The Merger Between Two Major Beer Competitors, The Market

     The brewing industry was once held to competition among many breweries in small geographic areas. That was almost a century ago. The U.S. brewing industry today is characterized by the dominance of three brewers, which I will talk about in this paper. There are many factors today that make the beer industry an oligopoly. Such factors include various advancements in technology (packaging, shipping and production), takeovers and mergers, economies of scale, barriers to entry, high concentration, and many other factors that I will cover in this paper. Over the course of the paper I will try to define an oligopoly, give a brief history of the brewing industry, and finally to show how the brewing industry today is an

Taking into consideration the significant chunk of the U.S. market the company controls in regard to beers sold to retailers, Anheuser-Busch remains a clear market leader in the Beverages-Brewers marketplace. Amongst its various beers, the Budweiser is one of the company's most heavily marketed brands. In a way, Anheuser-Busch can be regarded a price leader largely through Budweiser. Price leadership according to Tucker (2007) "is a pricing strategy in which a dominant firm sets the price for an industry and the other firms follow." In that regard, it can be noted that Anheuser-Busch tends to adopt the high-side price leadership especially with its Budweiser beer brand. A change in the price of a Budweiser forces other beer makers to review the price of their beers depending on the position they occupy in the price ladder. Towards that end, it is important to note that the ability of Anheuser-Busch to act as a price leader largely relies on the huge market share it controls. It can also be noted that apart from being a price leader, Anheuser-Busch also utilizes product differentiation to ensure that its products remain unique and/or

New Belgium is, however, the third-largest craft brewery in the nation, with estimated sales of over $100 million, equaling approximately 700,000 barrels of beer per year. An analysis of the craft beer industry as a whole suggests that there is continued growth potential for New Belgium. Exhibit 5.1 of the New Belgium Brewing (B) case shows that craft beer is the fastest growing segment of the U.S. alcoholic beverage market, with an increase in market share of over 100 percent from 1999-2011. It is also an industry whose customers tend to be extremely loyal, making them less likely to view craft beer as a commodity. Consequently, craft beer has a higher probability of being immune to competition from inferior goods and substitutes. This is particularly applicable to New Belgium’s target market of “beer connoisseurs” that appreciate the high quality and taste of craft beer and who include “executives, lawyers, and accountants” with the continued ability to pay higher prices for craft beer, enabling the craft beer industry to achieve gross margins of up to 30 percent (Clark & Rogler, 2013).

One of the weaknesses to distributing Coors beer in the two counties is the competition of other domestic and microbrew beers. Although the consumer and retailer willingness to buy Coors beer is high, will they actually purchase Coors beer when it becomes available to them? The questionnaires have strong feedback for Coors beer in the Delaware counties but people may become biased by their customer loyalty to other beer brand. There is a big enough marker share for Coors to be implemented, but will Brownlow be able to succeed in this competitive industry.

A documentary film made in 2009, Beer wars features and describes the American beer industry distinguishing between the large and small breweries. The large breweries feature some main corporate companies like Coors Brewing Company, Anheuser-Busch, and Miller Brewing Company whereas the small breweries include craft beer producers like Moonshot 69, Stone Brewing Company, Dogfish Head Brewery, Yuengling, and others. The documentary shows how the beer market is controlled through advertising and lobbying, which is harmful for the competition in the market. There is a reason why the small companies are falling behind and the large corporates are controlling the market, which in turn makes it essentially oligopoly economy.

The problems in the market is that sales and market share has declined slightly over the past years and in the past 12 months the competition has increased, new brands has entranced the market. However on the beer market the big and well-known brands are controlling the market, and consumer often tend to choose a brand they recognize. Therefore it is important that the brand is identifiable to the public (Marketline 2015, p. 21). This

Anheuser Busch made a offer of $107 billion for Miller, which is the most awaited deal and within this deal both of the largest brewing companies will combine and share the profit. Inorder to have approval, Coors Brewing will acquire more than half of Miller’s stake in MillerCoors for over ten billion dollars, which would give them the rights to Coors Light and Blue Moon. Budweiser plans on cutting costs by a little over one billion dollars, a portion will come from the cut of huge office roles. Within the merger nothing has been said whether the companies will keep the Miller name nor will they keep entire staff of Miller.

In May of 2016, The European Commission signed off on Anheuser- Busch InBev’s more than $100 billion merger with SABMiller after the companies agreed to sell SABMiller’s premium brands in Europe and some other European operations (Bray). The merging of SABMiller and AB Inbev create the worlds largest beer company accounting for approximately 30% of beer industry sales (Bray). Margrethe Vestager, the commissioner in charge of European competition policy defended the decision to allow the merger to go through by stating “Today’s decision will ensure that competition is not weakened in these markets and that E.U. consumers are not worse off….Europeans buy around 125 billion euros of beer every year, so even a relatively small price increase could cause considerable harm to consumers” (Bray).

As the world’s largest brewer, AB Inbev has the ability to compete in new and foreign markets as a strong threat. Due to their enormous capital and expansion-based strategy, they can enter any market as a challenger and shutdown competition to become the leading brewer in this market. As an aggregated note we can also see this in domestic or already dominated markets because due to economics of scale they can achieve differentiated products at a low cost.

Although sales of premium brands have fallen in a steady response to the growing popularity of the craft beer. The industry revenue has been stable over the past 5 years. As a result, from 2011 to 2016 the industry revenue is expected an increase and growth annually at 6.7 percent over the five years,with a total of $39.5 billion . (IBISWorld iExpert) In the long-term, these numbers are expected that grow 0.9 percent annually within the next five years. The potential growth will be seen in the traditional and premium beer sector. As a response, the giant companies in the industry Anheuser-Busch InBev and MillerCoors look forward into the merges and acquisitions as a strategy to maintain market dominance. The strategy is based on the

Strengths:The largest producer; Improved productivity; strategic with foreign producers; Two independent distribution Weaknesses:Low volume of sales of nonbeer products; Antitrust restrictionOpportunities:Positive volume growth of beer sales; New and attractive market Threats:Rising foreign firms’ competition; Tariffs elimination; Rising imported ingredients cost

In order to reach an agreement with the numerous Competition Commissions, AB InBev agreed to satisfy various conditions to dilute its post-merger market power in the major countries:

Beer Company 2 is a brewer of “seasonal and year-round beers with smaller production volume and higher prices” that “outsources most of its brewing activity” (pg. 120). It is financially conservative, and has undergone a “major cost-savings initiative to counterbalance the recent surge in packaging and freight costs” (pg. 120).

3. Traditionally, De Beers would buy the supply from other producers to control the market output. With the rise of competitors this became increasingly difficult. As alternatives to the cartel emerged, the bargaining power of suppliers grew. Argyle’s eventual

|Brewing has merged with Coors Brewing company and SAB to form one of the worlds largest breweries. |