In Bed with InBev? Where do you stand?

InBev vs Craft Beer

It seems like every week I’m hearing about InBev in the news.

However, that would seem to be expected from the dominating powerhouse that is Anheuser-Busch InBev (AB InBev). AB InBev is an international brewery conglomerate. They own 2000+ beer brands around the world. When I say breweries, don’t think your local beer pub. I mean giant mulit-national breweries like Stella Artois, Corona, & Budweiser.  For real, do a quick search and see how many they own.

So that alone keeps them or their brands in the news. Also, they are attempting to purchase another mega-brewer SABMiller for upwards of 90+ billion dollars at the moment (read more about that here). For those who don’t know, SABMiller owns hundreds of brands already. Think Miller, Coors, Blue Moon, Pilsner Urquel, and many more. If this merger goes through then you can, with reasonable accuracy, just assume the beer your drinking is owned by AB InBev. Even their craft portfolio is expansive so don’t think those are clear either. Shocktop, Red Hook, 10 Barrel, Goose Island, & hundreds more are owned by large Macro-Breweries.

But that is not what this post is about either. I’ve been hearing more and more about them because of their business practices. AB InBev doesn’t lose market share, they buy it. If they are down in sales in an area because of craft beer growth they buy the craft brewery. If distributors and wholesalers (the middlemen between breweries and stores) are selling more craft beer because of demand and better business friendly profit margins offered by craft breweries, then AB buys the distributors or offers them vast incentives to stifle growth on independent craft beer and focus more on their brands. The CEO of the brewers association Bob Pease wrote a great article detailing what I’m talking about. Read it here.

It’s no secret that Anheuser Busch (InBev) is one of the biggest breweries in the world.

From their humble beginnings in St. Louis (over 140 years ago) to their global domination of the beer market (30% worldwide currently). Anheuser Busch has been “the king” of beers for awhile now.  For most of us, one of their products was probably the first beer we ever tried–stealing a couple from the garage fridge, or from a cooler on a camping/hunting trip, because that was all you had. However, we now live in a world with many more choices than people had in the past. The newer generations have grown up into a world of choices; no longer are cable TV package options the only choices provided, people can stream the shows and movies they want without the rest. The populous does not sit down at 6pm or 11pm to get their news and weather anymore. And blindly everything the kindly-looking authoritative figure was reporting on. News, is gathered from multiple sources (some not always legit), but you at least have contrasting opinions so you can form your own thoughts about the world. Beer, inside its own niche, is going the same way.

People have many different beer choices now…

Even only 15 years ago there was probably only Macro-beers on tap in most bars. In grocery stores you only had the biggest brands in cases on display at the grocery store to purchase. Seriously, the next time you’re in a grocery store actually look at how big the mega-beer brands box displays are around the store, compared to the rest. Craft beer options in your local package store are looking more and more like wine sets with hundreds of possible beers. With the evolution of social media and marketing these small breweries that produce unique and experimental batches can advertise for cheap and appeal to their local market and sustain themselves inside a supportive community. However, the alcohol industry gauges itself on how well it’s doing in an area by market share, so if you are the only beer available somewhere you have 100% of the market share. For decades, mega-beer companies have held most of this market share. At first, craft beer was just a blimp on the radar, nothing to worry about for the big boys. Now as Craft breweries climb into the mid-teens of the market share (in the U.S.) you are seeing the big brands take action. You may think that 12-15% isn’t that much, but when you realize the beer market in the U.S. is a 100+ billion dollar a year industry it starts to add up why the Big Brewers are starting to take direct action to control market shares against the craft breweries. Especially, when the craft segment of the industry is expected to grow another 5-6% by 2020. Here’s a 2015 article showing a detailed break-down of beer market share in the U.S.

craft beer market 2015

Beer Market Share 2015

This is a story we have all heard before. The underdog. David vs Goliath.

So are we really surprised about what InBev is doing with purchasing up Craft Breweries to “gain” back market share, and then consuming distributors and “offering” them incentives for selling their brands over the competition? We shouldn’t be. Does the fault lie in the distributors for kowtowing to the Big Breweries? If they don’t fall in line what ramifications will the distributors face? There is a lot of talk about how the 3 tier system (a system that separates Suppliers, Wholesalers, and Retailers) in many states in the U.S. is outdated and monopolistic, and that distributors don’t need to exist in today’s world. It would seem like the three-tier system would be very helpful in making sure the big breweries don’t over-step their bounds. If you take away the three-tier system, then what is stopping InBev (or any big Brewery) from setting up huge fleets of trucks and teams of sales reps to blanket the market wherever they want. Which in the case of InBev would be everywhere… That being said, what is the difference between the Big Beer companies legally owning distributors or “owning” them via incentives and monetary rewards, that stifle the growth of smaller brands?

Let me be clear, I believe in capitalism. There are many pros to capitalism such as: economic freedom (keeping government and business separate), efficiency, & competition. Having said that, capitalism is not perfect. There are cons: Inequality leading to social divisions, Boom and Bust Cycles, and monopolistic power (there is a great short article at economicshelp.org here that details the pros and cons). What we see happening with InBev is without a doubt a trust. They are trying to manipulate as much control as they can so they remain the “King” in the market. Why? Because…

Mel Brooks It's good to be the king

When you are the king you don’t have to innovate, compete, or improve. You just keep shelling out the same thing over and over and you build a loyal following of people who never had another choice.

This applies to all monopolies and whatever product, service, or good is being offered. It’s the if it’s not broke don’t fix it mentality. Change is good for business you need it to stay healthy and ahead of the competition. That is why capitalism is good (mostly). If you don’t change, someone or something better will come along and dethrone you. Sometimes it’s Kings dethroning each other (Playstation vs Sega, Netflix vs Blockbuster) and other times it is peasants overrunning a king (4000+ craft breweries vs 10 mega beer conglomerates). What InBev is doing now is looking to its feudal lords and dukes (distributors/wholesalers) to help them squash the peasant uprising (by offering them more jingly bags of gold and silver), but the smart wholesalers have seen that the tides might change and they don’t want to be on the losing side.

Maybe I’m wrong.

Maybe what InBev is doing is the pinnacle of capitalism. There’s no cap on evolution, why should there be one on an economic idea (which itself is just an idea we all buy into). InBev is not a non-profit their end goal is and always has been to make as much money as possible, after all, they have thousands and thousands of employees that depend on their living from them every week. And if capitalism truly works then (like I stated above) the smaller craft breweries will be able to over through the “King” and AB will be exiled into history. Remember it took over a hundred and fifty years for Anheuser-Busch to become the Goliath-sized Beer Company they are today. Whose to say that a small craft brewery opening right now is not going to be the next InBev in the year 2140. Is it fair for Goliath’s foot to be hacked off while he fights David? Maybe Goliath is cutting off his own foot due to his current business practices and sending would be drinkers to another Beer Goliath (eg. MillerCoors). Although, I guess that doesn’t matter since InBev now owns them too. Maybe “David” (and his 4000+ craft brewery buddies) should focus on what makes them stand apart from the InBev’s of the world. Being unique, skillfully made beers, produced locally by people who take pride in their beers, and enjoyed by people in their community. Think about it for a minute and make up your own mind on the issue. I don’t want to be biased, but hopefully, you’ll go out and purchase a craft beer while you think for yourself.

If you need some help deciding on a craft beer near you…

craft beer by state map

Most Popular Craft Breweries by State. But wait, can you spot the ones owned by Macros?

P.S. This is one of my favorite quotes and it applies to so many aspects of our society. Enjoy while you drink that beer…

“For forty-one million, you built a playoff team. You lost Damon, Giambi, Isringhausen, Pena and you won more games without them than you did with them. You won the exact same number of games that the Yankees won, but the Yankees spent one point four million per win and you paid two hundred and sixty thousand. I know you’ve taken it in the teeth out there, but the first guy through the wall. It always gets bloody, always. It’s the threat of not just the way of doing business, but in their minds it’s threatening the game. But really what it’s threatening is their livelihoods, it’s threatening their jobs, it’s threatening the way that they do things. And every time that happens, whether it’s the government or a way of doing business or whatever it is, the people who are holding the reins, and have their hands on the switch. They go bat shit crazy. I mean, anybody who’s not building a team right and rebuilding it using your model, they’re dinosaurs. They’ll be sitting on their ass on the sofa in October, watching the Boston Red Sox win the World Series.”

– John Henry’s Character in Money Ball

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