There used to be just three things that were absolutely certain. Death, taxes, and Lucy pulling the football away from Charlie Brown just before he was able to kick it. Now there is a fourth thing: the world's largest breweries just keep getting larger.
It's not like this is some kind of a new trend. In 1873, there were 4,131 ale and lager breweries in operation in the United States. This sank to 2,830 by 1880 and then 1,600 by 1910. Consolidation became more radical after World War II. Consumer preferences moved away from the dark and stronger flavored beers made by smaller regional brewers towards paler and drier lager types. The bigger operators began spending more on national advertising in the 1950's and proceeded to dwarf the regional players by orders of magnitude until they snuffed them out of existence.
In 1950, American brewers produced a total of 6.75 million hectoliters (Mhl) of beer, with the top ten brewers manufacturing 38% of that total. Just a decade later, American output had risen 6.2% to 7.17 Mhl, but the Top 10 now boasted 52% of that output. The 1960's saw a tremendous surge in production as total American output rose to 9.94 Mhl. The Top 10 now claimed 69% of the total. By 1980, output stood at 14.38 Mhl, the Top 10's share being 93%.
To better comprehend that lopsided concentration, it helps to zoom in further and just look at the Top 3 producer's percentage of the Top 10. In 1950, the Top 3 produced 45% of the Top 10's output. This percentage remained virtually unchanged throughout the 1950's. The explosion in beer production during the 1960's coincided with the Top 3 seizing a bigger share, 57% of the Top 10 pie by 1970 and 63% by 1980. In other words, just three American breweries controlled 58% of the American beer market in 1980.
You see the same phenomenon repeated with minor differences in other countries. Mexico: by 1920 after the revolution had concluded, there were close to 40 different breweries. Major consolidation soon occurred which distilled brewery totals down to two major players that supply over 90% of all the beer in Mexico today. Denmark: Last century was dominated by just one brewery, Carlsberg. A collection of regional Danish breweries finally united in 2005 to form Denmark's second player, Royal Unibrew. Australia: Beer consolidation took place just after the country formed its federation in 1901. Twenty-one breweries in Sydney dwindled to two, and five breweries in Melbourne merged a few years after to form the behemoth Carlton and United Breweries. By 2013, just two giants owned every major brewery in Australia except for one.
Call that Consolidation Phase I. The natural next step for a powerful national brewing giant is to extend its tentacles outside its own boundaries for further growth, usually by buying out smaller players. Carlsberg now owns Kronenbourg (France), Baltika (Russia), Grimbergen (Belgium), Angelo Poretti (Italy), and Ringnes (Norway) to name a few, and is presently the world's fourth largest beer group with 5.6% of world market share.
Heineken expanded outside its homeland of Holland a long time ago and owns over 165 breweries in more than 70 nations. Bintang (Indonesia), Tiger (Singapore), and Birra Moretti (Italy) are synonyms for Heineken. The Dutch giant lays claim to 8.8% of the world's beer market.
South African Breweries was content dominating southern Africa for almost a hundred years. In 1999, it bought out the Miller Brewing Company, licked up Bavaria and Grolsch, and in 2011 engaged in a hostile takeover of Fosters, making it the world's second largest beer company, as SABMiller, with a market cap of US$97bn and 9.8% of the market.
The true lion of the pack is Anheuser-Busch Inbev, created from a succession of various mergers on three different continents over two decades. The first merger occurred in 1987 when two Belgian giants, Artois and Piedboeuf Brewery, merged to form Interbrew, the world's third largest brewer at the time which soon gobbled up Beck and Bass. Twelve years later in Brazil, the two largest Brazilian brewers merged to form AmBev, the world's fifth largest. Five years later, the Belgian and Brazilian entities combined to form InBev to grab the spot for the world's largest brewer. By 2007, InBev had 16% of the world's market share while SABMiller ran a close second at 12.3%. After InBev merged with Anheuser-Busch at the end of 2008 in hostile takeover worth US$52 bn, the resultant Anheuser-Busch InBev colossus possessed 18.3% of the world's market share and a market cap of $183bn. Come 2013, Anheuser-Busch InBev slurped up the rest of the shares of Mexican hulk Grupo Modelo. One in every five beers sold worldwide is now one of AB InBev's.
AB InBev's latest move has been an attempted guzzle of #2 player SABMiller for a premium payout of $104 bn. Antitrust regulators have to go over all the details before final approval. As long as AB InBev is willing to shed a few assets to satisfy the regulator concerns, no one should expect the merger to get the kibosh. The new combined mega-giant will have under its control 45% of the world's Top 20 selling beers.
This world picture is almost a replica of the market consolidation grab seen in the USA between 1950 and 1960. In 2003, the world's five largest brewing companies had 32% of the global market. A decade later, that share had risen to over 50%. There's no reason to think that the top five won't eventually have a 75% share, just as they did in the American market in 1980.
A big brouhaha was made by the Brewer's Association in the USA how craft brewers in 2014 had finally reached a double digit (11%) share of the American beer marketplace. CNBC wrote how craft brewers were now beating big beer. Are they? 89% of the U.S. market is still in the hands of big beer players. That might be a 4% drop in the share the Top 10 controlled in 1980, but what does that mean? When you once have 93% market share, there's a lot more room to move down than up.
Craft breweries pose no serious threat to beer giants, now or ever. Boston Beer Company, the third largest American owned brewery and publicly traded, is valued at $3.4 bn. Heineken's estimated $500m investment for a 50% stake in craft brewer Lagunitas Brewing Company is a relatively cheap sign of things to come. These figures are weekend pocket money for any of the largest global players.
Brewery consolidation won't be finished until the fat lady sings, and she won't be singing until two or three companies control over 90% of the global market. So far, the beer hulks are thinking, you ain't seen nothing yet.