Last week SABMiller finally agreed to accept the AB InBev offer of $107 billion to take over the company.   However as part of the deal and to reduce the merged company’s domination in North America, SABMiller will sell their stake in MillerCoors, who produces and distributes Miller Lite, Blue Moon and Coors Lite.   The buyer is Molson Coors Brewing, their partner in the venture since it was founded 7 years ago.  Molson Coors will get the worldwide rights to sell the three brands in exchange for $12 billion.   

Without this disposal, the new AB InBev / SABMiller entity would control 70% of the US beer market, with the MillerCoors sales volume worth 25% of that.  The sale will keep AB InBev below 50% market share in the US and will help avoid the US Justice Department blocking the deal.   The deal is expected to be completed in Spring 2016.  In other industry news, the fourth largest brewer in the world Carlsberg, is cutting 2000 jobs after losing £1 billion in the last 3 months.   Most of this loss was related to the costs of writing down the value of their operations in Russia, China and the UK.

In combination, this news is not good for the global beer market.   Taking AB InBev / SABMiller as a single company,  you have one major player who are three times bigger than their biggest competitor (Heineken) and the company in third place (now Carlsberg) is struggling and cutting 15% of its workforce.   There is no chance that Heineken will be able to gain volume sales to catch the market leader, if Heineken can grow their sales that much, you can pretty much guarantee that AB InBev / SABMiller will also be able to, effective keeping the status quo.  You can’t see them buying market share either as they could buy the remainder of the top 10 global brewers and still not make it to number one.

This puts these large or very large multinational brewers (such as the aforementioned Carlsberg / Heineken) who make up the market in the middle of AB InBev / SABMiller and the craft / independent brewing sector in each country in an interesting position.  The new merged company will be able to grow their markets through the geographic domination and channels this deal buy AB InBev.   This will make it even harder for the companies below them to get into those same markets, whilst having to defend existing market share from AB InBev / SABMiller and their ability to take a short term loss leader to get a long term deal from a chain of bars.  

At the same time, the craft, small and medium brewers within each country are all nibbling away at these “middle companies” market share on a bar by bar, chain by chain level.  Of course the new merged company will suffer from this as well, but can absorb it more easily.  These “middle companies” are having to fight on three fronts, appealing to mass market drinkers and craft beer drinkers at the same time, whilst trying to convince customers that their mass market beer is better than a competing mega brewers.  They are fighting on three fronts and inevitably, the eye will be taken off one.

Looking at the post buyout world, AB InBev would be the number one player in North America, Australasia, Latin America, Middle East and Africa.  They would hold second place in both Eastern and Western Europe.   Given the worldwide effect of the deal, as I mentioned in a previous column, China, South Africa and USA (even after the MillerCoors disposal) will all closely inspect the deal to ensure they it doesn’t break their competition regulations.  

We are entering a world where world beer market sits on a badly balanced see saw with AB InBev / SABMiller being the fat bully who doesn’t let the skinny kids down off it.  Their control of the market will ultimately reduce choice and increase cost as well as costing many people their jobs as back office operations are merged, with a good number being lost in the UK as SABMiller’s stock exchange listing is being transferred to South Africa, and along with it probably most of the Head Office, leaving a small European area office in its place.

Who will this be good for, the small to medium national brewers and the craft brewing market.  These companies are far too small to be on AB InBev / SABMiller’s immediate radar and I think that the see saw bully will be too busy trying to take the Heineken and Carlsberg lunch, leaving the kindergarten full of national and craft brewers alone to use their imagination and opening more markets for themselves quietly.