News that Anheuser-Busch InBev, the world's largest beer company, and SABMiller, AB's top competitor, have reached a deal in which AB InBev is purchasing SABMiller for the hefty sum of $107 billion is certain to impact the greater beer market. In joining forces, the companies have created one massive beer company that effectively produces a third of the world's beer. While we're months away from seeing the real ramifications of the merger, some experts predict it will result in more competition, more acquisitions and significant shifts in the market.
Here are five ways the deal could change the beer industry:
1. Larger beer companies will consider major acquisitions to compete with the new beer giant.
As part of the deal, SABMiller will sell its stake in a venture with Molson Coors for $12 million, giving Molson Coors full control of its properties as well as the Miller brand. That means Budweiser and Miller won't be under the same parent company to assuage fears that the combined beer behemoths would have too much control of the U.S. market.
But Molson Coors acquiring the Miller brand is just one of several potential brand acquisitions experts expect to see as possible reactions to the deal.
"The other global beer companies, like Carlsberg and Heineken, are going to think about their place in the world differently, so that may lead to implications in the U.S.," said Bart Watson, chief economist at the Brewers Association. "You may see some of the other global companies looking to get into the U.S. or acquire stakes or try to build their global reach as well."
Watson explained that "there are already rumors about a Heineken and Molson Coors tie-up. They just saw their biggest competitor get even bigger, so if you're another global beer company, you've got to think about how to keep up. Plus, they already work together in Canada."
Experts also speculate that Diageo, primarily a wine and spirits company and owner of the Guinness beer brand, will spin off Guinness to another company.
2. Minor acquisitions, especially in the the craft beer market, will also be considered.
While experts say the deal will have more implications for the global markets than in the U.S., they do see it as a way for AB InBev to offset losses it has experienced in the U.S. from the explosion of the craft beer market. By acquiring SABMiller, the company has bought into growth markets like Africa and Latin America.
"They are trying to grow elsewhere because they can't grow in the U.S.," said Watson. "It's proved difficult for large companies to grow share in Europe and the U.S. as, increasingly, consumers are interested in a more differentiated product, whether that's more flavors or a different appeal."
To that effect, Watson expects the new combined beer behemoth will continue to acquire smaller craft beer companies in the U.S. market.
"This is a global company that makes over 500 million barrels of beer now, so craft-brewer deals are small potatoes to them. But I do think they're interested in continuing to play in the U.S. market, and the growth section of the U.S. market is in craft and imports beer right now," said Watson. "It's hard to play in that market without acquisition because what craft [beer brands have] stood for is hard to replicate by bigger brands."
Colman Andrews, vp and editorial director of The Daily Meal, agreed. "The craft beer market is growing, and obviously these companies are actively pursuing buying up craft brewers. Goose Island was one of the famous ones in Chicago; Elysian was one in Seattle. They probably own four or five [craft brewers] now."
3. Changes for the marketing and branding of AB InBev and SABMiller brands are likely.
Once the deal is finalized and the companies work out all of the various regulatory hurdles, experts expect to see shifts within the companies' marketing and branding strategies.
"[It could] reinvigorate marketing approaches and stimulate some healthy branding competition across the majors," said Jay Haines, founding partner of executive search firm Grace Blue. "This could be good news for agencies and, potentially, consumers."
Though, Haines also expects the transition to create an "extended period of uncertainty and/or fragmented marketing and branding efforts until the dust settles on the new organization." That could lead to "agency relationships [that] will be taxed and stressed" as well as "branding efforts [that] are likely to be short term in focus."
4. The combined AB InBev-SABMiller could corner the market during ingredient shortages.
While AB InBev and SABMiller already had huge purchasing power, the combined beer giant will be even more influential, experts say. There could be long-term implications for the raw materials brewers use to make beer.
"If there's a hop shortage, you've got to bet that AB InBev has the resources to buy up every spare hop on the market which small brewers are not going to have access to," said Watson. "It won't change the day-to-day, but when push comes to shove, a global behemoth can affect the market in ways that small players can't and in a way that maybe they couldn't before this deal."
Andrews agreed. "[Implications of the deal] extend to what this is going to do to buying power in terms of hops and malt and so forth."
5. Distribution channels in the U.S. might be more difficult to navigate for craft brewers.
According to Watson, the vast majority of beer in the U.S. goes through a three-tier distribution system in which a brewer sells to a wholesaler who sells to a retailer. It's a mandate in most places for beer to go through this system. The deal could lead to more friction within the distribution networks.
"Essentially, there are two major networks that are fairly tightly aligned with Anheuser Busch and Molson Coors or whatever they end up calling the new company [after the Miller brand is in the fold]," said Watson. "There are independent wholesalers, but because they carry the [AB InBev and Molson Coors] products, they have more integration around working together than they would otherwise."
AB InBev has already been?where legal?buying these distributors (in some states it's illegal), so now, about 10 percent of the volume of their beer sales in the U.S. is done through distributors they own, according to Watson.
"That's worrisome for small brewers because AB has a history of pressuring their networks, particularly the ones that they own because they control them directly, to carry only AB brands or, if they carry other brands, to focus on AB brands," said Watson. "You couple that with how they are buying up smaller brewers [and this deal], and it may be harder for small brewers to get distribution where they have those branches."