Today is also the 46th birthday of Lester Jones. Lester is the economist for the Beer Institute, the man who crunchs all the numbers, including the great resource Beer Serves America. As a big fan of the dismal science, I’ve gotten to know Lester over the last several years and appreciate all that he does to help promote beer. He’s one of the good guys. Join me in wishing Lester a very happy birthday.
As the news keeps swirling around the possible — I say inevitable — buyout of Grupo Modelo by Anheuser Busch-InBev in a breathless “will they, won’t they” kind of coverage, I’m utterly fascinated by the theater of it all. It’s especially interesting to see the many “business experts” weighing in with no real understanding of the history of the brewing industry or how it all works. These “instant experts” all seem to assume that general economics or business principles apply equally well to every scenario, yet fail to grasp that alcohol has always navigated a different path through the economic world, with extra layers of taxation, legislation and law, its moral or anti-alcohol critics, and has to abide by at least 51 sets of laws (federal laws plus one for each state). I brought this up last month in The Beer Monopoly, but this morning an economics reporter from the New York Times, Adam Davidson, weighed in with his own take on the shenanigans.
In his It’s the Economy column published today, Are We in Danger of a Beer Monopoly?, he gives his own version of reality. In his world, where there are nearly 2,400 American breweries, he at least admits many of them are “tiny,” but goes on to claim that a few “have become large national brands.” National, yes, but “large” is a somewhat relative term. They’re large compared to a tiny nanobrewery or even an average sized brewpub, but the volumes of beer manufactured by ABI and SABMIller are in another class altogether. All 2,398 of the other breweries represent much less than 10% of the total beer produced in the U.S., meaning there’s a fairly wide chasm between the two groups, even if “a handful” of them have been successful. Measured against the domination of the biggest two, even the most successful seem modest by comparison.
But this is an argument that many economists seem to make, and indeed it’s the same argument that ABI always makes when they’re trying to buy another global company. How can there be a monopoly with so much competition? Just walk down the beer set in an average grocery store and, if you know who owns or controls what, you’ll easily see who’s winning the beer wars. The power wielded by ABI and SABMiller is so far above that of any smaller brewer, or even the total of all of the smaller ones, that it really is a true David and Goliath relationship. Sure, the big guys throw a few crumbs to the little guys nipping at their heels, but they don’t feel seriously threatened by them. Lately, they’ve been paying closer attention because they’re losing incremental marketshare, but they’ll respond to any such loss, because it hurts the share price. But saying they’re on equal footing is the economic equivalent of pretending that employees and employers have equal bargaining power, as most economic textbooks continue to insist.
But here’s Davidson’s takeaway from recent events as ABI tries to win approval for buying Grupo Modelo. “So I was surprised to learn that the Justice Department is worried that Anheuser-Busch InBev, the conglomerate that owns Bud, is on the cusp of becoming an abusive monopoly.” That’s almost spit take worthy. “On the cusp?” ABI has been a de facto monopoly with one or two others for decades, all but controlling the marketplace, not that anybody has been particularly concerned in the business world.
Anyone who hasn’t had their head buried deep in the sand for last few decades has to have noticed that we live in a society utterly dominated by business interests. Business power is the only power that matters. Political power takes a back seat to it and the will of the people is something politicians invoke only when they’re trying to get elected. How else can you explain that corporations have all the benefits of being a person, with none of the responsibilities or consequences? How else can money be considered free speech to influence politics? How else can you explain the many businesses deemed too big to fail while the same individuals those corporations ruined are left swinging in the wind, with no life raft for the ordinary flesh and blood person.
Davidson goes on to give a flawed history of the brewery business, and seems to think that mergers are a relatively new phenomenon. Of course, brewery mergers and acquisitions have been going on in brewing since the late 19th century, and stopped only briefly for about thirteen years, during Prohibition. Then he says we’re “still in the very early stages of what appears to be a global version of the scale-based consolidation we’ve seen in the United States over the past century.” I can’t tell if that’s a joke? The global beer world has been dominated by an ever-shrinking group of very large conglomerates for at least the last three or four decades. It’s hardly a new thing. In 2010, the four largest beer companies accounted for over half of all beer worldwide, and according to another source the Top 5 were about half. Heineken, Carlsberg, and a few others are very large companies, indeed, and they, too, have been gobbling up breweries around the world for many, many years.
It’s probably not a coincidence that Davidson has his own S.H.A.M.E. profile. Why the New York Times continues to let him shill for big business, well’s that’s a whole other discussion, but it’s obvious he’s defending the pro-business position. It’s also clear that he’s part of the theater that will ultimately end in the DOJ’s approval of the deal between ABI and Grupo Modelo. Here’s my prediction of what will happen next. As always happens, the two parties will hammer out a compromise that was probably the deal everybody wanted in the first place, but this way both parties look good in the public eye. The DOJ will look like they’re being tough on big business and are protecting the public while ABI will look good because they were able to get the deal done, and their share price will shoot up. Everybody wins. As Shakespeare observed, “all the world’s a stage.” And we’re the audience. I just wish they’d stop pretending we’re all idiots.
Today’s infographic tackles the Price of Beer Around the World. Djibouti has the highest priced beer while Panama has the cheapest.
How long do you think you have to work before you can have a beer? I don’t mean how long before you think it’s time to take a break and enjoy a pint. No, I mean how long do you think you have to work in order to earn enough money to buy yourself a beer?
In the Economist‘s Daily Chart, Thirsty Work, they detail the efforts of analysts at the Swiss Bank UBS to figure out how long the average German worker would have to work in order to buy him- or herself a half-litre of beer at Oktoberfest. They discovered that it would take “just under seven minutes of work.” But it’s not the same in every nation, as the chart below details. The avergae appears to be about 20 minutes of work for a beer, which doesn’t seem too bad. The worst place was India, where you’d have to work “nearly an hour” to make enough for a beer. The United States, I’m happy to say, is at the bottom, which is a good thing. It only takes us about 5 minutes to earn enough for a beer. Hell, I think I earned two beers just writing this post.
My wife’s a political news junkie and reads such arcane fare as Foreign Policy, a magazine covering global politics and economics. She forwarded me Chug for Growth , an article detailing how the beer industry is having a positive effect on economies around the world, especially in emerging nations. Here’s how it begins:
The myth of the smug teetotaler is no joke. Many of the most popular theories of economic growth in wealthy countries, dating back to the Protestant work ethic of Max Weber, emphasize the abstemious and sober virtues of the well-to-do. And from the 18th-century Gin Acts in Britain to Prohibition in 1920s America to a certain class of modern-day economists, there’s a long tradition of blaming intemperance for the persistence of poverty.
But in fact, mounting evidence suggests that beer in particular, and the beer industry that surrounds it, may be as good for growth as excess sobriety. In some of the world’s toughest investment climates, beer companies today are building factories, creating jobs, and providing vital public services, all in the pursuit of new customers for a pint. It’s the brewery as economic stimulus: a formula even a frat boy could love.
The article goes on to detail how beer is good for both the big brewers and the local economies where they’re building or acquiring new breweries. They can add “tax revenue, lease payments, numerous local jobs, and increased demand for local agricultural produce.” And it sells even in the most challenged economies, as “even the poorest of the poor will spend money on alcohol.” I could have done without the lecture on alcohol abuse, while of course ignoring the positive health benefits of moderate consumption, but apart from that it makes a strong case for beer not only being recession-proof, but even a recession-beater in some places.
The article concludes with some interesting speculation about economic growth centuries ago, and whether it, too, may have been caused not, as been previously thought, by the Christian work ethic, but by breweries themselves as is happening today.
Indeed, beer may have been a force for growth for a long time. [Researchers] Colen and Swinnen note that beer consumption is higher in Protestant countries. What if the early success of Protestant-dominated economies wasn’t about Weber’s famed work ethic at all, but about the impact of breweries? Of course, it may be just as outlandish to argue that progress is driven by hops and barley as by the fear of eternal damnation — but at least it’s more fun to discuss over a pint.
I’m all for that.
Jim Cramer, the knucklehead financial dramatist who hosts the Mad Money program on MSNBC, tackles the beer wars between the major brewers, and trips over himself all over the place. You’d think no one would would watch his show or take his advice after Jon Stewart exposed him so completely earlier this year, but apparently he’s as popular as ever. That’s surprising to me given that his track record is about as good as the average weatherman. The financial markets being complex and interconnected systems, his simple-minded advice seems doomed to failure for that reason alone, but he still promises on his website that you can “Make Money With Money Manager Jim Cramer.” Caveat emptor, I guess. Maybe it’s just me, but I don’t really like having my advice yelled at me while waving cheap props in my face.
Like most financial analysts I’ve seen talk about the brewing industry lately, Cramer has no real sense of what’s going on or the history involved with why the industry is where it is today. And so they seem to attack in a vacuum, with no understanding of it at all. You can check out his screed here about the end of the beer wars.
He details how the beer world until recently was dominated by eight companies: Bud (Anheuser-Busch) Coors, Corona (Grupo Modelo), Dos Equis (FEMSA / Cervecería Cuauhtémoc Moctezuma), Heineken, Miller, Molson and Pabst. But now that InBev bought A-B and Coors and Miller merged their operation in the U.S., “suddenly” — to use Cramer’s surprising words — “we have a near oligopoly?” First of all, these eight are not the full picture. He’s ignored Kirin, Carlsberg, Asahi, and Diageo; all in the top 10 largest beer companies globally. That’s not to mention Radeberger, Tsingtao, Foster’s and others just below the Top 10.
Then there’s the “suddenly” that Cramer keep and his gang of idiots keep feigning. Brewery consolidation has been going on literally since Prohibition ended, 75 years ago. From roughly 1,000 breweries re-opening in the years after alcohol became legal again to 1984, when there were only 44 left, and the top six accounted for 92% of beer sold, mergers & acquisitions have been on-going. This is hardly a new situation. And that’s just the U.S. The same thing has been happening around the world, both locally and in global markets. We’ve been referring to the “Big 3″ — A-B, Coors & Miller — for decades. Now that there are two it’s a problem? “Suddenly?” Please …. give me a break.
Recently, ABI announced they would raise prices this fall, and MillerCoors followed suit … like they’ve always done, again for years and years. But Cramer and others reacted as if this is the first time such a thing has happened. It’s not. The major beer companies, both domestic and import, have been following one another’s lead (usually A-B) for as long as I can remember, and undoubtedly longer.
The New York Times has a similar rant in, of all things, their “breaking Views” section called Rising Beer Prices Hint at Oligopoly. I find it funny that something going on without change for decades could be considered a “breaking view,” but I guess that’s what happens when you ignore history.
Anheuser-Busch InBev — purveyor of the president’s preferred brew, Bud Light — and MillerCoors, a joint venture between SABMiller and Molson Coors, are raising prices at the same time, during a recession and while beer demand is slumping. With 80 percent of the market between them, the move almost begs for an antitrust review. [my emphasis.]
Hello, is anybody home? They’ve been raising prices “at the same time” forever. It means nothing. These are not “hints,” but simply business as usual. What the hell is wrong with these people?
Cramer goes on to rave that because they’re both raising prices that somehow that signals an end to the competition between them. He states that they’ve been “going from competitors absolutely killing each other to a slap happy international beer oligopoly.” He’s more daft than I previously thought, and that’s saying a lot.
He keeps calling Labatt, “Labott,” and incorrectly identifies it with InBev. It is owned by InBev outside the U.S., but domestically it’s owned by North American Breweries. His audience is primarily American, so that makes no sense. Cramer’s advice about buying MolsonCoors stock I can’t say I understand completely and he throws around quite a few numbers that don’t seem to either support his conclusions or even appear rational. He’s mildly clever when he says “Give Beer A Chance” with a peace symbol made of beer cans, but I’d prefer he did his homework instead and knew what the hell he was talking about. What a maroon.
The beer wars, of course, are hardly over.
In my on-going efforts to stay caught up, here is some worthwhile reading I’ll suggest taking a look at. These are various random beer articles that have come to my attention over the last few weeks. Enjoy.
- Craft Beer In A Can? A Gutsy Move Is Paying Off from NPR
- Oh Dear, It’s Beer, Beer, Beer, Beer by Joanne Weintraub, on the Milwaukee-Wisconsin Journal Sentinel Online
- That’s a ‘Binge Belly,’ Not a Beer Belly on WebMD Health News
- Category Builders vs. Category Killers on the Branding Strategy Insider
- Why Every Cold Beer Costs You More by Michael Brush on MSN Money
- Celebrate the History of Statistics: Drink a Guinness by Andrew Leonard on Salon’s How the World Works, which is also discussed at the Economist’s View
This is only related to beer insofar as beer, like every consumer good, is a part of the materials economy. I originally found out about this when Greg Koch of Stone Brewing tweeted it a couple of days ago, and I only had a chance to watch the video, The Story of Stuff, on Sunday. It’s about 20 minutes long but quite worthwhile and interesting if you like that sort of thing. It’s a great overview of the materials economy, it’s history, design and and why it’s doomed to fail. So what is The Story of Stuff? Here’s how the website describes it:
From its extraction through sale, use and disposal, all the stuff in our lives affects communities at home and abroad, yet most of this is hidden from view. The Story of Stuff is a 20-minute, fast-paced, fact-filled look at the underside of our production and consumption patterns. The Story of Stuff exposes the connections between a huge number of environmental and social issues, and calls us together to create a more sustainable and just world. It’ll teach you something, it’ll make you laugh, and it just may change the way you look at all the stuff in your life forever.
Again, it’s not directly about beer, only indirectly, but it it is quite illuminating.
If you’re a regular reader of the Bulletin, you know I’m a economics junkie and my politics run to the more liberal side. So you probably won’t be surprised to learn I’m a fan of recent Nobel prize winning economist Paul Krugman, who also writes a column for the New York Times. I read his last two books (and the re-issue/update of his The Return of Depression Economics and the Crisis of 2008 is on my reading list). Jack Curtin, who appears lately to be hunkered down in his bunker/cabin in the woods doing nothing but blogging, passed along this little gem about Krugman’s vacation in Brugge. According to the Times, Krugman is in Brugge and had a beer dinner yesterday at Den Dyver. Den Dyver has a 3, 4 and 5-course fixed menu available with a beer paired with every course. I love that fac that he opted for the beer, good beer. Hey Draft magazine, I think you just found your next cover celebrity.
Krugman with his dessert beer.