It’s enough to make you weep into your beer: it is surely an assault on everything a right-thinking drinking man should think good that shareholders have put a U$79 billion value on the merger of AB InBev and SABMiller, which together now account for an estimated 30 per cent of beer sales worldwide. It is like the preposterous nonsense of Facebook paying US$19 billion for WhatsApp: so much money for so little value.
This brewers’ mega-deal is fresh evidence that big is not necessarily good, and that mergers or acquisitions have very little to do with offering better or higher quality goods and services. The main achievement of the AB InBev and SAB Miller merger – apart from being the third-largest merger ever recorded – is to cut costs and shave 5,500 jobs. And of course to generate gargantuan fees for the bankers, lawyers and PR companies that underpinned the deal. Out of fees amounting to almost US$2 billion, Lazard, lead advisors to AB InBev, captured the lion’s share of US$135 million paid for banking and broking advice. Freshfields Bruckhaus Deringer captured the lion’s share of US$185 million in legal fees. PR company Brunswick pocketed fees of US$20 million. They will all doubtless be celebrating with champagne rather than the insipid offerings of their clients.
I have to confess a powerful bias. As a Brit who has for 35 years lived in exile from home shores, perhaps the only thing I truly miss from the old country is fine old English “real ale” – what Americans have come in more recent years to discover as “craft beers”. Compared with these nutty, flavoursome ales that warm many an evening in pubs across the English countryside, the thin, watery fizzy pints offered by the likes of AB InBev and SAB Miller are an offence to the drinking man’s palate, and a betrayal of the fine tradition of brewing nurtured down through the centuries by Belgian monks, who must have spent their lives marvellously inebriated by their Christian endeavours.
AB InBev’s publicity materials betray how oblivious they are to the poverty of their offering. Under the ridiculous broad strap-line of “Dream People Culture”, they say their dream is “to be the Best Beer Company Bringing Together People for a Better World”. Pardon?
As Financial Times reports more soberly noted, the deal has more to do with strengthening presence in Latin America and Africa, “whose markets have not been disrupted by a shift in tastes towards craft beers”.
For me, the true lesson of this merger – apart from the financial engineering efforts at the unhappy heart of 21st century capitalism which reward shareholder returns more highly than product quality – is not their bid for globally dominant market share, but the desertion of drinkers from their homogenised offerings to craft beers and real ales.
At the mass production end of the beer industry, concentration has continued apace: at the turn of the century, around 10 brewers controlled half of the global beer market. By 2014, that had shrunk to five: AB InBev, SAB Miller, Heineken, Carlsberg and China Resources – which has a dominating role in China, the world’s largest, and virtually invisible beer market, with annual consumption of almost 45 million kilolitres in 2014, virtually a quarter of world consumption. This latest merger reduces the brewing behemoths to four.
But the really interesting developments in brewing are occurring at the micro end of the scale – much more to the liking of my palate. Today in the US, craft brewers account for around a fifth of total beer sales. Whereas the behemoths produce 80 per cent of the beer consumed from a total of 50 brewing plants, the craft brewers have built their market share on output from over 3,400 small breweries. Whereas US beer consumption, valued at around US$100 billion a year, is growing at around 0.5 per cent a year, craft beer sales surged in 2014 by 18 per cent.
The same story comes from the UK, where small brewers supply over 11,000 real ales, and account for about one-sixth of the total market. In the Czech Republic, where per capita beer consumption is by far the highest in the world (225 bottles per person per year, compared with 165 bottles per capita in Austria and Germany), craft beer sales have jumped five-fold in the past five years.
Even here in Hong Kong, the same trend is noteworthy, with 13 craft breweries now supplying the local market, compared with none five years ago. Hong Kong is now hosting several craft beer festivals each year, the most flamboyant being Beertopia held on the Tamar waterfront every November.
In Germany, with the Munich-based Oktoberfest about to start, it is also pleasing to think that the behemoths are being held at bay here. Over 6 million people are expected to flock to the world’s biggest and perhaps longest-standing “volkfest” for beer. They are expected to consume almost 8 million litres of beer – about 1 per cent of Germany’s annual consumption in just one city in 16 days. In 2015 they also feasted on 114 oxen and 50 calves, a bacchanalia that is likely to be matched again this year.
In Germany, home to one of the world’s oldest active breweries – the Weihenstephan Brewery founded in Bavaria in 1040 – ancient and idiosyncratic purity laws have kept the mass brewers at bay. The 1516 Deutsches Reinheitsgebot purity law says that beer can only be made from four ingredients – malted barley, hops, water and yeast. This may not produce beers that appeal to me in the way my old English ales do, but at least the focus is on purity and quality rather than shareholder returns and corporate financial engineering.
So you can tell I am no big fan of this colossal merger. It says lots about homogenization and the relentless squeeze for shareholder returns, and speaks volumes about the erosion of commitment to quality and variety. I know that AB InBev has bought five craft breweries in the past year, taking its total to eight, but this is hardly convincing evidence of concern about the message coming from the world’s beer drinkers. In my own little private protest I think tonight I will be toasting their ill-fortune at the Little Creatures microbrewery in Kennedy Town. Nothing insipid here.
David Dodwell is executive director of the Hong Kong-Apec Trade Policy Group
Article source: http://www.scmp.com/business/global-economy/article/2013086/ab-inbev-sabmiller-merger-does-not-offer-much-beer-thought