Many analyzes have been made of globalization in the brewing industry that occurred at the start of the 21st century in which mergers and acquisitions (M&A) feature prominently (Euromonitor, ; Pedersen et al., ). But the motivations of the key players behind globalization in the beer market remain unclear. The largest breweries played the key role in the restructuring of the industry and doubled their share of the world beer market, but seemingly without any short-term payoffs (Madsen et al., ). In this chapter we focus on the nature of the product and discuss the methods of distribution and product branding as important explanations why the brewing industry moved from a regional to a global industry.
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:Case 9-1 AB InBev and SABMiller: A Match Made in (Beer) Heaven? Market Entry Problems in Japan SAB was not the only brewer seeking to expand its global presence. Anheuser- Busch's experience in Japan provided a case study in entry-mode options, and highlighted the advantages and disadvantages of the joint-venture approach. Access to distribution is critical to success in Japan; Anheuser-Busch first entered that market by means of a licensing agreement with Suntory, which at the time was the smallest of Japan's four top brewers. Although Budweiser became Japan's top-selling imported beer brand within a decade, Bud's market share in the early s was still less than 2 percent. Anheuser-Busch then created a joint venture with Kirin Brewery, the market leader. Anheuser-Busch's 90 percent stake in the venture entitled it to market and distribute beer produced in a Los Angeles brewery through Kirin's channels. Anheuser-Busch also had the option to use some of Kirin's brewing capacity to brew Bud locally. For its part, Kirin was well positioned to learn more about the global market for beer from the world's largest brewer. By the end of the decade, however, Bud's market share hadn't increased and the venture was losing money. On January 1, , Anheuser-Busch dissolved the joint venture and eliminated most of the associated job positions in Japan; it then reverted to a licensing agreement with Kirin. The lesson was clear: In Japan, it often makes more sense to give control to a local partner via a licensing agreement than to make a major investment. Heineken Netherlands-based Heineken is another brewer that, like SAB, has made the transition from a local brand to first a regional brand and then a global one, Today Heineken, in the iconic green bottle emblazoned with the red star, is sold in more countries than any other single brand, Heineken is an independent brewer, and the fourth generation of the founding Heineken family remains in control of the company. In , Heineken turned down an acquisition offer from SABMiller. The brand's popularity can be attributed in part to an advertising tagline from the s and s that has become legendary in the annals of marketing communications. At the time, Whitbread PLC, a brewer of English ales, distributed Heineken in the United Kingdom. The phrase "Heineken refreshes the parts other beers cannot reach" helped convert British consumers from traditional ales to Heineken's lager. Following a game plan similar to SABMiller's strategy, Heineken CEO Jean- François van Boxmeer has invested more than $30 billion since the mid-s by making dozens of acquisitions. In doing so, he almost doubled the company's market coverage, which now extends to 70 countries. In addition to its namesake brew, today the company markets Amstel, Affligem (based in Belgium), Sol (Mexico), and Tiger (Singapore). Increased scale is one way the company helps reduce the costs of key commodity inputs such as malted barley and aluminum. More Acquisitions Consolidation in the brewing industry continued at a rapid pace in the s. In , Belgium's Interbrew merged with a Brazilian company, Ambev. The new entity was known as InBev; in , InBev acquired Anheuser-Busch in a deal valued at $52 billion. After cementing its status as the world's largest brewer, Anheuser-Busch InBev, led by its CEO, Carlos Brito, made headlines again in when antitrust regulators approved a £79 billion ($101 billion) takeover bid for SABMiller. The deal is expected to result in annual cost savings of as much as $500 million for the behemoth, At the time, approximately one-third of AB InBev's revenues were generated in the United States, where the top-selling brands include Bud Light and Budweiser. However, the company had virtually no presence in Africa, By contrast, SABMiller was experiencing growth in both sales and revenues in Africa, More generally, emerging markets account for about three-fourths of SABMiller's revenues, For example, Snow, a local Chinese brand, was SABMiller's sales volume leader. As noted in Chapter 5 E, however, to satisfy Chinese antitrust regulators, SABMiller was required to sell its stake in Snow before the acquisition could go through, The combined entity had $64 billion in revenue and commands nearly one-third of the global beer market, Emerging Markets Global brewers are also stepping up their marketing activities and making strategic investments in fast-growing emerging markets. A case in point is China, the world's largest beer market, with $6 billion in annual sales. As Sylvia Mu Yin, an analyst with Euromonitor, noted, "Local brewers are keen to explore strategic alliances with large multinational companies. At the same time, foreign companies are eager to sell to the 1.3 billion Chinese, but lack local knowledge." In particular, AB InBev is seeking deeper penetration with its Budweiser brand. Vietnam is also attracting the attention of the major international brewing companies. With a population of 90. million people, Vietnam is a nation of beer drinkers and ranks fifth in per capita consumption in the Asia-Pacific region (Australia ranks number 1). In , the Vietnamese government moved forward with plans to sell stakes in two key state enterprises. Hanoi Alcohol Beer and Beverages Corporation (Habeco), the third largest by sales, brews and markets the popular Hanoi Beer brand. Its larger rival, Sabeco, is based in Ho Chi Minh City and commands approximately 40 percent of the market with brands including 333 and Saigon Beer. AB InBev, Carlsberg, Heineken, Thai Beverage, and Kirin Holdings were among the potential suitors eying both Vietnamese companies as potential investment targets, Heineken, whose Heineken and Tiger brands are popular in Vietnam, already owned a 5 percent stake in Sabeco, Danish brewer Carlsberg's stake in Habeco stood at 17 percent. Africa; The Last Frontier Heineken currently has operations in Ethiopia and Cote d'Ivoire, However, AB InBev's SABMiller unit, has also set its sights on low-income consumers in Africa. According to industry forecasts, Africa's beer sector will grow by 5 percent annually; by contrast industry forecasts, Africa's beer sector will grow by 5 percent annually; by contrast, beer consumption is declining in Europe and North America. In Africa, brewers are cutting costs by negotiating deals with local governments to lower taxes on beer sales. Officials can often be persuaded with a two-pronged argument, First, the low-cost beers use local crops such as sorghum, so they create jobs locally. Second, legal, branded brews from well-known companies are a safer alternative to illegal home brew. One unintended consequence: As farmers switch from food crops such as corn and beans, prices for these and other consumer staples are increasing. Back in the United States Prior to the acquisition by AB InBev, SABMiller had introduced several local brands in its portfolio in the United States. The company set out to build Pilsner Urquell, the number 1 beer in the Czech Republic, into a national brand in the United States. Success in that effort would be the foundation for transforming Pilsner Urquell into a global premium brand to rival Heineken. A pale lager, Pilsner Urquell has been produced at the Prazdroj brewery in Pizen (Pilsen") since . The brew has benefited from a trend that finds U.S. consumers graduating to craft beers that have stronger hops flavors. SABMiller's marketing program included training bartenders to ensure that each draft pour came with a thick head of foam, In , Colorado-based Adolph Coors merged with Canada's Molson. In , to compete more effectively with AB InBev, SAB.Miller and Molson Coors created a 50-50 joint venture called MillerCoors LLC, That venture, a combination of SABMiller's U,S. operations and those of Molson Coors Brewing, created the number 2 brewer in the United States, At the time, AB InBev commanded a nearly 49 percent share of the $100 billion U,S, beer market, Coors Light was the number 2 beer brand by volume; Miller Lite was number 4, Then, in , following the SAB Miller and AB InBev deal, Molson Coors raised its stake in MillerCoors to full ownership as part of a $12 billion deal.
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