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Small brewers fear mergers - USA
Small brewers fear mergers - USA

Small brewers fear mergers - USA

LIQUOR NEWS - Oct 23rd 2015, 10:26

Looking at the wide array of taps at bars these days, we seem to be in a golden age of beer. The world is awash in ales, lagers, and porters, many made by small breweries, which are gaining an ever-bigger share of the market. 

Brooklyn Brewery, a pioneer in the craft beer renaissance along with Boston Beer Company and Sierra Nevada Brewing Company, is doing such brisk business that it plans to build a second brewery on Staten Island, US, in 2017.

Small companies such as Brooklyn sold 11% of the beer Americans bought last year, up from just 2.8% in 2004, according to the Brewers Association, a trade group. However, even success with consumers is not enough. Small brewers have good reason to fear that mergers among the industry’s giants will make it harder for them to sell their products if those companies also come to control big beer distributors around the US.

When Brooklyn Brewery began selling its lager in 1988, few people took it seriously. Steve Hindy, one of the founders, said recently some people even sneered that it made no sense to name a beer after a place as gritty as Brooklyn. "We distributed our own beer for 15 years because none of the big distributors cared about us."

Brooklyn and other craft labels caught on as more Americans began experimenting with imported beers from Europe. The local and artisanal food movements helped the growth along. The growing cachet of Brooklyn, the place, has helped with marketing, too: international sales of the firm’s beers have boomed, growing about 25% a year.

Yet, while Brooklyn lager can be found in Stockholm, it cannot be found in many states, such as California. That is because beer distribution is mostly through wholesalers, some of whom have been acquired by giant beer corporations such as Anheuser-Busch InBev (AB InBev). Reuters reported this month that the Justice Department and regulators in California were investigating whether AB InBev, which makes Budweiser and Bud Light, was buying beer wholesalers to curb sales of craft beers in bars and grocery stores.

"When big breweries buy an independently owned distributor they would evaluate each one of those brands and not keep all of them," says former beer distributor Tom McCormick, executive director of the California Craft Brewers Association. "The bulk of their attention would be on their in-house brands."

That fear has been heightened by the announcement earlier this month that AB InBev, the world’s largest beer company, has proposed buying SABMiller, the second-biggest company, for $104bn. AB InBev produces about 45% of all the beer sold in the US, while Miller Coors, a joint venture between SABMiller and Molson Coors, sells 26%, according to Beer Marketer’s Insight.

The merged company might be able to get around antitrust concerns if it sells SABMiller’s stake in Miller Coors. In 2013, when AB InBev was buying Grupo Modelo, the Mexican firm that makes Corona, the Justice Department forced the two to sell Modelo’s US operations.

However, such a sale would not resolve the distribution problem, which tends to hurt the smallest brewers the most. Mr Hindy says Brooklyn does not sell beer in California and other western states partly because it does not have strong relationships with supermarket chains such as Safeway.

High shipping costs are also a barrier. The lack of independent distribution is another issue. Wholesalers owned by AB InBev, he says, are not interested in marketing beers from competing companies.

AB InBev says there are more than 3 300 independent beer wholesalers in the US, who can deal with one another.

Nevertheless, in many cities big wholesalers, often with ties to the giant producers, tend to be in charge because they have access to the most bars and retail stores.

Even as the big players merge, they may not be able to run ahead of consumer tastes. In the last 10 years, many Americans have cut back on beer in favour of wine and liquor. Though AB InBev is very profitable, its beers have been losing market share as more people buy imported and craft beer. Mr Hindy says this is because smaller brewers are just more single-minded about taste. "We make beer," he says. "They make money."From DFM Publishers (Pty) Ltd 

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