But beneath this bewildering variety lurks a very different market reality. An emerging duopoly has come to dominate the brewing, marketing and distribution of beer no less than Coke and Pepsi have done for soft drinks.
Once threatened by upscale imports and upstart craft brews, duopolists Anheuser-Busch InBev and SABMiller now seek to turn variety to their advantage. And while they compete with Super Bowl-like ferocity to create products with the best taste, the most interesting packaging and most alluring brand image, like all successful duopolists they take care not to compete too fiercely on price.
So it is not without significance that last week, after years of acquiescence to the beer industry’s relentless consolidation, government antitrust officials decided enough was enough. On Thursday, the Justice Department went into federal court to block AB InBev, the world’s and the country’s largest brewer and marketer, from buying Mexico’s Grupo Modelo, a rival that has risen quickly to the No. 3 position in the United States on the strength of its Corona brand.
Measured by volume, the combined company (Budweiser, Beck’s, Stella Artois, Leffe, Bass and Lowenbrau, plus Corona) would control more than 50 percent of the U.S. market. That would be nearly double the market share of rival SABMiller (Miller, Coors, Pilsner Urquell, Peroni, Grolsch, Foster’s and Milwaukee’s Best) and eliminate any latent threat to the current duopoly.
Anheuser-Busch InBev (ABI) must now decide whether to fight the government in court or walk away from the deal and pay Modelo a hefty $650 million breakup fee.
Then there were two
The extreme concentration in the beer market is a relatively recent development. In 1980, there were 48 major U.S. brewers, according to an enlightening report issued last year by the New America Foundation. But all that began to change in the 1990s, as the remaining local and regional brands found they could not compete with larger rivals that benefited from the economies of scale and mounted well-funded national advertising campaigns.
Global consolidation began quietly in 1987 when two of Belgium’s top brewers formed Interbrew and spent the next 15 years buying up other national champions. In 1999, Interbrew joined with two of Brazil’s largest brewers to form AmBev.
Meanwhile, South African Breweries (SAB) embarked on a similar shopping spree, picking up brewers in Eastern Europe, Russia, India and China. In 2002, SAB landed on American shores with the purchase of No. 2 Miller, followed a few years later with Coors and Molson of Canada. AmBev waited until 2008 to launch its U.S. entry with its $52 billion deal to acquire No. 1 Anheuser-Busch. Both transactions won easy approval from the Bush administration, which rarely encountered a merger it didn’t judge to be pro-competitive.