Flat beer: Miller Coors
SABMiller and Molson Coors announced that they would form a joint venture for brewing, selling, and distributing their beer brands in the United States. The two companies, the #2 and #3 beer makers in the US, while share voting rights 50-50, but SABMiller will contribute more, at a ratio of 58-42. Molson Coors will maintain its own Canadian operations, and SABMiller will retain its widespread operations outside the US.
The deal, to my mind, offers few antitrust angles. The US beer industry is so dominated by rival Anheuser Busch (48%) that the newly combined company will have a share of only 29%, of which 18% comes from Miller and 11% from Coors. (The next largest brewer in the US is Heineken with 4%.)
SABMiller and Molson Coors are themselves a product of a prolonged series of mergers in the beer industry, especially the 2002 merger of Miller Brewing with South African Breweries and the 2005 merger of Coors and Molson.
The point of the deal is that the US beer market is totally mature, with next to no growth (1.5% per year). And customers are slowly slipping away to wine, to hard liquor, to microbrews, and imports. Microbrews are having far better growth (11% per year) but still only account for 5%, and the Big Three all have their own (otherwise branded) microbrews on the shelf. But these are very profitable companies -- Anheuser Busch takes in 23% profits in the US while Coors and Miller, according to the Wall Street Journal, make almost 10%, still not too shabby. But the lack of growth is the impetus.
The two companies plan to cut costs by combining distribution networks and closing breweries, and perhaps by getting more advantageous terms in advertising. They will be in a much strong position negotiating with the bottle and can oligopoly. Also, Coors tends to be strong in different regions (The West and Northeast) than Miller (the Midwest and South). Interestingly, 60% of Miller's beer is sold by wholesalers who also sell Coors. Of course, the big problem is that their leading brands, Coors Light and Miller Lite, are totally interchangeable. Keeping them distinct will not be easy, and if they compete head-on-head, then the cost of marketing won't be diminished.
According to a Wall Street Journal story ("Miller, Coors To Shake Up U.S. Beer Market", 10/10/07) the deal may (surprise, surprise) spur even more consolidation.
The deal… could increase pressure on Anheuser to pursue a merger outside the U.S., where it has a relatively small presence and where greater opportunities for growth lie. World-wide, Anheuser is the No. 3 beer maker by volume and market capitalization after InBev SA and SABMiller.
There are rumors that Anheuser-Busch may have to form an alliance (or even a merger) with InBev, which has great international presence but very little in the US.
