Cans of Budweiser beer, owned by AB InBev, sit next to cans of Snow beer, in which SABMiller has a 49 percent ownership stake, on a grocery store shelf in Beijing. A potential prize for AB InBev in its bid for SABMiller is a Chinese beer, Snow, that is the world’s biggest seller.Mark Schiefelbein/The Associated Press
The marriage of two of the world's biggest brewers would be another expensive bid for growth in an industry that has lost its fizz.
The agreement in principle to a $100-billion (U.S.) merger, which Anheuser-Busch InBev SA and SABMiller PLC announced this week, speaks to wider trends in beer consumption, including in Canada.
While beer is still a massive industry, the volume of suds people are drinking is not growing. What's more, a small but vibrant craft brewing sector is slowly gaining ground with a consuming public whose palates have grown more complex. Facing this, the only route to growth for the beer giants is through acquisitions.
The $9.1-billion beer market is still the biggest market for any alcoholic beverage in Canada, but sales are flat. Globally, Canada ranks 25th in per-capita beer consumption, well-vanquished in chugging by our southern neighbours in 13th place. The top consuming countries are the Czech Republic, Germany, Austria, Poland and Lithuania.
In addition to increased competition from the fragmented craft-brewing sector, beer is losing market share to other alcoholic tipples, including wine, spirits such as bourbon, and ciders (some of which are owned by brewers).
In 2003, beer accounted for half of the alcoholic beverage market, according to Statistics Canada. Ten years later, in 2013, it had fallen to 43 per cent.
"It's cannibalization. It's not net growth," David Kincaid, founder of Toronto-based marketing consultancy Level5 Strategy Group, said of the acquisitions. He worked in the beer industry for nearly 20 years, with Labatt.
It's also not entirely new. Today, the popular terminology is craft brew. Ten or 15 years ago, people who enjoyed experimentation with flavours, small batches and local flair talked more often about microbrews. There are distinctions between the two, but in the common vernacular those distinctions are often muddied. The nomenclature represents waves of trends in consumption toward smaller independent brands.
And those brands have been bought up before. For example, Sleeman Breweries purchased Quebec's well-regarded microbrewery Unibroue more than a decade ago – and both were swallowed up by Sapporo Breweries Ltd. in 2006. Molson Coors Brewing Co. bought Creemore Springs in 2005.
More recently, acquisitions include AB Inbev's purchase of Goose Island Beer Co. and Molson Coors' deal for Granville Island Brewery. And, last week, came the latest: Labatt bought Mill Street Brewery.
"It's this recurring pattern," Mr. Kincaid said. "The big guys get bigger by acquiring the small guys who were addressing an unmet need in the market. And after some period of acquisition, an unmet need for local, unique products, appears again. [Small breweries] crop up, they get to a certain size, and the big guys buy them again."
These waves of consolidation have taken place in the industry for years as brewers have paid to get bigger by swallowing up regional players. In 1971, for example, Labatt bought Columbia Brewery, maker of Kokanee, which itself was the result of an amalgamation of local B.C. breweries in the 1950s.
These acquisitions have sometimes created problems with consumers' perceptions of authenticity of the products. Mr. Kincaid remembers with bitterness when Labatt began brewing the Kokanee brand in Ontario for drinkers in Central Canada – and rival Molson seized on the moment to run an ad campaign with the headline "B.C. or B.S.?" The brand had tripped over its own boasts about its "glacier fresh taste."
If anything, consumers are more tapped in than to the corporatization of small-batch products – whether it is food companies calling their products "artisanal," or multinational brewers advertising "craft" beers.
"There's a question of authenticity" for the big brewers, said Ian Coutts, author of Brew North: How Canadians Made Beer and Beer Made Canada. "Even if they made a good beer, people wouldn't buy it. … The minute people start to think of something like Mill Street as Labatt, that will hurt them. It's like indie bands. You've got to be authentic. You can't get big. That's a real kiss of death."
Molson has tried to prevent some of that push-back by launching a separate division, Six Pints Specialty Beer Co., to manage the portfolio of craft brands it has bought, including Belgian Moon (known as Blue Moon elsewhere), Creemore Springs and Granville Island.
Consumers are looking for something different, and the big brewers attempting to buy that differentiation may be engaging in a game of whack-a-mole: The barriers to entry in the business for new craft brewers has lowered considerably in recent years, and with so much interest in innovative, independently made products, there is plenty of incentive for new breweries to set up shop.
There has already been a boom in small, craft breweries in Canada: In 2009, there were 240 licensed breweries in this country producing less than 5,000 hectolitres a year. Last year, there were 420 producing at those levels, according to a report released in the summer by Beer Canada, an industry association.
The big breweries still have a considerable slice of the market. John Hay, president of industry association Ontario Craft Brewers, estimates that these small brewers now occupy a 6- to 7-per-cent share of the market nationwide. The most dramatic growth in recent years has been in B.C., he said.
"You can open a small brewery, and you don't need a huge engineering department. You don't need huge tanks," Mr. Hay said. "Nobody was producing small tanks before. Now you can get that equipment. And the technology has advanced. You can buy automatic valving, computerized control panels and any feature you can imagine. You can build a business for $3-million or $4-million. That investment used to be more like $50-million."
With Ontario opening up beer sales in some grocery stores, Mr. Hay is optimistic about growth in craft beer sales in the coming year in that market. "Our people are buying tanks, they're increasing their production. We're talking to the big grocery chains," he said. "It's a whole new world, that's for sure."
Molson, Labatt and SABMiller, and Beer Canada declined to be interviewed for this article.