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Big Beer has a reason to ponder its own mortality

Think of American beer and the image that springs to mind is “Duff”, the fictional brew favoured by cartoon character Homer Simpson. Bland, gassy and available in a bewildering profusion of barely distinguishable styles, US lagers are hardly monuments to the brewer’s art.

It is a formula that has served them well. Mainstream brands such as Budweiser and Miller may lack for distinctive flavours – the result of using cheap “adjuncts” such as rice rather than traditional ingredients. But that hasn’t stopped them selling in prodigious amounts.

Drinkers buy these beers partly because of their thirst-quenching properties. But their ubiquity is also the product of history. First prohibition, then postwar deals reduced US brewing to a highly consolidated monoculture.

Even now, this allows top producers – Anheuser-Busch InBev and MillerCoors (a joint venture between the US-Canadian group Molson Coors and SABMiller) – to wring vast sums from a venerable stable of mainstream ales. More than two-thirds of the 234m hectolitres Americans drank last year came from their capacious corporate vats.

But even as the barrels continue rolling off their premises, the mega brewers have reason to ponder their own mortality. Increasingly, Big Beer’s recipes no longer resonate with a public that is acquiring more adventurous appetites. Younger drinkers in particular thirst for more flavoursome and “authentic” products. Just as many are as likely to sip an artisanal “Face Off” Double IPA or a “Smoke & Dagger” as they are to crack a can of Miller Lite.

So-called craft brewers have already seized a sizeable chunk of the US market. Often small, local and independent, they account for about 10 per cent of US beer sales by volume and nearly 20 per cent by value. They are growing much faster than conventional rivals. Against a broadly flat market, craft sales increased by nearly a fifth last year.

Businesses that have long dominated an industry often struggle when tastes change – and new entrants arise to exploit them. In Big Beer’s case the challenge is deeper, distracted as it is by the imperative of global expansion. Last week brought news of the latest instalment, when Belgium-based AB InBev revealed its desire to buy London-headquartered SABMiller with the aim of creating a $250bn world-spanning group.

But it would be a mistake to conclude that the mega brewers cannot rise to the challenge posed by local craft breweries. While these are numerous – nearly 3,000 at the latest count, according to the Brewers Association – not all are substantial businesses. Indeed, some are little more than a hipster-tended still in a pub.

One way the big brewers are responding is by snapping up some of the more successful new entrants. AB InBev, for instance, already owns no less than four craft operators, including Seattle-based Elysian and Goose Island in Chicago. Absorbing these prickly independents can require kid gloves. After all, Elysian’s “Loser Pale Ale” carries the slogan: “Corporate beer still sucks”.

But putting some artisanal brewmaster’s nose out of joint is just one of the risks a purchaser must navigate. To make deals work, the mega brewers need to scale up production, apply their efficient processes and ultimately turn what are local tipples into national brands. Doing so clearly risks sacrificing some of the “authenticity” that has given these beers their followings. Many make a big deal of their handmade credentials and local story.

Craft brewers claim noisily that by expanding these brands the mega brewers will kill them. But that depends on whether the artisanal movement really has altered consumer behaviour. You have to believe that the public’s apparent desire to buy from microbreweries and brew pubs is genuinely an enduring feature of the market. It could just be a minority pursuit – or even a passing fad.

The US market isn’t the be all and end all for AB InBev. Ultimately the strategic impetus of the SABMiller deal is not simply to sell more in Des Moines or Milwaukee – but in Kolkata, Hanoi and Guangdong.

In any case, regulators will probably demand that it divests the target’s stake in MillerCoors as the price of the deal. But whatever happens with the craft movement, Big Beer needs a more varied and tasty portfolio of beverages. In The Simpsons, Duff Beer’s premium brand went by the name of “Duff Adequate”. Big Beer needs to do a great deal better than that.

Source: Financial Times