Top Menu

Monday morning musing: Big Beer & making money

The rich get richerThe Big Four of Big Beer worldwide — Anheuser-Busch InBev, SABMiller, Carlsberg and Heineken — sell 50 percent of the beer. As recently as the 1990s they had only a 20 share.

But here’s the really interesting number, which Benj Steinman of Craft Beers News/BMI provided during the craft brewery conference: They earn 77 percent of the profit.

He pointed out that the United States “profit pool” is the largest in the world and still expanding, expected to grow $3 billion in the next three years, mostly because of cost savings at A-B InBev and MillerCoors. In contrast, he said that because of the intense fixed costs involved in expansion that “craft breweries” probably earn just 3 percent of the profit pool despite selling 5 percent of the beer.

Some links to take your mind off that curious business reality:

  • Don’t bet against Bud Light. I sort of hate to reward the PR person who sent me six copies of a release to my various email addresses, but it turns out you can bet on what you think will be the best selling beer in the United States between now and Sept. 1. Bud Light is a prohibitive favorite (-5000), given a 98 percent chance of winning. I’d venture it has more like a 100 percent chance.
  • Slicing and Dicing beer by ABV, by Local, by Session, and by Style. The ever-amazing Bryan Kolesar surveys beer menus in the Philadelphia suburbs, produces charts and answers questions like: Does diversity exist within session beers under 5.5%? and Are the locals being served?
  • The Albatross That is Food and Wine Pairing. Because Amazon lists something like 159 books on food and wine pairing, and now . . . here come the phone apps.
  • Just when you thought beer couldn’t get any colder. (eom)
  • On the folly of ‘grading’ what we drink. Wine sage Hugh Johnson talking about wine scores: “. . . they can never reflect a wine accurately. I’ve said to people, ‘I love wine. Wines are my friends. I also love my friends. How would you like scoring your friends?!'”
  • 9 Responses to Monday morning musing: Big Beer & making money

    1. Mike April 4, 2011 at 11:23 am #

      Stan, a question: the big four sell 50 percent – in the US or world-wide? Unit sales or gross income sales?

      • Stan Hieronymus April 4, 2011 at 12:18 pm #

        That’s worldwide. Best I can tell that is 50% of unit sales.

    2. Peter H April 4, 2011 at 1:47 pm #

      The large breweries specialize in generating profit, right? It doesn’t make sense for them to buy Goose Island unless they plan to make it more efficient. The easiest way to make beer cheaper is to make cheaper beer.

    3. Bill April 4, 2011 at 2:31 pm #

      I have to say, the expression “Wines are my friends” (or collectibles are my friends, or books are my friends, etc.) diminishes the actual people who are the speaker’s friends.

    4. Mike April 4, 2011 at 3:13 pm #

      Well, that makes the 77 percent of profits they earn quite impressive. I guess that means if you want to make money in beer, you’ve got to be very, very big. At least, the brewers selling the other 50 percent, but only earning 23 percent of revenue must be thinking that.

    5. Stan Hieronymus April 5, 2011 at 10:57 am #

      Peter and Mike – I think this quote from Eric Wallace at Left Hand Brewing in Colorado goes to the point. And he said it in 1997:

      “The large brewers are not tooled to do what we do. They’ll have to build less-than-efficient breweries to make beer like we do.”

      Less efficient breweries do not generate profits at the same rate. But they can be profitable.

    6. FlagonofAle April 5, 2011 at 6:49 pm #

      Funny, Hugh Johnson is coming from the opposite direction than I am: I hate wine, and I hate my friends. (just kidding – there are some ok wines out there)

      I think comparing the profitability of the entire craft industry against the big brewers is not an exact apples to apples comparison. There are a ton of start ups in the craft brewing world which means there are some which are not turning a profit and closing every year, or struggling with start up costs and debt etc. I think if you compared the profitability of the top 4 craft breweries against the top 4 macros you’d see a much more encouraging picture. Maybe not a more accurate one, but a more encouraging one.

    7. Mike Kallenberger April 6, 2011 at 12:25 pm #

      The lower profit margins of craft brewers might actually protect them from “invasion” by the Big Two. Corporations invest their money where they can get the highest ROI — if crafts were more profitable, the big guys would likely be pouring as much money into the craft segment as they currenthly spend on television advertising. If, as Sam Calagione once said, “Money is a means to our end and not an end in itself” — the craft brewers should arguably be very happy that they’re not AS profitable.

    8. Mike Kallenberger April 6, 2011 at 12:31 pm #

      But, I should also respond to Peter H, and this might be seen as inconsistent on my part, given my previous comment. (Arguing with myself is a personal specialty.) If ABI were only interested in near-term profitability in dollar terms, they wouldn’t have bought Goose Island. Even if Goose Island’s efficiency were maximized in Big Brewers’ terms (whatever that means), it couldn’t compete with the ROI they earn on Busch Light, much less Bud Light. I think ABI is, in part, seeking to buy credibility with the craft audience. Craft beer has dominated the beer conversation in American beer circles, and this, I think, is an entry point into regaining a measure of control over that conversation.

    Powered by WordPress