What we are seeing today in the brewing industry is the outcome of a long-running consolidation cycle that started in the 1970s with the purchase of Miller Brewing by Phillip Morris. The continuation of consolidation in the industry leaves two sides to consider, Wall Street and Main Street. Those on the Wall Street financial side clearly recognize the strength and opportunity in consolidated global brewers powered by scale and efficiency. On the other side, Main Street consumers recognize the inherent risks and limitations to market access, choice and value as an outcome of too much consolidation. Having a few consolidated brewers with a presence in all major markets brings economies of scale, but it also brings risks to related industries, businesses and consumers who may be impacted by consolidation.
A quick look at world markets and brewer share of each market offers a glimpse into what outcomes we will see post mergers. Of course, whether or not more mergers pass the litmus test of regulators around the world is yet to be seen.
In the table below, total beer volumes from the top 30 beer consuming countries are listed along with their share of total world volumes and estimated market shares of the top five brewers in each country. Clearly there are a wide range of consolidated markets, with Germany at 40 percent to Venezuela and Philippines at 100 percent. On a weighted average basis, more than 85 percent of world volumes are controlled by five brewers per market.
A deeper look shows ABI and SABMiller market shares in their top share markets. A few countries where these brewers operate were already highly consolidated by one brewer. Depending on how approvals work out in each country, a new mega brewer has the potential to take a dominant position in 13 countries around the world.
The consolidation of the global beer industry has been in motion for decades. The consolidation activity crosses both vertical and horizontal lines of the industry. In addition to purchasing other brewers, brewers have pursued vertical integration up and down the supply chain from owning agriculture resources, to packing, distribution and retail. These are not necessarily country borders only, but involve smaller geographies such as the recent horizontal and vertical merger activity in California – which happens to be the eighth largest economy and thirteenth largest beer market in the world.
At the foundation of brewing economics is economies of scale. From raw ingredients, to bottles and cans, to distribution and retail, the more of the same beer that a brewer sells translates directly into greater profit with each additional unit. But beer is mostly water, and water is heavy and heavy things are expensive to transport. So producing it locally is key to success – hence the drive to consolidate in breweries across every market. Moreover, because alcohol is an affordable luxury, consumption of alcohol increases as income increases. Companies that recognize and seize the opportunity are driving worldwide consolidation.
To receive additional information, please contact NBWA Chief Economist Lester Jones at email@example.com.