In this day and age, we take the existence of beer juggernaut AB InBev for granted. Even with the rise of the American Craft Beer scene, the perennial giant continues to flourish, growing strongly yet steadily in recent years. (Figure 1 below shows this trend.)
Figure 1
Yet AB InBev started out like any other firm: small and with an uncertain future. Certainly, Anheuser-Busch, which in a way follows the tale of the classic rags-to-riches/American–Dream storyline, had humble beginnings. For all the innovation and hard work Adolphus Busch, Eberhard Anehuser, and Carl Conrad invested in creating their famous American-style lager in 1876, they probably didn’t expect that not only would Budweiser would still exist 140 years later, but that, (in 2012) over 100 million cases of Budweiser would be sold worldwide, resulting in total sales reaching just past two billion dollars. Moreover, Budweiser would be just one of sixteen different brands owned by AB InBev worth over a billion dollars.
The company started by these German immigrants did not become what it is today by accident. Adolphus Busch was the first American brewer to implement pasteurization to his brewing process. This, combined with the then-new artificial refrigeration technology, allowed the ambitious brewers to sell their beer on a national, macro level. Budweiser was the first American beer to carry this characteristic.
As Americans, we often forget that Anheuser-Busch is not truly synonymous with AB InBev. In fact, AB InBev stems from the merging of three macro brewers: Anheuser-Busch, Interbrew (from Belgium), and AmBev (from Brazil).
AmBev’s history contrasts sharply with Anheuser-Busch’s. Formed in the late 1990s as a result of the merging of two of the oldest Brazilian brewers, AmBev expanded aggressively to partner with PepsiCo, Lipton Iced Tea, and Gatorade. Meanwhile, Interbrew formed in 1988 following (unsurprisingly) the merging of Piedboeuf and Brouwerij Artois (of Stella Artois fame). Interbrew would merge with AmBev in 2004, creating InBev, sporting a hulking 13% global market share.
In 2008, InBev and Anheuser-Busch merged, creating AB InBev as we know it today. AB InBev not only boasts a 25% global market share in the beer industry, but is also one of the top five consumer goods companies in the entire world.
However, it seems the merging may not be done. AB InBev stands posed ready to merge with SAB Miller in order to gain wider access to the burgeoning African markets. The $108 billion dollar deal has begun the extensive paperwork process in order to meet all regulatory and anti-trust concerns. This deal would not only increase AB InBev’s already large global market share, but position it to grow extensively in the coming years as well.
This potential merger leaves consumers with many questions. How will this affect beer prices? How will the other macro brewers respond to this? Will recipes change, affecting quality? Will availability change? Will new factories open while old ones close, affecting freshness in some regions? Perhaps only time will tell.
Sources:
http://anheuser-busch.com/index.php/our-heritage/history/
http://ri.ambev.com.br/conteudo_en.asp?idioma=1&conta=44&tipo=44235
http://www.fundinguniverse.com/company-histories/interbrew-s-a-history/
http://www.sabmiller.com/investors/ABInBev-Offer
8 Comments
It’s interesting to note how much of Anheuser-Busch’s growth is a direct result of mergers with firms that have access to markets previously beyond their reach. In reference to the questions you posed in your last paragraph, I wouldn’t be surprised if much of the beer industry remained rather unaffected. I find it hard to believe that the federal government would allow AB InBev and SAB Miller to merge if serious monopolistic price controls were a real possibility. It will be interesting to see the role FTC plays in this relationship.
I agree that we as consumers would not feel the impact of this merger in short run, but not so much in long run. Less than two years ago, AB InBev had a price war against local brewers in Washington and Oregon. It was reported that kegs that were $110 per half barrel would be priced at $56 and smaller local breweries simply could not afford to compete with a more than 50% price drop. Obviously, AB InBev would not go to the extreme at a national scale, yet I think it is highly possible that it would engage in a loss leader strategy eventually to gain market share. One could argue that antitrust laws would regulate such monopolistic pricing; however, note that antitrust laws were created to benefit consumers, and such predatory pricing is beneficial for the consumers, at least in short term.
Reference:
http://www.beervanabuzz.com/2014/04/anheuser-buschs-latest-counteroffensive.html
When your only growth is through acquisitions, and you have to pay a premium when you buy a firm, then how can this be good for shareholders in the long haul? You’re just shuffling the kegs in the beer warehouse – and it costs you money for each shuffle. There are no cost savings to be had by coordinating across borders, beer’s too costly to ship. SABMiller knows how to brew, so it’s not likely that these African brewers are highly inefficient such that AB Inbev can lower costs much. Are there any credible arguments for the merger other than as a financial play to take advantage of one-off tax deals and the blindness of stock pickers who see profit grow but don’t see that it comes from an unsustainable and expensive strategy of mergers? AB Inbev now has no one left to buy!
This merger brings to mind the transformation of the steel industry in the late 20th century, when the large, integrated steel companies struggled and lost market share to the much smaller minimills. The same could be true of the beer industry today, as craft beers take over more and more market share from AB InBev and SAB Miller. In the case of the steel industry, Nucor (a minimill) eventually overtook U.S. Steel, which only makes one wonder about what exactly the future impact of the craft brewing industry will be on the macro brewing industry. As per the article cited below, AB InBev is indeed worried about the craft beer segment, as it has (possibly) been trying to control the distribution side in a way to force craft beer off the retail shelves. Ultimately, this merger could just come down to the craft brewer lobby versus the macro brewer lobby, which could provide an interesting battle in Congress (for simplicity maybe this would look like: Democrats against the monopoly, Republicans split between small business (craft) and big money (macro). It would be especially interesting if this Republican split occurred in the upcoming election year – maybe indicative of larger splits within the party?
Source:
http://www.marketwatch.com/story/5-ways-the-a-b-inbev-sabmiller-deal-will-ruin-your-beer-2015-10-14
I find particularly interesting the role Africa plays in this possible merger. According to Forbes, SABMiller has a 34 percent market share in the continent, while ABInBev has no significant share. As disposable income in the continent increases, the market will be ripe for the picking. By merging with SABMiller, ABInBev will take partial hold of the developing beer market in Africa, increasing its current measly share into a much larger portion. Forbes reported that beer volumes in Africa are expected to grow by 44 percent in the next ten years. This will be nearly three times the global forecast for increase. Africa is set to almost double its share of global beer consumption. With this information, it would be a logical move for ABInBev to grab a stake in developing markets and merge. The two companies both hold impressive shares in developed markets, such as the United States and Canada, but they don’t stand to change that share very much by coming together. In Africa and Latin America, though, they stand to increase their respective shares dramatically.
Source:
http://www.forbes.com/sites/greatspeculations/2015/12/15/how-the-potential-ab-inbev-sabmiller-deal-focuses-on-africa/#1ee2b03b3a6e
This will certainly be interesting to follow. The African beer market, I would have to assume, is incredibly hard to break into. The merger would have strong effects on AB InBev’s presence in the Asia-Pacific market as well. As of 2014, less than 6% of AB InBev’s normalized EBITDA comes from the Asia-Pacific region. The merger would therefore be huge for AB InBev’s expansion into African and Asian-Pacific markets.
http://www.forbes.com/sites/greatspeculations/2015/12/15/how-the-potential-ab-inbev-sabmiller-deal-focuses-on-africa/#1ee2b03b3a6e
So yes, the merger does nothing in the US, as the MillerCoors macrobrewer portion of SABMiller has been spun off to the Canadian company Molson Coors. At most this will reduce competition a bit in Canada, but only if Miller did not previously coordinate with Molson Coors. So in Canada you go from MolsonCoors, Miller and Budweiser to MolsonCoorsMiller and Budweiser. But I’ve not tried to check facts.
In reference to your last paragraph, I think that at this stage AB InBev is so far ahead of any macro-brewer that additional mergers will not significantly affect the market. They already have a large amount of price control over the market and they until they are declared a monopoly I do not think that mergers will significantly affect their competitors because they are clearly the dominant producer in the industry already.
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