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Friday, October 16, 2015

Beer mania

Another theme of Paddy Chayefsky's script for Network is world dominance by multinational corporations. To a degree, he was right. Now we hear that Anheuser-Busch InBev will acquire SABMiller. Those holding companies are not household names; they have no marketing sizzle, and they're relatively recent. But consider the familiar beer brands that will be controlled by the merged company:

Bass, Beck, Blue Moon, Boddington, Brahma, Budweiser, Busch, Carling, Corona, Foster, Hamm's, Icehouse, Stella Artois, Labatt, Löwenbräu, Michelob, Miller, Milwaukee's Best, Natural Light, Peroni, Pilsner Urquell, Rolling Rock, St. Pauli Girl, Whitbred, and at least 50 others.
Consolidation in the beer business is not new. Pabst, for example, swept up Ballantine, Heileman, Lone Star, Pearl, Olympia, Falstaff, Rainier, Schlitz, and Stroh. But nearly all of those companies had failed before Pabst bought the rights to their brand names. Anheuser-Busch InBev and SABMiller, on the other hand, are financially healthy.

Motivation for the deal?

  • Dominate points of sale. The combined company will push to have their beers (and only theirs) front-and-center at every pub, bar, sports arena, convenience store, and grocer in the world.
  • Enjoy greater efficiencies when buying grain, hops, and other raw materials.
  • Reduce transportation expenses by brewing and bottling multiple brands at the same facility.
  • Close underutilized breweries and warehouses.
  • Leverage brands out-of-market — in other words, Budweiser in South Africa, Peroni in Latin America, etc.
Any MBA student would recognize these objectives. The deal will improve the bottom line even while craft beers, microbrews, and other alternatives chip away at them.

Cola-Cola and Pepsi were the innovators in global beverage marketing, and the beer companies have noticed. I suspect that either Coca-Cola or Pepsi will be the next acquisition target by Anheuser-Busch InBev SABMiller or whatever they call themselves post-merger. The soft drink business has flat-lined, and although Coca-Cola and especially Pepsi have tried to diversify into food products, the two companies are perceived to be struggling. In other words, they're targets. Capitalism is a contact sport, and don't be surprised when these American icons fall just as Anheuser-Busch did before.