Friday, February 1, 2013

Is a Budweiser/Corona merger really bad for America?

Beer prices already have been rising, before the proposed merger
Much more than wine or spirits, the US beer industry is controlled by a few big brands. Three companies currently control 75% of the market.

That could shrink to two companies if Anheuser Busch InBev's $20 billion purchase of Grupo Modelo is allowed to happen. The US Justice Department filed suit yesterday to try to prevent the purchase for antitrust reasons.

It's interesting that the Justice Department is worried about the price of Bud Light. The Justice Department released a statement saying "competition (between the beer giants) has resulted in lower prices and product innovations that have benefited consumers across the country."

Is that true? Maybe the lower-priced part. Although looking at the chart above, maybe not.


But the true product innovations have come from small craft breweries, which have made the US the most exciting country for beer aficionados in the world -- despite the 75% market dominance by goliaths making boring crap.

Is America really better served by $9.99 cases of Bud Light? Or would it be better for the country if Belgium-based Anheuser Busch InBev conspired with UK-based Miller to raise prices of their bottom-of-the-line pisswater?

Price-fixing among the major beer brands could only help artisanal brewers, whose products cost more and who can't compete on economies of scale. If PBR costs more, it becomes less of a stretch for consumers to spend an extra buck on a bottle of something better.

The danger is distribution: that two beer behemoths could completely dominate distribution channels and prevent smaller brewers from getting their product out there.

I don't see how having two behemoths instead of three makes a difference. Supermarket beer selections are already completely dominated by the big three.

I'm a Democrat and generally in favor of government intervention. There are plenty of arenas where I think a little more government regulation would be good for consumers and good for the country.

But I just don't see mass-market beer as one of them. If the price of tasteless mass-produced beer goes up, people who care about flavor will drink better, and people who care about volume will drink less. I just don't see how either of those is bad for America.

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9 comments:

McSnobbelier said...

Price is not going to force Bud drinkers up the channel. Marketing and lack of interest will keep Bud (et al) drinkers in the same spot just as with wine. Even if Moscato from Asti is close to the price of Moscato from wherever Barefoot/Gallo can find Muscat(ish) grapes to label as such, the power of marketing and brand will win out regardless of the closeness of price.

The wine industry sees this everyday with brands like Cavit or Santa Margherita Pinot Grigio. Every serious wine drinker knows better options at the same or better prices yet those to PG brands still own massive market share.

rapopoda said...

It *could* further impact the hop market too. If there is even further consolidation around the few hops that the bigs use, the acreage for the myriad other hops could decrease, raising costs for smaller brewers whose beers depend on a good variety of hops

W. Blake Gray said...

McS: For many brands you're right; people who buy Bud Light now aren't going to shift to Dogfish Head. But PBR, for one, has surprising hipster appeal at the moment. Would that survive a price hike? I wonder.

Rapo: That's an interesting point, but craft beer has been proliferating even as mass-market beer has been consolidating, so I wouldn't worry.

Dean Falvy said...

Blake, I respectfully disagree. Whenever the whales get too big, it's bad news for the plankton. The antitrust laws don't have an exception for low-quality products. In this case, the DOJ Antitrust Division is just asking the basic questions: Will this merger benefit consumers? Or will it concentrate market power in a way that harms them? It's hard to imagine that it will increase the incentives of the merged company to either lower prices or improve quality. Will it create more space for craft breweries to bring better beer to the masses? Don't bet on it. You are already hip to the distribution issue. The major conglomerates are not about to leave the high-end segment to independent breweries. Rather, they will make (and, in fact, have already made) strategic acquisitions of craft breweries. They can then use their mass-market muscle to ensure that their high-end brands have preferred access to supermarket shelves. Accordingly, I doubt you'll find many craft brewers who would prefer to see further concentration in the industry. Cheers to the Obama DOJ for sticking up for consumers, no matter what's in their glass--or can.

rapopoda said...

WBG, it's true it has. Price is the concern. As craft grows, if resources are consolidated and reduced, presenting restraints, it could drive prices. I'm not losing sleep. Just a possible impact.

Emily Harrington said...

I'd like to make several points raised in this post and in the comments:

1.) Budweiser already distributes a number of craft beers in our state. While they do want to insure a big presence in the marketplace for their watery crap, they are also interested in making money. Distributing craft beers competently is allowing them to make money.

2.) Bud/Modelo's market share has remained relatively stagnant compared to craft beer's, so I don't foresee a huge run on perishable resources like hops. Besides, hop plantings have grown in a huge way in the past few years, so don't count on a hop shortage that doesn't have to do with harvest conditions.

3.) The "Big 3" have been raising their prices in line with each other, so the consumer hasn't really been benefiting from this competition anyway.

4.) PBR cost has risen substantially since it became "hip" five or six years ago.

5.) The real concern for price increase comes from the overall inflation in the economy. Cost of living has risen substantially, therefore workers demand higher wages. Gas prices have gone up quite a bit too, which is a big drain on distribution channels.

Some food, and drink, for thought :)

McSnobbelier said...

So how much shit did you get for writing this?
http://www.wine-searcher.com/m/2013/01/gallo-and-constellation-named-wineries-of-the-year

Especially with these two nuggets:
Wine now international commodity, conference told.

and

Constellation and Gallo rewarded for strong marketing.

I know you are just reporting from the Symposium, but that musta been caught for just a moment in your craw before it got out. The glass of non-commodity wine sitting next to your laptop when you wrote those two sentences probably tipped over and spilled in protest.

By the way Dean great line on whales and plankton.

W. Blake Gray said...

McS: Actually, going to Wine Market Council and Unified back to back is a great splash of cold $3 Pinot Grigio in the face. Keeps me grounded in what Americans are really drinking. You read such speculative crap all the time -- Everybody's drinking Riesling! Nobody drinks Merlot anymore! -- and I like knowing the facts.

SteveinOakland said...

And their heads of direct marketing call their own web featured products "swag and slag"...