Oligopoly Watch The latest maneuvers of the new oligopolies and what they mean Friday, October 17,

2003

Beer: Can the small survive?

Beer is one of our favorite oligopoly subjects. This worldwide commodity is sold in just about country and brewed in most. Once a very localized industry with characteristic local recipes, it has evolved over the last twenty years into a multinational business in which light lager and pilsner styles (such as Bud, Heineken, Stella Artois) are now dominant. We've discussed the issue of pseudo variety, and we've show how the SABMiller conglomerate has grown across the world, along with Budweiser, Heineken, Interbrew, and a few other companies. The most notable exception to this homogenization of tastes has been Belgium. That country's artisanal brewers, spread through the country, have supported over twenty distinct varieties, from brown ales to fruit beers to wheat beers. One of the outstanding brews, beloved of connoisseurs, is Duvel, a cellar-aged, smooth ale that is generally agreed to be one of the best beers in the world. There's really nothing quite like it (disclaimer-I love this stuff). But as a Wall Street Journal article ("Beer goes upscale," 9/25/03) notes, Duvel (the name means "devil") may be in trouble. It owner, a small company called Duvel Moortgats is feeling pressure from its richer, more powerful competitors and a changing market. The company's stock, having been offered originally in 2000, is down, as the article notes. "Dependent on larger brewers for distribution, analysts fear Duvel will struggle for shelf space and predict its generous margins could narrow." Although brewing long has been a consummate local industry in Europe -- most cities had their own brewery -- the industry is in the midst of a wave of consolidation in Europe, as beer-makers scramble to acquire strong local brands and the distribution networks that go with them. Earlier this year, SABMiller PLC took over Italy's Peroni and Heineken NV drank up Austria's BBAG. Last week, 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. As in other industries, a once complex distribution chain is being dominated by the bigger players. That means that the family-owned, local brewers can't really get the leverage to make sure their beers get into the stores and the taverns. As it is, Duvel is dependent on competitors Heineken and Interbrew to get its brews delivered outside of central Belgium. "[T]he small family-owned brewers can't compete with the big players on the distribution and retail side," says Mike Benner of the British-based campaign for real ale, or CAMRA. In the U.K., he says, the top four brewers now have 80% of the market, while familyowned brewers have just 15%. Only 14 years ago, a U.K. government report showed family breweries controlling just under a quarter of the market. Much the same thing is going on in Belgium, in Germany, and in other beer-drinking countries. Duvel Moortgats itself has tried to become multinational in a small way. It recently purchased New York State brewery Ommegang and Czech brewery Bernard. But these are even smaller players. The story writes that pressures from stockholders will

eventually cause the family to sell out to a big competitor The likely suitors include Heineken, Scottish & Newcastle PLC (from the UK), SABMiller and Anheuser-Busch Co, all of which are building their own specialty brews. Belgium-based Interbrew is considered unlikely, as the company owns competing Belgian specialties. Can the small survive? That's getting harder and harder in every industry. It's likely that Duvel, like so many others, will be just another brand in some multinational's diverse portfolio.

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