Anheuser-Busch tries to stem market share decline through distribution deals
The good news first for craft brewers: the city of Portland, Oregon, has become the craft beer capital of the United States. During the first quarter 2014, Portlanders drank more craft beer than one of Anheuser-Busch’s or MillerCoors’ big-name brands combined.
In the 52 weeks to the end of March 2014 craft beer jumped 3.8 percent to reach 45.8 percent (in dollar sales) in Portland’s off-premise sector. Although Oregon has over 130 breweries, the top seven craft brewers in Portland control 26 percent of supermarkets’ beer sales by value. This rise came at the expense of the big brewers. AB-Inbev and MillerCoors now only have a combined 40.6 percent share of dollar sales. MillerCoors stood at 23.7 percent and AB-InBev at 16.9 percent, Beer Marketers Insights reported on 30 April.
With Portland being the hometown of West Coast bohemians – at least every other male in Portland cuts his own hair, sports a beard, wears iconic 80’s clothes and rides a bike – the rising preference for craft beers should not really come as a surprise.
The worrying news is that AB-InBev are using their distribution muscle in Portland to ease out other craft beer brands. As was reported by the St. Louis Business Journal on 30 May 2014, AB-InBev bought the Portland-based Morgan distribution company in January this year. Subsequently they merged it with the Eugene-based Western distribution company, which they had already acquired in 2012, and then broke ties with the small craft-beer brands distributed by Morgan.
The move, says the St. Louis Journal, is part of the beer giant’s strategy to expand the reach of its own craft-style labels, which include Chicago’s Goose Island and New York’s Blue Point Brewing. By owning distribution in Portland, AB-InBev have an avenue through which to introduce their brands to consumers.
The crowding out of competition may seem unfair to other craft brewers, but in the state of Oregon that’s perfectly legal. Oregon, like about half of all U.S. states, allows brewers to self-distribute or even own distributors, although in principle this contravenes the Three Tier System. In the past, the right to self-distribute has benefitted Oregon’s craft brewers. Now AB-InBev are taking advantage of it too.
And why shouldn’t they? After all, there are signs that consumer tastes are shifting across the rest of the nation, too. This is a threat to big brand brewers, particularly to AB-InBev. In the off-premise, craft beers’ money sales grew 20 percent nationally in 2013, while Anheuser-Busch brands lost market share. For example, in the state of New York, which is the 4th largest U.S. state for beer sales, AB-InBev’s value share of supermarket sales dropped to under 30 percent in the 52 weeks to 6 April 2014, Beer Marketers Insights reports.
It’s been estimated that between 2008 and 2014, AB-InBev have lost about 12 million hl in beer sales in the United States. They have been able to mask this fact by growing revenues and improving margins but they may not be able to continue doing this indefinitely. Profit growth mainly came from deal synergies and cost-cutting programmes. “With M&A likely to be slower in global beer, we see margin momentum being more restrained,” Nomura’s analysts already warned in January this year.
Hence, AB-InBev have decided to pull all levers to participate in the craft beer revolution. If that means pushing their own craft beer labels over their competition, well’s what else should they do?
However, at the end of the day, it’s up to consumers which beers they will consume. So the big question is, will consumers embrace a craft-style beer owned by Anheuser-Busch or will they prefer to drink a beer they consider to be the genuine article?
