Wednesday, November 25, 2009

Where Do We Go From Here

Lew Bryson links to an interview with SABMiller head Graham Mackay. The general gist is that industry consolidation is, for the most part, over. There simply aren't any more pieces to buy. There are a couple still out there, Grupo Modelo and FEMSA for example. The big guys, AB-InBev, SABMiller, Heineken, and Carlsberg, are not likely to be purchased - they are, for the most part, "family owned" (!HAH!). So, now what?

Well, I want to take up the "now what" question because I think the "now what" question will affect the craft beer industry more than consolidation has. Over the past decade, market share here in the United States, proportionally, has been moderately stable. Anheuser-Busch has been number one, floating between about 45% and 60% or so, and Miller number two, between 20% and 30%, with Coors and a variety of imports and regional macros making up the difference between the remaining percentage, with micros/craft at 4% and growing rapidly. It doesn't seem like micro/craft growth is affecting any one category more disproportionately than others. Imports have been taking a hit, but I would doubt that this is because of crafts specifically, but a more general domestic/protectionist/pro-USA trend.

Consolidation with global powers like InBev, SAB, and Molson have allowed American macros to increase production and gain revenue and profits despite the meteoric rise of American crafts. The past few years have seen growth by the American macros in places like Asia, South America, Russia and particularly Africa; markets that are more than off-setting American losses. These places, largely vast wastelands of quality beer, are where concentration will be focused. South Africa will host the World Cup and Africa, as a continent, is growing rapidly where countries are stable enough to support it. There is plenty of opportunity for market growth in these regions.

In general, I think these macros will let the US market settle out over the next 10 years. There is a lot of growth and uncertainty over the American market. Who will shake out as major players? How will up-and-comers handle their growth? How will regional brewers respond? What will the market look like? For the most part (Blue Moon and Leinenkugel excepted for reasons I'm not really going to go into), the macro attempts to tap into and participate in this market have failed.

Frankly, it seems to me, that the macros, AB-InBev/SABMiller/MolsonCoors, are happy to ply their trade elsewhere, take their proportional share here and let the market settle out. All the while keeping an eye on the market until the craft market actually starts making a dent. And, while 10% market share is a nice goal for crafts, both AB and Miller crap 10% market shares. They won't even perk their ears until crafts hit 15-20%.

So, what does this mean for American craft brewers? There's plenty of market for the taking and the big-boys aren't really going to put up much of a fight. The real battle, though, is going to take place in the distribution tier. Already distributors are acquiring significant craft portfolios with a "collect them all" attitude. Distributors view crafts, largely, as a commodity. They never know which one will hit, and they don't really care - they just want to be owning the one that does.

Unfortunately for brewers, this means that they shouldn't expect significant marketing efforts by the distributors. It will be up to the breweries to do their own marketing and push their own product. A problem only exacerbated by the fact that the distributors are indifferent and, in fact, are encouraging competition in places where your brand might otherwise succeed. Of course, competition is never a bad thing, but it means that you'll have to fight for every sale with not only other crafts your own size, but larger regional and national crafts, and young, smaller up-starts as well. "Partnering" with a distributor will be largely meaningless because they only have incentive to help those that will bring them the most money.

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