Alcohol

Was the MillerCoors Joint Venture Good for Craft Beers?

New empirical research suggests the answer is yes.

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One of the potential problems of industry concentration is the suppression of competition and reduction of consumer choice. Potential market entrants may view the prospect of entering highly concentrated markets as daunting given the market power of incumbents.  In some cases, however, market concentration may itself be a source of opportunity for new entrants that are able to differentiate their products or services from those of the dominant players. A new paper suggests that this may be what occurred when Miller and Coors entered a joint venture.

The paper, "Did the MillerCoors Joint Venture Strengthen the Craft Beer Revolution?" by José Azar and Xabier Barriola, suggests that concentration in the beer market created such opportunities for craft beer makers. In effect, the hulking MillerCoors dinosaur left room for mammalian craft beer upstarts.

Here is the abstract:

In this paper, we study the effect of the MillerCoors joint venture on craft brewers in the United States. Using a detailed scanner data set, which covers 1,739 grocery stores located in 33 cities, we track the assortment and the market share of craft beers that were offered from 2001 until 2011. After separating the markets into two groups, most affected and least affected by the merger in terms of concentration, and using the synthetic control method, we find that the number of craft beers and their market share significantly increased after the event. In particular, assortment increased by 27.5% and revenue shares by 1 percentage point in the treatment group, relative to the synthetic control group. This shows that smaller firms were able to enter into highly concentrated markets, and that entry was stronger in the markets that were most affected by the consolidation of large firms.

Interesting stuff (and it's about beer!)

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  1. I’m sure it increased brand variety, but the obsession with so called “dank” Pacifc Northwest styly IPA beers practically reeking of pine and citrus, which I find disgusting completely turned me off of the entire craft scene. Give me a good English Bitter, Belgian Abby, or better yet I just brew my own.

  2. I am told Miller Lite is the beer of choice for fugitive Texans.

    1. Not now, they got 6 cases of Corona instead.

  3. I assume they got the math right, but I searched in vain for a plausible explanation of causation. The market for mass-market beer has long been dominated by a small handful of brewers. The craft brewers don’t make mass-market beers. Why would shrinking the number of mass-market brewers from, say, the Big 8 to the Big 4 have any effect on the sales of a very different product?
    A beer industry expert once told me that Anheuser-Busch, as it then was, was playing around with craft beers. He had tasted the results and they were as good as any craft brewer’s. Had A-B decided to compete for craft-style beer sales and put its marketing muscle to work, the craft brewers might not have stood a chance. For some reason, A-B didn’t go in that direction.

    1. Maybe it just increased awareness of craft beers in general? No other ideas.

      1. Probably more a matter of providing the craft brewers with access to Miller’s distribution network and existing relationships. Not only would this make it easier for craft brewers to get in to sell at all, but would also drive down the retail cost of the product and give them access to more markets than they could access organically in the same timeframe.

    2. “For some reason, A-B didn’t go in that direction.”

      Ask a gasoline distributor how much of an expensive logistical hassle it is to comply with the multiple blends of gasoline that the EPA mandates — different blends for different geographical areas.

      The distributor would prefer to have just two grades (regular and premium, with midgrade being mixed on site by the pumps) and give everyone the same thing, but instead has to juggle a whole lot of different products, with segregation required in pipelines, tank farms, and even delivery trucks.

      My guess is that A/B realized the same thing — that they would have to have multiple production lines and have to keep product segregated and that the cost of doing that would eliminate any benefit they could have from being able to sell a craft beer.

    3. Yeah I see no causation either.

      That and the spirit of craft is not on AB’s side. It was formed by Sierra Nevada, Sam Adams (BBC), Jack’s Abby and others. It’s been a fight against the Goliaths of the scene since it started.

      People warmed to it not just because of the taste (being thankfully not a light American adjunct lager) but also because it was the small upstart. That revolution still carries on and is why you see a plethora of different local beer in groceries across the country. People buying craft are buying better beer that more directly helps their local economy. There are a few who would go to an AB brand but that largely didn’t work in their few attempts and is precisely why they’ve bought out others under the Constellation brand trying to take the market another way (like Elysium, Wicked Weed, etc.)

    4. AB does have at least one craft beer, Shock Top.

      Not bad and I don’t usually like fruity beers.

  4. Perhaps, but there is already a separation there and the model is really monopolistic competition, and not pure competition, so I dont know how much the merger matters there.

    Strictly analyze the market for cheap beer, and I dont think it will come out the same.

  5. The other wild card here is the concentration of retailers — in the states which allow beer to be sold in both grocery and convenience stores, both venues have increasingly been consolidated.

    It’s not so apparent with grocery stores because many chains have kept their old names, but a Giant in DC is *identical* to a Stop & Shop in Massachusetts, right on down to the colors of the employee uniforms.

    And then you have the mid-level distributors which is a legacy of prohibition — in many states, there is the brewer, the distributor and then the retailer — with all three required to be three distinct separate entities. Hence the barrier to the craft brewer is not the big brewer but getting a distributor to distribute his product.

  6. I hope to devote more time to this later, but a skim indicates this work is not promising.

    No mention of trade practice regulations, changes, or enforcement (or lack of it). This is an intensely regulated industry, with unique focus on state-level regulation.

    No detail (at least, none I found yet) on which “detailed scanner set data” information was used (and which was not, and why — was the VIP (Vermont Information Processing) system even considered)?

    No mention of erosion of the three-tier system and, in particular, relaxation of brewer retailing restrictions (prohibitions)? Were direct sales (retail or wholesale) considered? If not, why not?

    I would expect to observe that the professionals at Beer Marketer’s INSIGHTS could provide a handy assessment of this article and a better analysis of the issue it addresses. I also would expect to learn that the list of buyouts and mergers provided in the article is misleadingly incomplete.

  7. Thank you for mentioning this article, Prof. Adler.

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