(links and images still need to prettify’d, but the text is set)

(|ARCHIVE|) The third installment in a series of six readings and interpretations from The Geography of Beer (https://www.amazon.com/Geography-Beer-Regions-Environment-Societies/dp/9400777868) , Part III - Societies. The abstract of the current paper, ‘Too Big to Ale? Globalization and Consolidation in the Beer Industry’ by Philip H. Howard (mailto:howardp@msu.edu?subject=Consolidation%20Invastion%2C%20EndlessPint%20Write-up) , may be read on Springer (https://rd.springer.com/chapter/10.1007/978-94-007-7787-3_13) .



Consolidation Invasion

As of 2014 four large firms (ABInBev, SABMiller, Heineken and Carlsberg) accounted for half of the global beer production and 70% of the revenue. This disproportionate intake signifies a further concentration from just a decade earlier when the ten largest firms made up 40% of the global production. The disparity shows no signs of slowing, as the recent ABInBev SABMiller merger (https://www.forbes.com/sites/taranurin/2016/10/10/its-final-ab-inbev-closes-on-deal-to-buy-sabmiller/) shows. Is resistance futile? Perhaps, and if so it would not be a stretch to look at this trend from the perspective of ecology, specifically viewing the behavior of the Big Boys as similar to an invasive species.

When a foreign species, capable of adapting to an environment, is introduced into a new habitat their success in proliferation can be out of all proportions to the previous inhabitants. What balance, biodiversity, and predator-prey relationships previously existed can be knocked out of whack. A new species without natural “enemies” or constraints can overrun and exhaust a new habitat, leaving it unrecognizable from recent versions.

https://youtu.be/XdRiF1_k_G8 YouTube The Big Boys in their various manifestations have tapped their home markets, primarily in Western Europe, North America and Japan. Insatiably searching for profits they have used consolidation as a means to create more leverage, remove competition, and open up new markets. It is primarily in the latter approach that the invasive species metaphor works best but also maps beautifully with the mergers, as the two approaches are difficult to differentiate from one another with respect to aim and effect.

These institutions are characterized by an insatiable appetite that has driven their growth in power and size to such an extent that they are able to feed on smaller companies, weaker governments and even the regulations of developed nations. To highlight this point we need look no further than the acquisition of Anheuser-Busch (AB) by InBev, which was sold in no small part for not being hungry enough for profits and had to be eaten up by a more voracious type. Further, the suggestion, at the time of the writing, that one of the four behemoths (Carlsberg) is itself too restricted, narrowly focused and not big enough, or until recently not sufficiently nimble for being run by a “board”, shows the mindset at this level.

The overriding motivation, of course, is profit and this is pursued in a manner of different ways: increase market share, reduce competition, lower input costs, exert ever increasing leverage over prices (like an HBR case study (https://hbr.org/search) ; “Hey, Porter (https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis) !”), and lobby for beneficial regulatory policies or outright removal of barriers to rent seeking monopoly practices.

A look at invasive species traits (https://en.wikipedia.org/wiki/Invasive_species) and how they map onto global beer consolidation practices:

  • fast growth, rapid reproduction - accomplished through economies of scale, access to credit, and of course M&A’s.
  • high dispersal ability - the incumbent know-how of the Big Boys in marketing and distribution is further augmented by technological advances.
  • phenotypic plasticity - evident in product diversity (even if mostly derivative rather than innovative, they cannibalize shelf/tap/commercial/attention space), local joint ventures, the selling of non-alcoholic offerings as market demands, e.g., the Middle East, and the ABInBev rumored to be targeting Coca-Cola (https://www.cnbc.com/2016/11/14/anheuser-busch-inbev-shares-fall-flat-on-talk-of-a-coca-cola-deal.html) .
  • tolerance of wide range of environmental conditions - present all over the world: Europe, N. America, S. America, Africa, China, India, and Russia.
  • ability to live off a wide range of environmental conditions - the aforementioned alcohol restrictions; ability to maneuver free market and communist regimes; skirting “three-tier” system (https://www.craftbeer.com/craft-beer-muses/three-tier-system-impacts-craft-beer) and exploiting exceptions (https://en.wikipedia.org/wiki/Three-tier_system_(alcohol_distribution)#Exceptions_and_regulations) , e.g., AB biggest distributor in the United States (http://katzamericas.blogspot.co.uk/2014/03/list-top-30-us-beer-distributors.html) .
  • prior successful invasions - just look around…


Fondriest Environmental

Technology has been an ally through all of this: the identification of lager yeasts, “pasteurization, cheaper glass bottles, ice houses and refrigeration, as well as reducing the barrier of distance through faster forms of transportation, such as railroads and automobiles” (Ascher 2012 (https://www.antitrustinstitute.org/sites/default/files/Global%20Beer%20Road%20to%20Monopoly_0.pdf) ). Further, the introduction of radio and television proved to be a critical differentiator among indistinguishably tasting light lager beers, especially in the US. More recently firms have been leveraging data mining for marketing, robotics and automation (e.g., Otto, the self-driving truck (https://youtu.be/Qb0Kzb3haK8) ), and just in time (http://www.investopedia.com/terms/j/jit.asp) deliveries for lower storage costs.

Large firms that best exploit technology and media increase in size and “gain more power to engage in anticompetitive practices,” allowing them to grow further; a positive feedback loop in name alone, resulting in negative outcomes for consumers with respect to beer variety, taste, and local manufacturing. These practices take many forms whereby they exert “control over suppliers, distributors, retailers and competitors.” Ultimately controlling the market, the choices available, and by extension the customer in the way of dictating the available tastes.

In any industry or venture there are barriers to firms. These may be classified under and across a number of different categories: political, economic, regulatory technical, cultural, etc. What we have seen is the ability of the Big Boys to overcome, sidestep, and occasionally steamroll through these constraints via access to credit, influences on policy, leveraging expertise, technology, or simply being undeterred by the chintzy penalties incurred (the price of doing business or just another variable in the cost benefit analysis (https://youtu.be/7dfDdEnQZPQ) ).



The Big Boys have been able to push for favorable taxes by threatening to close operations over the issue (Marin Institute, 2009 (https://alcoholjustice.org/images/reports/big_beer_duopoly.pdf) ), disregard statutes due to puny fines (SABMiller’s collusion with distributors, South Africa 2004; price fixing by Heineken, France 1996) (https://www.theguardian.com/business/2007/apr/18/7) , and blessed by toothless regulations (ABInBev was only required to divest themselves of Labatt (https://www.justice.gov/archive/atr/public/press_releases/2008/239430.htm) ; the quixotic rationale of solely disposing of overlapping/competing brands is an attempt at retaining pre-existing competition but does nothing to address future missed competition, economies of scale, and added leverage across the supply chain [see Comcast and Time Warner (https://www.valuepenguin.com/2015/04/comcast-and-time-warner-not-much-overlap-all) ]; this move could even be seen as acting in the new company’s favor in ridding themselves of a redundancy).

The resultant environment, barring any significant pushback, is more of the same: a loss of biodiversity (fewer firms and options), an altered ecosystem (weakened institutions), and the bringing under control of various entities (suppliers, distributors, retailers, competitors, and ultimately customers) that would normally counterbalance each other but are forced into lockstep (removing resilience from the system).



What hope is there of not replicating the soft drink duopoly market, where Coke and Pepsi account for 75% of global sales? The paper offers up two reasons for optimism: cultural influences and specialty brews. A longer drinking history of beer than soft drinks means better established local preferences. Additionally, the craft brew renaissance has shown that there is a craving for alternatives and that smaller players can participate on the margins. The phenotypic plasticity previously mentioned, among the many other advantages, would suggest these are necessary but insufficient restraints on still further consolidation. Some regulatory resolve to protect the common citizen has so far been lacking. What is needed most is what has been most conspicuously absent: testicular fortitude, in other words balls. https://medium.com/@MarcCalderaro/jc-s-faves-glengarry-glen-ross-7f0f1424713 Medium