Difference in Opinion

Experts disagree on whether a national recession has begun. Corporate earnings in many cases have started to decline and wage growth is stagnant, leading some to believe a recession is on the way. Others just believe lower oil prices have caused a stock market correction.

But one thing is certain: Alcoholic beverages are about as close to a recession-proof commodity as there is. In fact, some people turn to these libations even more in downtimes.

The largest worldwide brewer, Anheuser-Busch InBev (A–B), has positioned itself as a benefactor in economic downturns in the past, and that may hold true even more so this time as the Belgium-based beer company recently announced it will merge with the world’s No. 2 brewer, United Kingdom-based SABMiller plc. The transaction, pending regulatory approvals, is valued at $105 billion, with the combined company boasting annual revenues of $64 billion.

If and when the deal — announced in November and set to close in the second half of this year — is completed, the new combined company will control a number of top beer brands, including Budweiser, Corona, Stella Artois and Foster’s. The deal should also give A–B the opportunity to enter untapped regions of the world, such as Africa, creating what A–B calls the “first truly global beer company.”

Also as part of the transaction, Molson Coors has agreed to purchase from A–B, SABMiller’s 58-percent stake in the MillerCoors joint venture and the global rights to both Miller and Coors legacy brands. In addition, Japan’s Asahi Group Holdings Ltd. announced on Feb. 10 a bid of $2.9 billion for the Peroni, Grolsch and Meantime brands, as well as the Italian, Dutch and British companies of SABMiller that manufacture and distribute these brands.

In the convenience channel, the foremost question right now about the merger is: How will it affect convenience store retailers and wholesalers? Will their business change at all?

On the retailer end, many c-store operators expect to maintain the status quo post-merger.

Brian Sullenger, customer benefits manager for Maverik Inc., told Convenience Store News that he believes the merger will change little at the North Salt Lake City, Utah-based chain of 275-plus c-stores. “From my understanding, this will not affect the U.S. market,” he said.

Tim Cote, vice president of marketing for Plaid Pantry Inc., a 107-store chain based in Beaverton, Ore., holds a similar sentiment. Although he stated the merger should not make a major difference for Plaid Pantry’s beer business, he did acknowledge the beer market could be slightly affected by the aftermath of the merger — namely, the sale of the MillerCoors joint venture to Molson Coors Brewing Co.

“If the Molson Coors purchase of the MillerCoors joint venture goes through as planned, I would assume that it would be business as usual in the short term. In the longer term, I would expect some philosophy changes in go-to-market [strategy] since there would be different leadership. But nothing too radical in nature,” said Cote.

Also in agreement that business would go on as usual should the merger be approved is Damian Wyatt, beverage category manager for Brentwood, Tenn.-based MAPCO Express Inc., operator of 373 convenience stores in eight states under various banners.

In fact, Wyatt sees the potential for benefits stemming from this transaction.

“From an execution standpoint, I don’t believe we will incur any change in our day-to-day business. The product will still be distributed by our current houses, and we don’t believe our customers will experience any change with the merger,” he said.

“In regards to promotional periods and planning, I believe this merger could prove to be beneficial. The merger has the potential to institute easier execution and implementation, as a one-call point system could prove to be representing a stronger unified and more diverse portfolio,” he explained. “This would make it easier on us as buyers and category managers as this would lessen conflicting competition and competing priorities as well as hidden competitive agendas.”

WHOLESALE CHANGES

Although c-store retailers will probably not see any momentous changes post-merger, the story is believed to be much different for beer industry wholesalers.

In fact, Craig Purser, president and CEO of the National Beverage Wholesalers Association (NBWA), testified in December before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights about the subject. It’s important to note, however, that the decision on whether the United States approves the merger does not rest with this Senate subcommittee, but rather the U.S. Justice Department.

NBWA’s leader testified that the proposed merger could have an adverse effect on: the American independent beer distribution system; today’s competitive marketplace; and the vast choice and variety of beers available to consumers.

“If the proposed deal closes, 57 percent of the world’s global beer profit would fall within the A–B and SAB combination. By comparison, Heineken, the next largest global competitor, is at 11 percent and Molson Coors, the largest U.S. competitor to A–B-SABMiller, would be just under 3 percent of that same global profit pool,” Purser testified.

“The resulting concentration could upset the equilibrium of the current U.S. beer market,” he continued, “which today can be fairly characterized as a ‘consumer pull’ marketplace, where the consumer possesses the power to create market demand for popular beer brands. Through coordination with local retailers and local, independent beer distributors, the market responds to that demand.”

These merger transactions could disrupt a critical component to the success of the industry: the combination of an open and independent distribution system with a state-based regulatory system that has worked so well for so many over the years, according to Purser.

“The U.S. beer market is thriving because of a robust and competitive system of independent distribution that reduces barriers to entry, reduces brewer and consumer costs, and fosters the explosion of choice and variety desired by consumers,” he stated.

During the hearing, Purser’s concerns resonated with several of the lawmakers on the subcommittee. “Nobody wants to take a seat at a bar and discover their only choices are a Bud and a Miller,” remarked Sen. Chris Coons (D-Del.).

Added Sen. Richard Blumenthal (D-Conn.): “What we’ve seen over the past years is a trend toward mammoth beer behemoths in our market and the result has not been a happy one for many consumers. I would urge the Department of Justice to think beyond the divestiture that has been proposed.” He went even further by asking Anheuser-Busch InBev CEO Carlos Brito to pledge that he would not terminate wholesalers or put the squeeze on small craft brewers.

“I can commit, as a result of this transaction, there will be no such thing,” Brito responded during the hearing. “This transaction is really about the rest of the world. It’s not about the U.S.”

“The resulting concentration could upset the equilibrium of the current U.S. beer market, which today can be fairly characterized as a ‘consumer pull’ marketplace, where the consumer possesses the power to create market demand for popular beer brands.”
— Craig Purser, National Beverage Wholesalers Association