Thursday, October 15, 2015

The Macros are Becoming The Macro

Soon: ABSABInBevMiller. Or something.
I've written in depth in the past about macro breweries and why their beer sucks. The too long; didn't read version is this--macro brewery beer sales in the US have been declining for years and the Macros only have two options to remain profitable--acquire other breweries and lay people off ("find efficiencies"), or cut costs in their brewing process.

It looks like AB InBev is now going on the ultimate quest to find efficiencies--SABMiller has tentatively accepted an offer from ABI for $104 billion to buy out the company. If this deal were to go through, ABI would control about 1/3 of the global beer market, and 3/4 of US market share. Needless to say, this is never going to pass the anti-trust regulators in the US. What's most likely to happen, is that SABMiller will divest its interest in Molson-Coors, of which SABMiller only owns a portion. This would probably keep the ABI/SABMiller market share in the US at around 50%.

Where's Zack when we need him??
Even if they were to divest Molson-Coors, there's no guarantee that monopoly-like price fixing won't abound in the macro beer market. ABI and SABMiller have already been colluding on price increases for their products for years now. Their pricing practices played a central role in the lawsuit brought by the Justice Department against ABI when they attempted to acquire Grupo Modelo.

The price fixing will probably continue even more aggressively since the ABI/SABMiller and Molson-Coors executives will have had such close business ties over the years. They will only be phone call away from massive price manipulation. Of course, this could all turn out to be a win for craft beer, since higher priced macro beer will lead the average beer drinker to start thinking harder about buying premium beer that doesn't cost much more.

The biggest problem I see for us craft beer geeks might come as a result of our 3-Tier System. (If you don't know what the 3-Tier system is, read this.) The vast majority of the beer distributors in the US are tied to either Anheuser-Busch or Miller--some are even owned outright by the big breweries (thankfully, this is illegal in KS and MO). If ABI and SABMiller are allowed to merge in the US, they will either own or wield an enormous influence over the distribution of nearly every beer sold in the country.

But what about franchise laws, you ask? Good question! In most states, brewer-distributor relationships are controlled by franchise laws that are designed to keep large breweries from forcing small distributors to do their bidding. Of course it doesn't always work that way. It's been alleged over and over that the Macros "encourage" their distributors to price, market, and sell their products a certain way. They also do everything they can within the law, and outside the law, to push competitors (including craft brewers) out of the market. In fact, it was reported on Monday this week that the Justice Department is investigating ABI over concerns that they're attempting to force distributors to stop carrying craft brands.

Imagine if Martin City or Torn Label had gone to shop around to the half dozen or so beer distributors in KC and were turned down by all of them? Without any right to self-distribute their beers, they would have no legal avenue to sell beer outside the walls of their breweries. Of course, they could sue the distributors or ABI, but how could a tiny startup brewery hope to win a legal battle against a company with a $300 billion market capitalization, an army of lawyers, and politicians eating out of their hand?

We're lucky to have great distributors in KC today. They do a great job taking on new craft breweries & promoting existing accounts, sponsoring & hosting events, and helping bars and liquor stores with quality control. However, I worry about what this merger might mean for the future. I only hope that our distributors can retain their independence and keep supporting craft beers the way they do now. Otherwise, we may all have to join in the fight to abolish the 3-Tier System if we want to continue to have our craft beer. 

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