Posted
August 2010
It ain’t over yet
Consolidation of the brewing industry | It must be high summer, when all
rational discussion of important issues is cast aside for the
perennial debate on “who is doing lunch or being lunch” which
has driven mergers and acquisitions in the brewing industry
around the world for the past 15 years. Following the break-up
of Scottish & Newcastle and the takeover of Anheuser-Busch two
years ago, several armchair pundits declared that the beer
monopoly game was over. All said and done. Finished. No more.
However, many tablecloth strategists would not accept this
verdict. Indignantly, they pulled out their crystal balls,
polished them off furiously and peered into them. Here is what
they saw at the murky bottom.
It must have been in 1997 when I attended a conference by Germany’s guru
of management consultants Roland Berger. Mr Berger in his
self-styled role of the brewing industry’s Cassandra warned a
hall packed to the walls with several hundred German brewers
that if they stood in the way of history, they would get knocked
down. “Sell up and move on while there is still time” he said.
The internationalisation of the brewing industry would lead to
rapid domestic market consolidation with perhaps a handful of
players calling all the shots. As if to underline his ominous
prediction he next pressed a button and up on the wall came a
chart of the global soft drink industry. “This”, he murmured
portentously, “is what the brewing industry will eventually look
like: a global business with only two players controlling over
80 percent of the market.”
In response to Mr Berger’s doomsay I suspect the audience secretly gave
him the finger. After all, what were Germany’s 1300 odd brewers
supposed to do? Voluntarily sell their breweries, which had been
owned by their families for generations? Or turn up their toes
and wait to die?
Thirteen years on, the German beer market is as highly fragmented as it
was then. There are still 1300 odd breweries around. Four groups
share a measly 38 percent of the market. What is more, three of
the top four brewers continue to be privately-owned although
Interbrew has bought Beck’s, Gilde, Spaten and Diebels while
Carlsberg took over Holsten and Heineken acquired a stake in
Brau Holding International (Paulaner, Kulmbacher).
The CEO of the Bavarian Brewers’ Association, Dr Lothar Ebbertz at a
recent press conference blew his top when someone pointed out –
with an undertone of reproach - that the German beer market was
not as consolidated as the rest of the world. “There is no law
that markets must consolidate” he fumed. “And Germany is the
proof.” After a moment’s hesitation he added that by refusing to
consolidate the German beer market has become an appendix to the
global beer market. But so what?
Eat or get eaten?
Nobody has yet discovered a tablet of stone into which someone has
chiselled the commandment: “companies must buy up or get out”.
However, everybody and his dog is preaching the gospel of
“Market Darwinism” – the modern creed which makes market
consolidation an inevitable, inescapable and quasi legitimate
process of “natural selection”. Bruce Henderson (1915–1992), the
founder of the Boston Consulting Group, reportedly said: “Darwin
is a better guide to competition than economists.” He implied
that if we take Charles Darwin’s theory of evolution and apply
it to the market economy we will see that commercial evolution
and survival in an increasingly global market place also depend
on the “survival of the fittest”. While the weak will diminish
and eventually go under, the strong get more power and continue
to grow.
It’s a truism that market consolidation has been a driving force in many
industries, including the brewing industry, for some time.
Removing competition and achieving cost efficiencies derived
from scale have become critical not only to gaining success, but
for survival in a new world that is ever evolving in its
“sophistication” (another word for “profit maximisation”).
Many of you will probably find all this talk about Market Darwinism a bit
thick and heavy-handedly academic. Granted. But imagine you are
a stock market listed brewer like AB-InBev, SABMiller, Heineken
or Carlsberg. Wouldn’t you be fighting for survival day in day
out in what is euphemistically called a “finance-driven”
industry? Wouldn’t you be aiming for ever higher EBITDA margins
and market shares, well aware that if you don’t bring home the
bacon you will receive the financial markets’ equivalent of a
“thumbs down”? German brewers may be content with making ends
meet as they see their beer volumes decline – but others, who
have to answer to analysts and investors, cannot. They must do
better than that.
Is bigger ultimately better? In terms of key financial indicators, the
answer is a resounding “yes”. But you do not have to enlist
Darwin’s theory of evolution to argue this case. If the Market
Darwinism hogwash serves any purpose it’s purely ideological in
the sense that it’s supposed to blind us to reality. Market
Darwinism offers itself as the perfect pseudo-scientific
rationalisation of a monopoly or a shared duopoly. That’s why
anti-trust bodies should prick up their ears each time someone
mentions Darwin.
Interested in reading the rest of this report? Then you’d better
subscribe to Brauwelt International. Read on
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