The other day I was listening to one of my favorite public radio programs, Marketplace, and heard an interesting story about recent shake ups in the beer market. Apparently, amidst declining U.S. beer sales in 2009, there have been a number of mergers and acquisitions involving macro breweries (i.e. the Goliaths in the David v. Goliath beer wars).
We've all heard about Belgium-based InBev buying up Anheuser-Busch, but there appears to be a trend emerging. Dutch brewer Heineken announced recently that it has negotiated the purchase of Mexican beer conglomerate FEMSA, maker of Dos Equis, Tecate and Sol.
I'm no economist, but it seems like some macro breweries have weathered the recession better than others, and they are using cash, debt, and/or stock equity to buy up some of those companies that haven't been doing as well. This could be a big boon to the InBevs and Heineken's of the world, because it gives them wider distribution outside of Europe, and will likely increase their global market share, at least in the short term.
But, I also think something else might be happening, and it's an issue that Marketplace reporter Amy Scott barely touched upon in her segment. There has been an undeniable trend over the past 5-10 years of micro-breweries gaining market share in the U.S. as American beer tastes skew increasingly towards more flavorful, more full-bodied, and yes, higher A.B.V. beers. True, craft breweries still have a very small piece of the pie, but it's getting bigger.
What if the big guys are starting to get scared of the little guy? And instead of improving the quality and flavor of their own beers, what if they are gobbling up each other in the hope that they can bully the micro-breweries around, without improving their product?
As statistician Nate Silver noted in his blog, it's difficult to understand what is driving this divergence--and whether it's a one off thing, or part of a larger trend--but he thinks it may have something to do with more Americans "substituting Michelob and Coors for more expensive micro-brews like Alpha King and Dogfish Head." Presumably, Americans are drinking more craft beer, even while total beer consumption is declining.
All of this begs the question: What would you do if you were the executive of a big, macro-brewery with loads of cash to spend?
Would you 1) buy a Mexican beer company that mass-produces poor quality beer that Mexicans themselves don't like to drink, and Americans are increasingly dubious of? Or, would you 2) acquire a well respected craft brewery that is making really good quality stuff, and gain a foothold in the fastest growing segment of the beer market? Hmm...
It would be interesting to see what the "major microbreweries" like Sam Adams and Magic Hat are doing these days - are people treating them like a microbrew or a macrobrew, and so are their sales growing or declining? If the growing craft beer movement is anything like me, I would assume people would be buying less of these and more smaller breweries. Perhaps this is why Sam Adams has been so active over the past couple of years cranking out new types of beer - their "brewer" series includes cranberry beer and the like, while this past year they rolled out an imperial series, etc. These newer styles mimic what the smaller breweries have been doing (and probably allows Adams to charge more for "value added.") Yes, there is still far more money in Light beer than there is in craft beer, but if the profit margin stays where it is, there should be a large influx of craft beer in the near future. More for me and you...
ReplyDeleteConsider how well two of GA's new favorite breweries are doing in comparison to the rest of the industry in their home state. I am writing, of course, of Bell's and Founder's from my home state of Michigan; punching bag for economic reports and easily one of the hardest hit economies of the last 30 years. These two breweries represent one key and growing export for the great lakes state. I was surprised to see that they were not so easy to come by when I was up in MI for Christmas. Craft beers seem to be a bit of a luxury good, and not one that a lot of Michiganders are willing to go out of their way to get, but maybe one they should consider brewing. Portland of the midwest?
ReplyDeleteYeah, Sam Adams is a cool case study, Brennan. I think of them as a macro-brewery (and I think, technically, they are one based on the scale of their production & distribution), but they are clearly diversifying beyond standard beer styles (i.e. seasonal lagers and ales) and brewing other stuff that is traditionally considered the domain of the micro-breweries.
ReplyDeleteClearly, there are any number of business choices the big beer companies can make to remain profitable in a down economy: stay the course (i.e. make very drinkable, but boring beer) and come up with gimmicky ways of marketing boring beer, buy out the competition, improve or diversify their products, etc. And, to be honest, who can blame the big guys for not brewing better tasting beer? I'm sure they have tons of market research that says that a majority of Americans really, really enjoy watered down lagers. But, I happen to think that's a short-sighted perspective that may come back to haunt 'em.