"Successful craft brewers should man the barricades" - Protz on the AB InBev/SABMiller deal

The £67.4bn takeover of SABMiller by AB InBev is both frightening and encouraging. It’s frightening that the merged group will control one third of world beer production. It’s encouraging because it signals the impact craft beer — including cask ale in the UK — has made in the traditional markets of Europe, North America and Australasia, where it has eaten into the sales and influence of the mega brewers.

The merger has been driven principally by the need to dominate the emerging markets of Africa, Asia and the old Soviet bloc, but its impact will be felt in older sectors too.

These giant companies have enormous marketing muscle. Look at the way Molson Coors has turned Doom Bar from a small Cornish brand into the leading ale on draught and in bottle in the UK. There’s a similar pattern in the United States where AB InBev has boosted sales of Chicago’s Goose Island IPA and Honkers Ale, and built a new ‘facility’ on the east coast to give the brands greater reach.

Earlier this year, SABMiller bought the acclaimed Meantime Brewery in Greenwich, with promises to turn it into a “European centre of excellence”. That plan may turn to dust when the hard-nosed accountants at AB InBev run the rule over Meantime’s books. They will point out that rice and maize are cheaper alternatives to malting barley while hop extract costs a fraction of the whole flower versions.

The merged group will, without doubt, continue to buy craft breweries in the US and Europe. It has trading links with Kirin of Japan, which dominates brewing Down Under. AB InBev’s main interest, however, has been to grab SABMiller’s enormous influence in Africa and to reach out to the fast-growing and well-heeled middle classes in China, Russia and other regions of Asia, the Baltics and eastern Europe.

SABMiller may be registered as a British company, but SAB stands for South African Breweries, which has an awesome presence in that part of the world. AB InBev, an unwieldy amalgam of Anheuser Busch, Ambev of Brazil and InBev of Belgium, is keen to build a greater presence in Africa. It’s the Brazilians who call the shots and they have a hard-nosed record of closing breweries and centralising production in order to reduce costs.

Just how far removed these brewing giants are from the world of real beer can be seen by the companies that have a major stake in them. Altria, the owner of Philip Morris cigarettes, controls 27% of SABMiller.

Bevco, owned by the massively wealthy Santo Domingo family of Columbia, owns a further 14%. It runs the Bavaria brewery but also produces soft drinks, wine and spirits and runs TV and radio stations.

In South Africa, a further major investor in SABMiller is the Public Investment Corporation that has no interest in brewing but seeks to facilitate takeovers and mergers, and has merely queried the financial aspects of the deal with AB InBev.

The fifth largest shareholder in SABMiller is Kulczyk Investments, registered in London but founded by Polish entrepreneur Jan Kulczyk with the aim of looking for “opportunities in emerging global markets”. As well as beer, the company is also involved in mining and gas and Kulczyk can now add an abundance of CO2 to
his portfolio.

The merged global beer giant’s main brands will include Budweiser, Foster’s, Peroni, Stella Artois, Hoegaarden, Grolsch, Pilsner Urquell, Beck’s, Corona, Kozel, Radegast, Leffe, Castle, Tyskie, Bohemia, Lion, Goose Island, Weinhard, Leinenkugel and Dirty Granny.

Yes, there really is a beer called Dirty Granny in Australia. More importantly, SABMiller owns Australia’s leading brand VB or Victoria Bitter, which gets worldwide coverage through its sponsorship of the Australian cricket team.

In order to satisfy American regulators, the trading deal in the US between Miller and Coors may have to end. It’s not likely, however, that the British Government will interfere with “the free play of the market”, though the sale of such cast-off brands as Bass, Boddingtons and Flowers could be speeded up.

In the longer term, as brewing history shows, a merger steamroller quickly gathers pace. Carlsberg and Heineken already work in partnership in Europe, west and east, and their intricate family structures will probably keep them safe from take-over. Diageo, whose main interests lie in whisky and wine, is rumoured to be contemplating off-loading Guinness, and the Irish stout would fit well with AB InBev’s Africa push.

Further deals with Kirin should not be ruled out.

If the state-owned Budweiser Budvar in the Czech Republic is eventually privatised, AB InBev may seek to end the long dispute between the two Budweiser brands by buying the brewery in Ceské Budejovice.

One can only imagine what the accountants would make of Budvar’s 90-day lagering regime and would recall John McEnroe’s famous cry: “You cannot be serious”.

Successful craft brewers should man the barricades while we await with interest the name of the newly merged world giant. Fizz Corp anyone?