Beer

Today the merger of SABMiller and AB InBev was finally completed, creating a beer company that enjoys around 47% of total global profits from beer sales. But this is an example of a merger formed by desperation, in a vain attempt to stop entrepreneurial brewers stealing the market.

SABMiller was, until yesterday, the world’s second-biggest brewer, its brands included Fosters and Pilsner Urquell.

AB InBev was, and still is, the world’s biggest brewer, it is the company behind Budweiser, Stella Artois, Corona, Beck’s, Boddingtons and Bass.

It is now the biggest brewer in the world by an even bigger margin because SABMiller forms part of it.

Talk is that the merger will lead to the loss of around 5,500 jobs. That’s around 3% of the enlarged workforce, and of no surprise. One of, maybe the main, purpose of most mergers is to save costs via synergies; job losses are inevitable, and 3% of the total does not seem so high.

But the new, super large AB InBev faces a threat, as does the entire order of players in the global brewing industry.

The craft beer industry is growing, and it is threatening. As of March of this year, there were 4,269 brewers in the US. In terms of sales, craft beer now makes up 12% of the market, but then in 2015, US craft beer sales rose 13%, while beer sales as a whole fell 0.2% .

If that growth rate continues, craft beer would see its market share rise to 25% within six years and 50% within about 12 years.

The rise of craft beer, and how the industry is scaring the big brewers into ever more ambitious mergers, is not dissimilar to a story that is playing across many industries.

It’s the rise of start-ups, the rise of entrepreneurial businesses encroaching on the turf that once seemed to be solely the preserve of the corporate giants.

If we drill down and ask why it is happening, and what is afoot to suggest the trend may continue, then the explanation that is revealed is telling.

Five factors are driving the change, and in many cases, these same factors apply to a myriad of industries.

First off, there is the tastes of the millennial generation, many studies site this generation as a driver of change. They are more collaborative than past generations, and as digital natives, they are brought up to expect choice, and are used to looking for the best deals. In the case of the beer market, studies show they want to experiment, they are interested in new flavours, and they like to buy local.

Second off, within the craft beer industry, we are seeing collaboration between the small brewers, learning off each other, swapping ideas, and looking at each other for support, both actual and moral support. This is the age of collaboration, in other industries we are seeing co-working emerge as start-ups look to work with similar companies, that in another era might be seen as rivals. They have a common enemy, and operate in an industry big enough for there to be room for many players, just not enough room for many companies like AB InBev.

Thirdly, there is the long tail, in the internet era it is cost effective for niche companies to sell their products worldwide, this means that craft beer makers can tap into markets that in a different age would have been out of reach.

Fourthly, there is the growing homogenization of technology, as the economies of scale that once afforded the giant brewers such advantages become less significant. Take as an example, BrewNanny, which supplies a sensor for home brewers providing data on temperature, fermentation and light. This illustrates how cheap technology provides solutions to small brewers that was once only available to the big players.

Fifthly, there is the Internet of Things, and mass produced technology and thus affordable technology that is providing data to transform production, and affordable at a very small production scale.

The big brewers can respond by buying craft brewers out, but new ones will be formed in their place, and the giants can no more stop that than you can stop the sea from destroying a sandcastle by constantly rebuilding it.

Necessity is the mother of invention; here is a prediction for you. Many of the displaced workers at either SABMiller – as was – or AB InBev – as is – will link up, perhaps via social media and use some of their redundancy money to set up craft breweries of their own.

This is the age of the entrepreneurs, technology has made it so and the battle between the big and tiny brewers illustrates why.