Beer Wars: Is Big Beer Getting Too Big?

By Adam Mysorewala | July 6, 2012 | 0 Comments |
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Coors, Miller, and Budweiser have been giants in the American beer market for years, but recently these beer brands and their parent breweries have asserted their power over the market more than ever before. As big beer buyouts continue to take place in what we have deemed the Beer Wars, the U.S. market has increasingly become a two-horse race, dominated by just two mega-breweries- MillerCoors and Anheuser-Busch InBev.

These brew-giants’ commanding reign over American beer began in 2008, when Belgian brewery, InBev, merged with St. Louis’s Anheuser-Busch in the largest buyout in market history. The $52 billion merger gained attention from competitors SABMiller and Molson Coors and motivated the two companies to merge their operations in the United States and Puerto Rico. This merger marked the consolidation of America’s number two and number 3 beer companies, giving the resulting MillerCoors control of about 29% of the market. Still, AB InBev’s 49% control over the market dwarfs MillerCoors, and with AB InBev’s recent acquisition of Grupo Modelo, the company’s market power is only expected to grow. 

The Modelo buyout, which cost AB InBev over $20 billion in cash, gives AB InBev rights over some of the United States’ top beer brands like Corona, Pacifico, Negro Modelo, and Victoria (For more on the Modelo buyout check out The Largest Brewery Gets Bigger – Anheuser Busch InBev Acquires Grupo Modelo for $20.1 Billion). These brands in addition to AB InBev’s potent lineup of Budweiser, Stella Artois, Beck’s, Busch, Natural, and Michelob, extend the brewery’s lead as the world’s number one brewery. The purchase of Modelo as well as MillerCoors’ 2011 acquisition of Fosters for $12.3 billion gives the two brew-giants the vast majority of American beer sales with over 80% of the market. 

In fact, MillerCoors and AB Inbev control 56 of the top 100 selling beers in America. Heineken is the best selling beer that is not from either AB InBev or MillerCoors and it is still behind three beers from the two mammoth breweries. Heineken sold $597 million in 2011, behind Bud Light ($1.4 billion), Coors Light ($757 million), and Miller Light ($659 million). MillerCoors and AB InBev also hold eight of the top ten selling beers in the U.S.

This extraordinary level of market power has many experts wondering why anti-trust authorities have not intervened yet. Steven Newborn, an antitrust attorney with Weil Gotshal & Manges in Washington, D.C. said, “Normally, a 30% market share would not create a problem, but when you have two companies controlling almost 80%, the government may think there is potential for anti-competitive effect.” 

So how come the government hasn’t acted? Well, one way AB InBev is avoiding the issue in the Modelo buyout is by selling Crown Exports, the distribution company that exports Corona and Modelo into the U.S. Still though, many people believe the move will not be enough to disprove claims of a U.S. beer monopoly. Rafael Shin, BTG Pactual analyst says, “In Mexico, they shouldn’t have any issues approving the deal, but in the U.S., it will be a different story.”

Even if selling Crown Exports does help ABI avoid antitrust legislation, the solution is not a long term one. This is especially true as rumors brew (pun intended) of an AB InBev acquisition of SABMiller or PepsiCo. A buyout of SABMiller would result in control of over 70% of the U.S. beer market, and would likely lead to some type of government intervention. Still, with the way mega-breweries have swallowed each other up over the past few years nothing is impossible. Mark Schwartzberg, an analyst at Stifel Nicolaus, wrote, “Any acquisition is right in ABI's strike zone. It would be another occasion in which ABI increases and distributes more cash flow.”

Whether or not AB InBev will actually seek to grow even more, one thing is for sure: big beer is getting bigger. What does this mean for the U.S. beer market? No one really knows. Will the American drinking environment be controlled by mega-breweries? Or does this string of big beer consolidation open up an avenue for craft beer to continue its amazing growth? I guess we will just have to wait and see – with a beer in hand of course.

Your Choice. Your Beer. Drink Up.
-Beer Universe

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