Merger: What Happens to Miller?

The beer world is once again becoming an empire. AB InBev has offered to purchase SABMiller to the tune of $107 billion. The merger will reportedly result in $1.4 billion in annual savings 4 years after the merger is complete. Once the deal has gone through, SABInBev (or whatever their name will be) will now essentially produce one out of every 3 beers worldwide.

Now I know what you’re thinking, will there really be a company that houses both Budweiser and Miller? the answer is  no.

With the purchase of the company, SABMiller will relinquish its 58% stake in MillerCoors to its venture partner Molson Coors Brewing. This will give Molson Coors control of the Miller brand, allowing them to bottle and sell it worldwide. In addition to Miller, MillerCoors also brews Miller Light, Blue Moon, and Coors. Molson Coors is buying the stake for $12 billion and MillerCoors will now become a subsidiary of the larger company. Molson Coors will now be in control of import beers Pilsner Urquell and Peroni. This addition of the Miller portfolio would essentially double Molson Coor’s business as ABInBev relinquished market power in the US.

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The whole premise of the MillerCoors dealing to Molson Coors Brewing is based on regulation. AB InBev and SABMiller were worried that without dealing SABMiller’s stake in MillerCoors that the Department of Justice would be likely to block the deal. AB InBev controls 45% of the US beer market and with the additional 25% that MillerCoors has would be likely to cause a monopoly and thus an end to the potential merger.

Erik Gordon from the University of Michigan commented on the deal and the possibility of a Department of Justice block by saying,”It’s easier for businesspeople to reach agreements with each other than to reach an agreement with regulators,” he said. “Regulators get no reward for reaching an agreement but get praised for being tough.”

The new giant will dwarf its next largest competitor as Heineken has 9% of the global market. The new company will now be able to tackle its largest and most challenging markets of China and Africa. China consumes almost a quarter of the world’s beer and the new company is hopeful that their new presence will bring them success.

Sources:

http://www.latimes.com/business/la-fi-budweiser-sabmiller-20151111-story.html

http://www.denverpost.com/business/ci_29102548/molson-coors-buying-rest-millercoors-12-billion

 

From A Nonessential to A Necessity: A Diamond’s Transformation

Before 1947, Diamonds weren’t forever; they weren’t even a while.

Diamonds were seen as a gift that only the extremely wealthy would get for their significant other in the early 20th century. Most women would have preferred a new car, washing machine, or mattress. Women wanted something practical, rather than some gaudy ring on their finger that just appeared as a waste of hundreds or thousands of dollars. This was the case, until a Ms. Gerety came up with the slogan that Advertising Age named the slogan of the century in 1999.

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Francis Gerety was hired by a Philadelphia advertising agency by the name of N.W. Ayers in 1943, and her only client during her time there was De Beers Diamond Jewelry. When Ms. Gerety submitted the famous slogan “A Diamond is Forever” in front of her colleagues, they were as displeased as she was. Ms. Gerety felt that the line wasn’t that good, and her colleagues thought that the word “forever” didn’t even make grammatical sense. Thankfully, she gave it to De Beers and it has been in every one of their ads since 1947.

This ad slogan essentially transformed giving a diamond ring to your significant other from something that was seen as unneeded into a social norm. Diamond sales had been slumping for decades, especially going into the Great Depression. Gerety and N.W. Ayers were trying to sell the public a product that they didn’t want or need. The powerfulness of the slogan is based on its simplicity and emotional appeal. It was a way to symbolize to your significant other that your love was timeless, and what better way to capture all of that emotional sentiment  than with a diamond ring? The repeated advertisement and gaining popularity of the slogan created a psychological phenomena in Americans’ heads that diamonds were valuable. This played right into De Beers’ wallets.

De Beers created a diamond monopoly in the late 19th century and early 20th century, carefully controlling the supply of diamonds into the market. They were able to figure out a way to sell a stone that had no intrinsic value unlike precious metals such as gold and silver. In addition to appealing to the ethics and emotions of an eternal love and marriage through their famous slogan, they also discouraged consumers from ever re-selling their rings. This ability to discourage reselling prevented a disrupt in the market because if many consumers resold their rings, the market would realize that diamonds really had very little intrinsic value.

While De Beers couldn’t remain a monopoly in the American as well as global market, they ensured that they would remain in the $72 billion dollar a year market just as long as the product would; forever.

Sources:

http://www.nytimes.com/2013/05/05/fashion/weddings/how-americans-learned-to-love-diamonds.html?_r=0  

https://www.washingtonpost.com/opinions/why-a-diamond-is-forever-has-lasted-so-long/2014/02/07/f6adf3f4-8eae-11e3-84e1-27626c5ef5fb_story.html

http://blog.hubspot.com/marketing/diamond-de-beers-marketing-campaign