09 Sep 2009 @ 11:22 AM 

Breaking up (the oligopoly) is hard to do.


There’s been talk, lately, about the fact that The Big 3 (Bud, Miller, Coors), which I suppose you could think of as the Big 2 (Bud, MillerCoors) are raising their prices at the same time this year. There’s even been mention of the dreaded oligopoly (don’t those words just feel like they go together? “dreaded oligopoly” Yeah.), since those two large companies control a significant portion of the market. InBev raises its prices which, in turn, signals to MillerCoors that they can raise their prices. Sure – you could NOT raise prices and retain the competitive edge, but why would you do that when you can raise prices, make the sale anyway, and make more money? Competition is static, everybody pays more for their shitty beer, those two companies presumably make a lot of moulah.
Augustus Busch breaking into dance.
It could be argued that the reason they’re raising prices during a recession, while there is a slump in demand for light lager, is because their sales are low and they are trying to make up for lost capital. On the other hand, they historically have raised their prices every year at about the same time, especially as the cost of raw materials has gone up, so it’s possible that they are still just reacting to market conditions. From yet another standpoint, it smacks of collusion.

A story has been bouncing around the media — emphasis is mine:

From Slate’s The Big Money:

Both Anheuser-Busch InBev—purveyor of the president’s preferred brew, Bud Light—and MillerCoors, a joint venture between SABMiller and Molson Coors (TAP), are raising prices at the same time, during a recession, and while beer demand is slumping. With an 80 percent market share between them, it almost begs for an antitrust review of the industry.

For a while, I thought there were copycat articles all over the internet. The phrase in bold up there is pretty damn popular. After a while, I realized that it was merely the the same basic article by the same authors over and over again. (Fascinating from a news aggregation standpoint. A lot of those articles are slightly different from one another.) What really struck me is that it keeps popping up on my radar over and over again in different contexts, and has been for a few weeks. At first blush my reaction would be that it is because breaking up Big Beer would be a popular idea.

But I’m not so sure I’m convinced. I think I’d prefer Big Beer to be together.

And that surprises me a little.

It is my opinion that a lot of the success of craft beer is due directly to the pervasiveness of the big beer companies. Their 50-year-long homogeneity-laden stranglehold on the market is precisely why the craft beer industry burst forth in the first place. Fighting against their over-produced bland product and coming up with local, full-flavored brews are ideas that are very popular amongst beer geeks and probably why we have approximately 1400 more breweries in existence today than we did 30 years ago. I’m not sure I’m ready for that impetus to go away, just yet.

Of course, the beer industry has seen a few antitrust lawsuits in its past. Mostly, they’ve been smaller beer companies (read: Pabst or Schlitz) snapping up competitors in order to try to gain some sort of market advantage vs. A-B or Miller. Usually mergers have been denied, or acquisitions have been stripped, with some sort of stipulation that the company involved is denied from making another purchase for the next 5 years or something silly like that. (I’m not a law researcher. I don’t have the details. There’s a good overview of this stuff in Maureen Ogle’s book Ambitious Brew. Good read. )

The fallout? In the past decade we’ve seen two international mergers/partnerships that have given two companies control of 80+% of the market. And now we’re talking oligopoly? After a price raise? Seriously?

Here’s the thing. My feeling is that is that GIANT companies making staid, uninteresting beer is far better for craft beer than any alternative. After all, right now they are not meaningful competition to craft brewers. They are not gunning for the same market the craft beer guys are and they just don’t make a comparable product.

Let’s pretend an extreme example – a Ma Bell breakup – and all of a sudden you’ve reduced 2 companies to 8 or 10 regional companies. Let’s say they’re all twice the size of Sam Adams. These are the companies that now may have incentive to start branching out their portfolio and try to creep into the craft beer market. Unless craft beer has a good foothold, a lot of small breweries stand to get crushed in that sort of scenario. It’s one I’d rather not contemplate.

Of course, in reality I don’t think we see any legal action on this at all and if we do, I imagine it will be something that will not really hinder Big Beer so much as change their tactics so that price rises like this seem less suspicious.

It’s also worth noting that craft brewers do benefit greatly from the existence of Big Beer in the arena of the supply market. Big Beer has the money to spend on research and development of strains of barley and hops that, while developed for the large companies, the small companies can take full advantage of. Well-modified barley malt and high-alpha hops have been developed with brewing efficiency in mind. It just so happens that craft brewers can make very good use of these, too. They would never have been able to invest in that kind of development on their own. They just don’t have that kind of money to invest. There’s some talk about doing so via the Brewers Association, but it’s just that, so far: talk.

It’s my feeling that Big Beer will eventually collapse on itself, anyway. Over time, with the rising cost of petroleum and energy, it’s going to get more and more expensive to ship beer efficiently over long distances, much less overseas. Local goods and local economy will trump homogeneous globalization in the consumer goods market. That will be the real, undeniable rise of craft brewing. By then, Big Beer will be breaking up on its own and craft beer will be able to take the market in hand. It might be 10 years in the future. It might be 20 or 30. Who knows? The whole time, I guarantee that you see a steady rise of craft beer in the U.S. and across the globe.

Until then? Let’s use the big boys for the advantage of the little guys for as long as we can. It might feel a little like keeping the oppressors in place, but it’s really much more like keeping the overall market steady while meaningful change gets a foothold. Our tiny part of the market needs a little more maturity – its big brothers are centuries old – let’s hope it has time to get it.

Tags Tags: , , ,
Categories: industry
Posted By: erik
Last Edit: 09 Sep 2009 @ 11 33 AM


Responses to this post » (5 Total)

  1. I posted something similar to this on my blog. Needless to say I could not agree more. The big breweries are making a big mistake and I don’t think its time for lawsuits but time to rejoice. They can continue to eliminate their competitive advantages one by one, leaving craft more room to grow.

  2. Maureen Ogle says:

    Interesting comments.

    I posted a couple of blog entries about this. Here’s a link to one; it contains a link to the other one.

  3. erik says:

    Awesome. Thanks for posting these.

    I was having a hard time digging up good beer antitrust history AND getting my day-job done, and here it all is.

    I also agree that the original article borders on ludicrous. That is, unfortunately, not stopping it from getting reprinted all over the damn internet. It’s downright silly.

  4. Simply beer says:

    Good incites here.

    While it may work for the little guys let the big 3-2 turn into mega-corporations now what will the long term effect be? Will they start forcing competitors out of distribution trucks or cooler space?

    I was at a small beer fest over the weekend and Michelob had a big presence with there “craft beer” – Pumpkin ale, Pale Ale, and Bock. AB has their “craft beer”; it is no longer just the little guys segment doing it for the love of it.

  5. erik says:

    Well, technically they’re not supposed to be able to have an effect on distribution space. The distributors are supposed to be independent.

    A certain jaded part of me agrees with you on that, but I really think that most small brewers have more to fear from Sam Adams and Sierra Nevada in the long run than they do from A-B and MillerCoors. Not to say those companies are evil, or anything, but they’re certainly poised to become the next “Big 2.”

    As for the Michelob and A-B craft brews – yeah. They’re there. They have been for a little while, now. Not many of them really take off the way, say, Blue Moon has. At the same time I don’t think that those products are anywhere near a money-maker for those guys. I suspect that they make them at a loss merely to have a presence.

    I don’t think those brews have a future, and the reason I think that is because the craft beer market – right now – distrusts wide-rollout, mass-produced products. It’s a knee-jerk reaction to BMC; they’re at a disadvantage selling down into the craft market, regardless of how good their product might be.

    Some of it is pretty damned good, though. It’s another reason why I think that keeping those guys big – and financially dependent upon their light lager lines – is a good thing for craft beer.

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