Anheuser Busch and Sam Adams

While Anheuser Busch worries about fending off a potential hostile takeover bid from InBev, leading craft brewer Sam Adams adopts an interesting strategy of actually helping the competition. What an interesting contrast... First, at Sam Adams, founder and CEO Jim Koch has described how he recently shared 10 tons of hops at cost with other craft brewers to help them deal with the rising cost of commodities. Why did he do it? Koch explains that he wants the craft brewing segment of the beer industry to thrive, and the price of commodities could cause some craft brewers to fail, and others to sacrifice quality to control costs. He doesn't think either is good for Sam Adams. Koch wants to grow the overall size of the craft brewing market, rather than fight for share with other microbrews. It's an interesting strategy of trying to cooperate with other craft brewers in their collective fight to continue taking share from large mass brewers, as well as other alcoholic beverages. Koch knows that he can make more money by growing the overall craft brewing segment than he can by fighting for tiny market share gains against other microbrews.

Meanwhile, at Anheuser Busch, the firm faces a hostile bid for a few reasons. First, the firm has struggled recently with a substantial change in consumer tastes in US. Consumers are buying more craft brews or imports when they drink beer, but the bigger problem is that they are substituting spirits and wine for beer. Spirits has grown with the innovations in that market in recent years (pre-mixed drinks, flavored spirits, etc.) Wine has grown with the continuing efforts to educate the public about the health benefits of wine, as well as with the branding efforts of major wineries. Second, Anheuser Busch is highly reliant on the North American market. They have not been able to expand successfully in many parts of the world. Thus, as American consumers have shifted away from beer, they have been quite vulnerable.

In general, the large brewers find themselves fighting for share in mature markets, and looking for growth in emerging markets. It's not surprising to see consolidation given the slower overall industry growth. The interesting question is whether further consolidation will yield the benefits that firms have seen to this point. How big is big enough?

In addition, the question is what will happen to diversified alcoholic beverage firms that own beer businesses. Will a firm such as Diageo, which is largely a spirits company, keep a hold of Guinness - its prime beer brand - in the face of beer industry consolidation? Will Foster's Group keep its beer businesses now that it's primarily a wine company (it owns Beringer's, Wolf Blass, Lindeman's, etc.)? Will these companies focus on wine and spirits and move out of beer? Or, will we see beer companies increasingly expand into wine and spirits to deal with the declining consumption of beer in some countries such as the US?