A-B InBev, History, and American Brewing, Part 3 of 6

Part 1 --- Part 2 --- Part 3 --- Part 4 --- Part 5 --- Part 6 Quick side note: I'm focusing my on-going discussion of the A-B/InBev merger on American brewing. Yes, I am aware that InBev deal was driven in large part by the demands of the global beer market. Any corporation these days thinks and acts globally (as, indeed, every person ought to do). But my focus here is on the deal's implications for the American market.

In Part Two, I predicted that the InBev merger will spark a new beer war, similar to one of the 1970s, with the two parties at war being A-B InBev and MillerCoors. In the 1970s, A-B and Miller attacked each other in a cutthroat, last-man-standing battle for dominance of American brewing. Their weapons were new products, billions spent on advertising, and price-slashing designed to undercut each other and every other beermaker. (*1)

I suspect we'll see much of the same in the months ahead -- although I doubt price-cutting will be as effective as it was in the 1970s, when the two giants could slice price to the bone and get away with it. The current (global) shortages of barley and hops have already pushed every beermaker into a corner. There's not as much leeway on price as there was back in, say, 1979 (even given the horrific inflation of that decade).

InBev -- er, sorry -- A-B InBev will also become more aggressive in the so-called "import" segment of the American market. That's a no-brainer: InBev many brands around the world and it will want to move some of them into this market.

But this upcoming beer battle will differ from the one of the 1970s because this time, A-B IB and MillerCoors will strike deep into the "craft beer" segment. They don't have much choice, and here's why:

For the past fifteen or so years, beer consumption in the U.S. has been flat and some years has even declined. That's due largely to demographics and to the way the mainstream brewers have sold beer for decades. From the mid-1930s to about 1960, brewers tried pitching to women, to older, more affluent adults; tried pitching beer as a substitute for coffee and milk at meals. (I might add that the 1950s in particular was a BAD decade for brewers; in my book I called it the near-fatal fifties.) They didn't have much luck with those approaches.

And then came salvation: Starting about 1960, the first of the baby boomers hit legal drinking age (which was then 18). Brewers finally found their audience: young people in general, and young men in particular. Beer consumption soared, and so did brewers' sales. (*3)

Since then, mainstream brewers have opted for the path of least resistance (and who could blame them?) They dumped all their eggs into the young men basket. (Note that I said "mainstream" brewers. I'm not including craft brewers in this assessment. You'll see why soon.)

That was great as long as the particular demographic remained large in size. And it did until the 1980s, when, you guessed it, the bulk of the boomers had turned 30. Beer sales slumped.

Problem was, the next demographic to come along, so-called Gen X, was only half the size of the boomer generation. Beermakers weren't able to replace their core drinking audience of young men.(*2) This demographic issue has come back to haunt the mainstream brewers (all three of them: A-B, MillerCoors, and Pabst). And it's why the craft beer segment presents enormous potential for beermakers and why I predict the upcoming beer war between A-B InBev and MillerCoors will have play out amongst the craft brewers.

You guessed it: more next time.


*1: for those who want to know more, there's a fascinating account of the effects of that battle in the testimony at a 1978 Congressional hearing. You can read it online if you have access to Lexus Nexus Congressional. Use keywords: 95th Congress; Committee on the Judiciary; merger; industrial concentration. Interesting stuff.

*2: Quick numbers: Baby Boom (c. 1945-1964): 83 million Generation X (c. 1965-1978): 37 million Echo Boom (aka Gen Y) (c. 1977-1994): 72 million (Some demographers run this cohort all the way to 2001, which makes this group even larger)

*3: There was no better evidence of that than the CNBC program on Budweiser the other night. Much of the program focused on A-B's advertising over the past thirty years. Didja notice how those ads aimed straight at the guy-humor thing? A-B doesn't market its products at old ladies like me. Those were guy ads filled guys doing guy-things. The women in them functioned as, you guessed it, eye-candy for (young) men.