Is Anheuser-Busch a Monopoly - Essay Example

Beer is a very popular beverage worldwide, but it has also become a huge business in recent years. Traditionally, small breweries have had success incertain regions or countries, but the industry was not particularly affected by globalization. This has changed recently, however, as the beer industry has produced large corporations that are constantly expanding and overtaking smaller breweries in their quest for global dominance. One such brewery is Anheuser-Busch, which has cornered a large percentage of the market in the United States and wishes to do the same on a global level. It, however, is not the only corporation that is doing so, as the beer industry has become an oligopoly where “a few large firms producing a homogeneous or differentiated product dominate a market” and “firms in the industry that firms are mutually interdependent—each must consider its rivals’ reactions in response to its decisions about prices, output, and advertising” (Monopolistic Competition and Oligopoly). This has created a beer market where the smaller brewers do not really have a chance for success, since the larger companies will make it nearly impossible for them to survive. These large corporations have altered the free market to the point where it is not really free anymore and the consumer’s choices are very limited. Anheuser-Busch does not dominate the beer industry, but it is one of the members of this oligopoly that has taken control of this industry globally. It cannot be said that Anheuser-Busch dominates the market because of its low prices because other breweries do the exact same thing. Anheuser-Busch was, until recently, the world’s largest brewery, by volume, but it has since fallen back a little bit because of its reluctant to acquire other breweries. Despite this, Anheuser-Busch has managed to take a 49% market shape in the United States based almost purely on its major brands: Budweiser, Michelob, and Busch. Each of these beers is basically the same recipe, with minor variations and different names, which is what most beer companies do with their beers. Despite all of this, there have been problems growing for the company in terms of revenue and net profits, as both of these have declined in recent times. The net income for the company is down 31% from last year and the company also went from having %50 of the market share down to only having 49%. One reason for this drop in profits is that beer consumption as a whole has decreased in the United States recently. People are now beginning to consume spiked lemonades and similar products, so beer is not the only choice in alcohol consumption any more. Also, wine and spirits are becoming more popular in the United States and have grown in the United States. Another factor is that “industry decline and competition has kept Anheuser-Busch from an annual price rise, something that has added to profit in past years. Both SABMiller and Coors are busy discounting their brands, and A-B has had to follow along” (Hannaford, 2005). SABMiller has also done an excellent job at marketing its Miller Lite beer, which has taken away from the profits made by Bud Lite quite a bit. The final factor in Anheuser-Busch’s decline has been the increase in sales of international beers. Anheuser-Busch is not in a position to benefit financially from this increase because it, unlike some other American companies, does not own many stakes in international beer companies. What this all means is that Budweiser’s popularity in the United States is not based purely on its price because other domestic companies have been cutting their prices and Anheuser-Busch has followed suit in order to remain competitive with them. Also, the price of beer is becoming less of a factor for the American consumer, which is made visible by the fact that import beers, which generally sell for a higher price, are becoming more popular. Therefore, all Anheuser-Busch must do is remain competitive with the prices that its direct competitors set forth in order to remain popular within the American market. The American consumer also automatically identifies Anheuser-Busch products as being distinctly American, which adds to its popularity in the country. Anheuser-Busch dominates the American market, but it is not because of low prices. It is because of its marketing and its reputation of being a truly American corporation. It appeals to peoples’ patriotism, which is something that other American breweries do not do as effectively. Anheuser-Busch and other major beer companies have created an oligopoly within the industry. Proof of this is the fact that “in 1947 there were 400 independent brewers in the U.S.; by 1967 the number had declined to 124; by 1987 the number was 33” (Monopolistic Competition and Oligopoly). Also in 1947, there were five major breweries that sold 19% of the beer in the United States, but currently, the four largest breweries un the country sell 87% of the beer. In fact, Anheuser-Busch and Miller are responsible for 69% of the sales alone. A reason for this is the fact that he demand has changed in the industry. Previously, people preferred stronger flavored beers to have with their meals but currently, the trend has shifted to lighter, dryer beers for the American consumer. People are also drinking at home more, rather than going to a local pub, so packaging and distribution has changed as well. Therefore, the companies that were aware of this trend first have been the most successful. Since technology has made new things possible in this industry, the companies that can afford these new technologies have become the most successful. Bottling and can closing has been sped up through the use of technology, which is a major development for the industry. Large companies also own large plants that have been able to reduce labor costs by automating everything. Since the companies have larger outputs than ever before, they have been able to spread out their fixed costs, which has led to more profit. Anheuser-Busch is not without its controversy either, rumors that “Anheuser-Busch Cos. might be taken over caused its shares to hit a 52-week high” (Bel Bruno, 2007). Despite all of this, there remains some competition from smaller breweries that must be dealt with because the major breweries wish to break into new markets all the time. The beer industry goes through many trends and it is important to be at the forefront of these trends when they become reality. Therefore, more and more major breweries are acquiring smaller and creating an oligopoly in the industry. This is evident by the number of consolidations and acquisitions that have been occurring. The years of regional beers seem to be coming to an end, as more and more major breweries attempt to expand into markets that regional beers traditionally dominated. Since most beers markets are at their highest possible levels, it is necessary for companies to grow through acquisition rather than seeking new customers. By entering into these new markets, through acquisition, companies are able to aggressively expand without taking any major risks in product development. In recent years, Anheuser-Busch has made major investments in Tsingtao in China and Grupo Modelo in Mexico in order to help combat Coors’ acquisition of Carling. Currently, “the top 10 brewers worldwide now account for more than half of the entire worlds beer, which is an industry first” (Todd, 2004). Miller is one company that has done an excellent job of expanding through acquisition, as it has developed a strategy of driving volume and productivity through these acquisitions. It recently acquired Dojlidy Brewer in Poland, which is very poplar in the Eastern portion of that country and it has also reached an agreement with Shaw Wallace Breweries in India, which has made it the second largest beer company in that country. Anheuser-Busch has gone about their own expansion in a different manner. The company’s “global business strategy in 2003 focused on two fronts—developing Budweiser into a leading international brand and building a diversified international business through equity investments in brewers that have leading brands in high-growth beer markets” (Todd, 2004). Also, “a research report by UBS Investment Research to clients Thursday pointed out benefits for both brewers if a merger were to take place. InBev would gain greater marketing and distribution power in the United States, while offering Anheuser-Busch a strong global distribution network” (Taylor, 2007). The global major breweries have begun acknowledging that Russia and China are two markets where growth potential is significantly high and that has led to them becoming more important to beer companies like Anheuser-Busch. The company set a new sales record in China in 2003 by selling more than 2 million barrels. Also, the company increased its investment in Chinese brewery Tsingtao to 9.9% in 2003 and made an agreement to further increase this investment to 27% in the near future. It is believed that Anheuser-Busch is “a good example of a winning global strategy—the brewer improved profitability in the US market while strengthening its China position” (Todd, 2004). On top of this, Anheuser-Busch also made a major agreement in Italy with Heineken Italia. In the agreement, will help Anheuser-Busch with distribution and marketing, which is a major development for Anheuser-Busch internationally. Interbrew, which is another major conglomerate, has also expanded in China by acquiring shares in Guangdong Brewery. Miller has joined into a partnership with Harbin Brewery in China, which has made Miller the largest brewer in Northeastern China and one of the leading brewers in China as a whole. China has become a key for multinational breweries, as the market is becoming increasingly profitable as beer consumption rises, but there still remains a major challenge in the country. There is very little infrastructure outside of the major cities and, therefore, expansion is very difficult. This is why so many major breweries are buying smaller breweries in the country, as this makes it possible to expand without having to distribute to difficult to reach places. These major changes to the beer industry prove that the industry has become an oligopoly, where a few companies are becoming the only choices for beer drinkers. The beer industry has changed a lot in recent years, as it has developed into a multinational business, rather than the “localized industry with characteristic local recipes” (Hannaford, 2003) that it once was. Lager and pilsner style beers currently dominate the marketplace, which is why only certain companies are succeeding in this new phenomenon. Miller, Anheuser-Busch, Heineken, and Interbrew have been the most successful at expanding on a multinational level, which is why they still exist. There are, however, exceptions to this rule that should be used as a blueprint for smaller breweries that are trying to survive and it is evident in Belgium. That country has artisanal brewers that are spread out across the country, with each having a distinctly regional taste. These breweries produce many different types of beers including Duvel, which is “a cellar-aged, smooth ale that is generally agreed to be one of the best beers in the world” (Hannaford, 2003). This company, however, feels constant pressure from larger breweries to sell out because they are constantly attempting to put it out of business. The company’s stock has fallen in recent years, as the larger companies that the brewery relies on for distribution and it is finding it more difficult to get shelf space because of this dependence. More and more in Europe, in which each city has traditionally had its own brewery, brewers are working hard to acquire these local breweries because they not only acquire the brand name, but also the distribution network that comes with it, as “earlier this year, SABMiller PLC took over Italys Peroni and Heineken NV drank up Austrias BBAG.” Also, “giant Interbrew SA, which is based in Belgium, took over German family-owned brewery Spaten, maker of Loewenbrau. Holdouts such as Duvel will struggle to get the store shelf they need to prosper” (Hannaford, 2003). These small breweries do not have the capacity to distribute their products outside of a small area, so they rely on larger breweries to do it for them. This means that there is an uneven playing field for the smaller breweries and, therefore, there is very little they can do except for sellout to the larger corporations. Their distribution networks simply are not powerful enough to compete and, therefore, there is not much point in attempting to grow in volume because the larger corporation will not let them become overly successful. Eventually, the shareholders of these smaller breweries will put enough pressure on the company that they will sellout to the conglomerate company. This is what the conglomerates want, as it makes it easier for them to make progress in new markets and it also allows for them to easily identify their competition. The days of the small breweries are coming to an end, as they are being quickly forced out by the major breweries through acquisition. The beer industry has changed drastically in recent years because of the trend towards an oligopoly that has occurred. In the past, different regions had a distinct recipe for their beer and that beer was enjoyed by the people of that region, but that has all changed. Companies like Anheuser-Busch have expanded to the point where the small breweries are nearly irrelevant. There is no longer a thirst for these local breweries, as larger companies can produce more beer at a cheaper price and, therefore, they can sell for cheaper. Since the market is so competitive, these lower prices, along with the familiarity that comes along with advertising, has made the beer industry into something that is dominated by a few large corporations. Anheuser-Busch, which is one of these companies, does not dominate this industry, since there are larger and more profitable breweries out there, but it has expanded in a much different manner. Rather than relying on simply acquiring other breweries, this company has worked at marketing its Budweiser brand in as many countries as possible in an attempt at making it into a popular international beer. This, however has not been a success, as Budweiser’s growth has slowed down in comparison to other breweries. Despite this, however, Anheuser-Busch has remained a major player in the ever changing beer industry. Works Cited Bel Bruno, Joe. (16 February 2007). "Takeovers Off to Good Start in 2007". The Examiner. Retrieved 28 February 2007. http://www.examiner.com/a-569770~Takeovers_Off_to_Good_Start_in_2007.html Hannaford, Steve. (13 October 2003). "Beer: Can the Small Survive". Oligopoly Watch. Retrieved 28 February 2007. http://www.oligopolywatch.com/2003/10/17.html Hannaford, Steve. (26 February 2006). "Defining the New Oligopoly". Oligopoly Watch. Retrieved 28 February 2007. http://www.oligopolywatch.com/stories/2003/04/17/definingTheNewOligopoly.html Hannaford, Steve. (27 October 2005). "Oligopoly brief: Anheuser-Busch". Oligopoly Watch. Retrieved 28 February 2007. http://www.oligopolywatch.com/2005/10/27.html "Monopolistic Competition and Oligopoly". Retrieved 28 February 2007. http://teacherweb.ftl.pinecrest.edu/crawfor/apmicro/McConnellNotes/M1McConnell012.htm Taylor, Betsy. (15 February 2007). "InBev, Anheuser-Busch shares rise on report of merger talks". The Examiner. Retrieved 28 February 2007. http://www.examiner.com/a-567828~InBev__Anheuser_Busch_shares_rise_on_report_of_merger_talks.html Todd, Heather. (15 February 2004). "Global Beer". Ideal Media. Retrieved 28 February 2007. https://www.vnuemedia.com/beverageworld/reports_analysis/article_display.jsp?vnu_content_id=2086114 Read More