Third, expect to see more faux craft offerings and corporate buyouts of legitimate craft breweries, especially the latter. I see this as the most concerning consequence of the merger. We know that ABInbev is fully committed to a two-part strategy to invade the craft segment. First, they create their own pseudo-craft brands with only marginal (or even subliminal) recognition of its corporate origins (case in point: Shock Top – just to name one). Second, they purchase well-positioned craft breweries and operate them as their own. Their record seems to suggest sometimes they screw with the beer and sometimes they don’t. Either way, they rarely add a line to the packaging saying “now brought to you by the largest beer corporation in the world”. Long time fans, unless they are savvy, don’t even know they are now contributing to the profits of the largest beer company in the world.

I predict with their larger portfolio and deeper pockets, we will see more of this and, possibly, even some new twists. I know some people don’t care who owns the beer, as long as it tastes good. Fair enough. However, I for one am concerned about where my money goes. Most importantly I am quite militant about honesty in marketing. Tell me where the beer comes from. I haven’t seen any big signs telling consumers Mill Street is now an ABInbev product. Have you?

In a way it is true that this merger has very little to do with the fan of locally produced craft beer. But we can’t ignore it, either. All of our favourite craft breweries are mice sleeping in the same bed with the ABInbev elephant. When the elephant rolls over, the mice had better think fast, lest they be crushed.

 

 

1 comment to Why You Should Care about the ABInbev-SABMiller Merger

  • Rob

    I have six dozen stubbies available for any home brewer who still uses them. Also some 22 OZ Quebec beer bottles. Located in Spruce Grove. Rob

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