The U.S. Justice Department has sued AB InBev’s planned $20 billion acquisition of Corona from Mexican owner Grupo Modelo, on the grounds that the expanded AB InBev and MillerCoors would dominate the U.S. beer market and raise prices to the detriment of consumers. This is the same Anti-trust concern that prevented the AT&T acquisition of TMobile and UPS’s bid to acquire Dutch TNT Express.
As of 2012 AB InBev market share is 37% percent, followed by SABMillerCoors share of 30%. The DOJ argues that The Corona acquisition would raise AB InBev’s U.S. beer market share from 37% to 46%. Together, the two giants would control 76% of the U.S. beer market, leaving U.S. beer consumers with a plethora of second tier and regional brands amounting to 24% of the market. Does this mean no consumer choice and no price competition?
Guess what? In 2012 Coca Cola’s market share in the U.S. was 41.9%, larger than AB In Bev’s share, followed by Pepsi’s 29.9% market share, equal to SABMillerCoors. The Soda giants combined share is 71.9%. Just like beer options, there are plenty of soda options, particularly store brands and far more soft drink options as consumers steadily shift to healthier libations. Should the government demand that Coca Cola divest some of its share to bring it down to AB InBev’s current 37%? Of course not! So why is soda more sacrosanct than beer?
The purpose of Anti-trust legislation is to protect consumers from price gouging. Yet, with two dominant players in both categories, we have not seen price rises out of line with general consumable price increases.
Hermann Simon in his renown book Hidden Champions cites dozens of German companies that have in excess of 80% market share in their niche B2B categories? Their pricing power is passed on to consumers. Tetra fish food, a B2C exception, is a good example of this quasi-monopoly dominance. But as a fish pond fancier, I have bought cheaper options at PetSmart.
The EU Anti-trust Authority has not taken action against these companies.
Does Anti-trust for consumer protection have a different rule for B2C mass market companies? Is there, or should there be a mandated upper limit of market share that a duopoly like AB InBev and SAB MillerCoors in beer or Coca Cola and Pepsi in carbonated soft drinks should be allowed to control, or for that matter a quasi monopoly like Tetra? After all, consumers must like these products to account for their success.
I would propose an 80/20 rule in the consumer market. So long as 20% is available for options, consumer taste and competitive consumer pricing can be accommodated. What do you think?
Milton Kotler, 3.5.12
Dear Milton
I have no issue about market share going up. But if prices go up due to a larger market share than there would be a tendency for consumers to decide what price they are willing to pay for Corona or Coors beer.Market share would correct itself with cheaper similar beers, but yes, differently named/branded beers.Opportunities for more similar tasting beer brands would crystallize.
DO NOT leave the Market Economics to Stock brokers or Funds to decide. Let the CMO rule supreme as Philip suggests and do not let mergers and acquisitions play truant with Market Economics.
with respect & regards
Dear Milton
Just realized that there was an anomaly in my comment. AB InBev’s would be better off spending 20 billion dollars in creating new additional capacities of so many /opportunities & possibilities of new beers and marketing the same, than taking over Corona! It could be worthwhile commissioning a project report on this.
with respect & regards
Dear Milton
This way (investing in new capacities of beers) it would be better for the CMO & his departments rather than the CFO.
with respect & regards
Dear Milton
The CFO should be investing his spare cash in his/her own company rather than look at other companies.
with respect & regards
Good luck on your presentation. Reading our book, Market Your Way to Growth, may help provide further help on your presentation.
Milton Kotler
I really appreciate this post. I have been looking everywhere for this! Thank goodness I found it on Bing. You have made my day! Thx again!
If you are pleased with our blog, you will be pleased with our new book Market You Way to Growth: Eight Ways to Win, by Philip and Milton Kotler, 2013, Wiley.
Milton Kotler
If you are pleased with our blog, you will be pleased with our new book Market You Way to Growth: Eight Ways to Win, by Philip and Milton Kotler, 2013, Wiley.
Thank you Christian, Philip and I are trying to create a serious marketing discourse on the role of marketing in economic growth. Thank you for recommending it to your friends.
Milton Kotler
Thanks for your kind note. See my latest blog on the highjacking of our natural gas resources. Instead of using this vast new energy resource for our own U.S. competitive advantage in energy intensive manufacture, the President wants to help the industry make more money by exporting it to our competitors…in the name of national security!
Milton Kotler
Search Google for the latest developments on AB inBev.
Milton Kotler