Question

Economics competition for domestic premium brands of beer

Answer 1

The four largest breweries in the world – Belgium-based Anheuser-Busch InBev (AB-InBev) based in London, SABMiller, the Dutch brewer Heineken, and Carlsberg from Denmark – currently account for more than half of the global beer market.

The top 10 breweries accounted for less than 40% of global beer sales back in 2000. By 2012, the top ten accounted for nearly 60% after a decade of intensive cross-border merger activity. The beer market has become increasingly concentrated around the world and across the EU (including the UK). Today's brewing industry has grown through mergers rather than organic growth–the result of previous merger activity with all top 10 firms, including the number one producer in the world, AB-InBev. AB-InBev is the result of the 2008 merger of US breweries AB and In-Bev, based in Brazil. The result of an earlier merger between AmBev and Interbrew was in-Bev itself.

The trend of mergers has progressed hand in hand with globalization, powered by the desire for greater economies of scale and wider markets. Although demand for beer has remained relatively stable in the UK and Europe, demand has increased in China and the rest of Asia. Sales of beer by volume by AB-InBev, for instance, rose in Western Europe by just 0.4 percent in 2011, compared to an 11 percent increase in beer volumes in China. By volume sales to Eastern Europe, on the other hand, dropped by about 5%. Focusing on non-price competition and creating premium brands commanding a higher price is the preferred marketing strategy.

The increasingly concentrated beer market, together with national regulators, has been the subject of continuous investigation by the EU Commission, fearing the spread of anti-competitive practices. A complex cartel of four breweries, for example, operated in at least one country (Netherlands) during the 1990s and was able to set the price of beer and thus reduce competition. Competition watchdogs have also been involved in investigations involving the extent to which brewers control competition by owning the outlets (pubs)–the so-called' beer tie' –and can therefore restrict choice and maintain high prices.

While this opened the market to a new crop of pub retailers, including JD Weatherspoon, it also forced breweries to develop new markets and concentrate on their "off-trade" sector, including supermarkets. It also created opportunities for small breweries to enter the market and compete with the main pub chain sales brewers, including the UK's two biggest chains, Punch Taverns and Enterprise Inns.

Crucially, moreover, the presence of discrimination means that the retailer has substantial monopoly power, and this is what the antitrust authorities have been talking with. In 2000, when investigated by the United Kingdom's Competition Commission, it was found that breweries were able to discriminate between different customer groups, with reported price differences only partially explained by cost differences. The Commission proposed that further mergers would increase the ability of the brewer to discriminate in prices and regulate the rate of market competition.