Comment - Beer price rises will test Obama's tolerance
Both Anheuser-Busch InBev - purveyor of the president's favorite tipple - Bud Light - and MillerCoors are raising prices at the same time, during a recession and while beer demand is slumping. With an 80% market share between them, it almost begs for an anti-trust review of the industry.
While the increases are not unusual or unexpected, they still raise a red flag. Both companies typically re-adjust the price tag on a six-pack every year to reflect changes in the costs of, say, barley or hops. But the ability of the two big brewing groups to do so now, while their customers are hurting most, highlights the tremendous pricing power that has accompanied consolidation in the industry.
While Anheuser-Busch, acquired last year by Belgium's InBev, has long held a dominant share of the US market, the number of big players in the industry has steadily decreased over the years. From 1947 to 1995 the number of beer companies fell by over 90%. Though a surge in craft brewers followed, few of them competed directly with mass-market suds like Budweiser and Miller.
That was ok so long as the big three - Anheuser, Miller and Coors - were at each other's throats. And boy, were they. After South African Breweries bought Miller in 2002 it set out to nab market share from Bud. Its bigger rival responded by slashing prices, which the others were then forced to match. This competition fostered a better outcome for consumers - indeed, the summer of 2005 was a beer drinkers' dream.
That's all changed. Miller and Coors kicked off a joint-venture last year that combines the market powers of the second and third largest players. InBev, meantime, has no stomach for a price war following its $52bn debt-financed splurge on Anheuser. So despite slumping appetite for beer and tough times, prices are going up.
The Obama administration is taking a tougher line on monopolistic behaviour. Department of Justice anti-trust head Christine Varney has even signalled a willingness to re-examine deals that were approved under the previous, more permissive, Bush administration.
Taking on Big Beer might be politically popular. Moreover, there's precedent for doing so. Fifty years ago, the DOJ sued to prevent the merger of Pabst, then the 10th largest brewer with the 18th biggest, Blatz. The case went to the Supreme Court, which in 1966 ruled the deal was anti-competitive and forced Pabst to divest Blatz.
That's not an outcome Molson Coors, SABMiller or AB InBev shareholders would toast with pleasure.
By Aliza Rosenbaum and Rob Cox
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