The New Beer Wars

The recent announcements of two sales/takeovers of companies in the markets are significant events with several implications for local and overseas consumers of brewed products. Overseas the conglomeration of the world’s No. 2 by the No. 1 (for 104 Billion) forms a giant array of leading brands in international markets, and locally the world’s No. 3 has taken over our local No.1. The strategies, methods, and philosophies of the deals will be important for understanding and predicting outcomes.

The No. 1 ABInBev is the result of a takeover of Anheuser Busch in a series of aggressive moves by a small group from Brazil, 3-G, who have a very interesting story of entrepreneurial growth utilizing an unusual strategy of gaining control by convincing passive shareholders (families and funds) to partner with them to exercise control. Their end game is to assure greater profitability and market valuations. The strategy also includes an ambition of being the dominant player in each industry segment. To date their acquisitions include several domestic brewers, international brands, and also Heinz (of tomato ketchup fame).

Their beer brands include: Budweiser, Corona, Stella Artois (Global); Becks, Hoegaarden, Leffe (International); Skol, Bud Light, and several others (local champions). This is an impressive array of over 200 brands that span the world and domestic markets, and also include enormous access to brewing facilities and distribution channels.

The No. 2 SAB MillerCoors, brings another well-known portfolio of brands/differentiation, as well as a large manufacturing and distribution capability, and the combination takes the merged entity into every arena that still permits alcohol promotion including: Soccer, Golf, American Football, Basketball, Motor Racing, Rugby, Athletics, X-Games, Tennis, Winter and Summer Olympics, World Championships, Regional Games, and in fact, every major syndicated sport for TV or Internet sponsorship.

This removes most of the competitive bidding and gives their marketing teams a firmer grip on the handle. It also moves their portfolio into real competition with beverage giants Coke and Pepsi, and also eliminates most of the other beverage and alcohol players from sports sponsorship. This certainly fits in with the 3-G strategy of domination of markets and must be a clear and present danger to the No. 3, who are now a new No. 2 albeit a very long way behind.

The No. 3 Heineken must have seen the writing on the wall. Their preeminent position in international markets has been predicated on the concept of being a premium-priced beer that was brewed by local beer companies and co-marketed in those particular markets. This strategy included partnerships/ownership of small and inefficient operations that did little to add to their bottom-line, but were influenced by customs duties and political interference. The Caribbean is littered with these examples, and in most cases, Heineken has been content to be local No. 2, in small markets and re-invest their profits in marketing activities without the capital costs of manufacturing.

Heineken therefore seems intent (for the time being) to purchase the brewed brands of Diageo starting with Red Stripe and co-packed Guinness, in what I think is the first step in a worldwide Guinness acquisition. This seems logical to me, given their current scope of management competence in marketing and dealing with third party manufacturers.

So what about Red Stripe? They have transitioned from private company to listed company on the JSE, family controlled to corporate management, sold to Guinness, acquired by Diageo, and now going to Heineken. This has been a number of large changes, the latter three in some 23 years. So the portfolio is now Heineken (first priority), Red Stripe, Guinness, and Dragon in that pecking order.

So what about Red Stripe operations? One positive for Jamaica is the production capacity compared to other CARICOM breweries that pack for Heineken and this will probably get operations up to three shifts. One negative will be that certain operations that may have been separate before can now be merged, and these include sales and marketing, exports, overseas marketing, supply chain management and administration.

These possible changes will increase the need for production staff (generally lower paid), and decrease the need for office staff (generally higher paid). The very nature of these changes will remove much of the commitment to Jamaica’s national development that was in-bred in the original D&G operations. Gone are most of the noble values of the Desnoes and Geddes families, their strong Jamaican roots and Corporate Social Responsibility. There will be a new awakening for political parties which played on the Red Stripe red, and the Heineken green for their tribal activities (guess they will have to rely on food coloring for the curry goat). Trade unions will have to re-think their positions, and management direction will come from Regional control (read that as Latin America and the Caribbean). ? Habla espanol.

There will be local repercussions for the competitive sponsorships, the employees of the company, the further consolidation of distribution, transportation, and sales, and many other changes in operating systems so as to merge into the worldwide Heineken imperatives.

The question of repatriation of profits, and the export earnings’ final location will be questionable, and even the Red Stripe brand will have greater potential co-packers outside of Jamaica in keeping with the Heineken strategy. Therefore the ants are at risk as elephants prepare for battle. If this doesn’t waken us from our slumber than I don’t know what will. The brewed and beverage markets are in transition, we do not know 3-G (the boys from Brazil), and they don’t know us (nor do they care). We just don’t drink enough beer.

An ethical and legal situation arises in the Jamaican jurisdiction as Red Stripe is a publicly listed corporation and as such is subject to the rules of the Jamaican Stock Exchange (JSE), and the laws of Jamaica. It appears that not even the local management was aware of this sale until less than 48 hours before it was announced. Therefore there was no prior disclosure to the JSE. If this is so, then there has been a breach of Jamaican law, and regardless of how local shareholders may benefit from the sale, there has been a non-disclosure incident. If this is so, then the JSE rules should be enforced, or alternatively, perhaps abandoned for the rest of the Listed Companies. The often boasted claim of “Sovereignty” seems to be irrelevant or at least challenged in this case, and we must therefore acknowledge that our supposed “world greatness” will not apply to the maneuvers of multinational corporations who list their subsidiaries on the JSE in the future.

So the private sector, going forward, needs a growth strategy that is cooperative and inclusive in order to maintain Jamaican ownership of brands, manufacturing, export, and employment (if desirable). Succeeding governments have failed to produce viable growth ideas, so those who can had better start their engines or wait for the tidal wave.

I am convinced that we can, but we must be analytical and proactive in the global challenges that emerge every day, and we must think every day or die.