Beer Monopoly




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Posted November 2016


Beer Monopoly | With the de-listing of SABMiller in October 2016 the era of globalisation in the brewing industry will be nearly over, simply because there are hardly any blank spots left in the world of beer where a heavyweight beer champion has not made its mark. All the majors appear to have settled into their seats, namely their dominant positions in their respective markets around the world. But this is not the end of history. No doubt, dealmaking will continue, even if only to help the big brewers pay down debts from past acquisitions.

While it is often said of a book that it has been a long time in coming, this is never more true than for ours. The Beer Monopoly: How brewers bought and built for world domination has been in the pipeline for about a decade. At various times we have commented on the heady dealmaking that has been the dominant feature of the globalisation of the brewing industry, but have ultimately always refrained from publishing our thoughts. We feared that the window of opportunity for our book to make its appearance between two mega-deals would be brief. In fact, we had to wait until the endgame in the globalisation of the brewing industry, which was heralded in 2015 when the world’s number one brewer, AB-InBev, made an offer for the world’s number two, SABMiller.

In an effort to describe the globalisation of brewing industry, we have taken an in-depth look at AB-InBev, SABMiller, Heineken, Carlsberg as we charted their track records at dealmaking and analysed how this process was shaped and who has driven it. But when profiling these four firms and their ascent, we also pursued far more pertinent questions: first, to what extent was the globalisation of the brewing industry typical of globalisation itself and second, how was it possible that a sector previously considered unattravtive by investors could suddenly become so rewarding.

Global companies don’t stint on pens, or do they?

Our book is called The Beer Monopoly in acknowledgement of Germain Hansmaennel’s model of the Beer World Monopoly which argues that there are certain analogies between the well-known Monopoly board game and the globalisation of the brewing industry. Whoever buys certain streets (i.e. gains market dominance in certain markets), and whoever builds hotels (i.e. brands) has the best chance of erecting an empire which spans the globe. Being an expert Monopoly player, Mr Hansmaennel confidently predicted in 2006 that the globalisation of the brewing industry had reached the semi-finals and that we would next witness several mega-mergers. Two leading trans-continental groups – InBev (the precursor of AB-InBev) and SABMiller – would be fighting over the lead position. He was proven right. In 2008 InBev bought the US brewer Anheuser-Busch and set its eyes on acquiring SABMiller.

We advance the argument that it was through dealmaking and by following the roadmap outlined in Mr Hansmaennel’s paradigm that several groups became global players. As these costly acquisitions needed outside financing, the globalisation of the brewing industry fundamentally answered to the rules of finance capital. After each deal brewers had to deliver, meaning they had to produce consistent, dramatic upsurges in profitability. But while Mr Hansmaennel’s strategy pattern lies at the heart of our analyses, it was only a means to an end: empire building. Our slogan, ‘buy and build’, captures the essence of globalisation in the brewing industry. It proved a quicker and more profitable route to empires than the old strategy of ‘build and brew’ (also known as the Heineken Model), which characterised the previous era of internationalisation, and which in turn had superseded beer exports.

The term ‘build’ appears in both, but its meaning has changed. When going ‘international’ brewers literally built a brewery and started selling locally produced beer. When going ‘global’ their goal was to build empires, with one takeover being the precondition for the next.

It was SABMiller’s late CEO Graham Mackay who pointed out that transactions needed to create ‘more value’ than merely demonstrating 1+1=2. Our formula for dealmaking, 1+1=3, reflects this principle. Sizeable profit growth was the main trajectory as the whole ‘buy and build’ bustle followed a deeper rationale, whereby successful deals would help fund the next transaction. It was through taking on and paying down debt that brewers turned themselves into global groups and reliable debtors, thus making their investors very happy indeed. So yes, global brewing companies have become sniffer hounds for excessive expenses. But cost cutting alone did not get them to where they are today.

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