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Thursday, March 15, 2012

Carlos Wept

Is the consolidation of big brewers going to reduce itself to absurdity? Speculation continues to strengthen that Anheuser-Busch InBev is going to make a bid for SABMiller. Leaving anti-monopoly issues out of it for the moment -- since, well, really: does anyone actually think the U.S. government is going to do anything about one company controlling 2/3+ of the beer market? Of course not; return to work, cogs -- let's think about this.

ABIB has the means to do the deal; they've been slashing costs and raising prices (even though their volume in their most lucrative market -- the U.S. -- is still dropping), they're making more money (not a great long-term state, how long can that go on, eh?)) and the debt from the purchase of A-B is either paid off or close to it; they've got a substantial warchest of almost $5 billion in cash/equivalents that will make a good start towards financing another acquisition.

ABIB probably wants to do the deal. SABMiller has been investing heavily in Africa and Asia, which are still growing beer markets (and ones where ABIB has not been particularly successful). And let's be honest: this is how Carlos Brito and InBev have worked for years. They are not brewers: they are bankers, and they grow their "breweries" by buying other "breweries," which are just counters, money, and markets to them. It's about money and balance sheets, slashing costs and raising prices. Anyone still shocked by that? God, I hope not.

Can SABMiller stop them? Dunno. Finance is not what I do. But judging from the speculation and the effect it's having on SABMiller's share price, it seems like a good guess that the answer is no. Especially since the market seems to "want" this to happen.

That's too bad. For one, the management at SABMiller is pretty sharp, especially in the U.S. part of the company. Sure, head honcho Graham Mackay said that craft beer would inevitably fade -- how's that working out for ya? -- but he's been brilliant on just about everything else. He's probably moving on soon anyway, but he's got some very smart lieutenants...and ABIB would probably dump them all and replace them with bean counters. It seems to be what they do.

This does mean something to you, of course. Consolidation will inevitably lead to more price increases, and when the mainstream beers that are still over 90% of the market take price increases, that's a green light to craft brewers to follow the leaders. Really, they do, because they can, and they want to pay their workers a better wage so that a craft brewmaster can finally make as much as a bottling line worker at a Miller plant.

The upshot? Kinda weird. Like I said here, 2 1/2 years ago, one of these days, Carlos Brito is going to run out of big breweries to buy...and then what happens? Will he start buying spirits companies? Will he start buying into wine? One thing I feel pretty sure about is that he won't suddenly decide to buckle down and make brewing the real focus of his energies. It's just not his style. Or his interest.


Alan said...

"...and they want to pay their workers a better wage..."

I have always been most pleased that craft beer is only made by the good elves.

Trevor said...

Price increases also narrows the gap between macros and craft beers. Although this could be used to increase craft prices, this can also serve as the catalyst for beer drinkers to trade up to craft. Consumers will more easily justify paying a little extra more for a craft beer when the gap is smaller.

David Ivey said...

Agreed Lew, this is not good for beer drinkers. The beer sector is in a consolidation phase that will likely only increase in intensity. For now at least, craft breweries are growing amazingly fast. Hey beer lovers, support local brewers or national, non big beer “craft beer” breweries. Let’s leave “Big Beer” behind – as best as we can. Enjoy the rebellion!


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Lew Bryson said...

Mister Pumpkin Anonymous: keep grinding your axe, I'm not helping you here. Like I keep telling you: Blogger is free. Start your own blog and stop trying to use mine.

Anonymous said...

Thats Nice

Dan Weirback said...

Very interesting news Lew. We've got no reason to raise our prices and our employees are already paid above national average accord to BA info on craft brew surveys. I agree with Trevor, let them keep raising prices to cover marketing and slush funds, closing the gap to craft brews. Bring it on. Curious about something, maybe someone knows. If they get SABMiller would they reduce brands in either house? Anybody know some history on Imbev? Just musing..

Anonymous said...

The downward trend with brands will start with the purchase.Cost cutting will start exposing the impact of stopping quality programs and infrastructure updates.Engineering will be cut to the bone in the United States the real growth will be in the emerging markets.How many updates do you think will be applied to the plants.
The IT infrastructure will be a house of cards..To big to Fail.Since there are few funds being spent to update that either.It is only a matter of time before their customers will see degradation in the quality of their beer.Unlike yourself Dan their is no feeling that the hedge Fund bandits consider its workers as anythink but a burden and that is sad.

Lew Bryson said...

I don't really agree. Even the tightest cost-cutter knows that quality has to be maintained, and Carlos Brito knows that. Just don't see this happening, anymore than I saw ABIB closing breweries in the U.S. (they haven't, by the way).