Peter H. Coors, vice chairman of Molson Coors, said the transaction was prompted by “profound” changes in the American alcohol business that are challenging large beer companies. Sales of domestic beers have been battered as consumers switched to wine, spirits and craft beers and imports.It looks to me like a beautiful multinational metaphor for the moribund macro American market: they all look and taste the same anyway, so why not merge them into one giant company? Everything else is just marketing.
Sometimes, you wonder if the companies behind the beer even know what beer is:
Besides cost savings, the merger will create a strong portfolio of brands, from domestic brews like Coors Light and Milwaukee’s Best to import beers like Leinenkugel’s, Peroni and Molson Canadian.Add to that list Henry Weinhard's, formerly a Miller subsidiary, which has now been owned by just about every parent company in the country. But what's really surprising is that no one seems to recognize that while this may make some kind of abstract business sense, I have seen absolutely no evidence that it's anything but business suicide.
Bud has held steady at about 50% of the market for years. A decade ago, A-B brewed 91 million barrels and held a 48% market share. Miller, once an ascendant company in American brewing, was still holding its own with 44 million barrels, or nearly a quarter of the market. Coors sold 20 million barrels and had a market share of 11%. A decade later, after consolidation?
The joint operation will control about 29 percent of the American market, compared with 49 percent for Anheuser-Busch, analysts said.In ten years, Miller and Coors have given back 5% of the market. So the little fish keep eating up even littler fish, but counterintuitively, they shrink. Not only do they not gain market share by picking up the small brands, but they actually lose ground over time.
Here's what the brewing companies seem to miss: beer is a local product. With consolidation, the little local brewers get sucked up into a corporate borg and brewing is shifted hundreds of miles away--the beers change, they're no longer local, and the market dries up. Who cares about Henry's if it's brewed in California--it's just a label on a beer can at that point. Many of the brands will die a slow death, perhaps even Coors, which may no longer be made with "Rocky Mountain spring water."
Here's an early prediction: in ten years, SABMillerMolsonCoors will have reduced the number of brands in their portfolios substantially and will command less than 20% of the market. Of course, they're unlikely to make it ten years before further consolidation happens. Which will be greeted, as always, as a shrewd business move by Wall Street.
(Of course, it's all just entertainment for those of us here in Beervana. We'll pour a pint of stout and watch the mini-macros battle for A-B's scraps.)
One of your indents lists Leinenkugels as an import. Was that a press release? They don't even know where their beer is brewed? Leinenkugels is brewed in Chippewa Falls, Wisconsin. I know my father would be angry if he knew it was being called an "import." Cheers.
ReplyDeleteWow! Somehow I didn't read that sentence very closely. (Went to Madison for grad school and drank more than a few Leineys.) This is perfect evidence that Wall Street doesn't have any idea why local companies are successful. If Leinenkugel is brewed in New Jersey, how much loyalty will your father have?
ReplyDeleteConsolidation is a terrible thing for small breweries that get caught in the crunch.
Thanks for pointing this out!
In fact Leinenkugels were the preferred bottles for our first foray into homebrewing back in the Badger state...
ReplyDeleteAnyway, my point is that it seems to me transport costs are a huge part of the cost of bringing beet to market and probably the key factor in keeping local beers competitive. But at some point, brewing conglomerates could become so big that they cna have big breweries all over the country and significantly reduce transport costs (like the good folks at Butt-wiper, uh, I mean Budweiser). So it does concern me.
Before looking at the actual numbers, I (like most Americans, I would assume) would have thought that Coors and Miller were right up there with Budweiser.
ReplyDeleteFurther factless speculation leads me to believe that no matter what the product tastes like, the marketing alone will determine the business success of these brands. Do people actually buy Bud Light (or any of the others) for its taste? Or are familiarity and name recognition the driving factors? If the latter is true, then it doesn't really matter who merges with whom, does it?