GENEVA _ The biggest brewing merger ever threatens to put the industry’s mid-size players in a bind.
Should Anheuser-Busch InBev NV succeed in buying SABMiller Plc, second-tier beermakers such as Carlsberg A/S and Heineken NV will face a massive rival even more focused on efficiency, just as microbreweries are cutting into larger brewers’ market share.
AB InBev’s main investors, including 3G Capital Brazilian billionaire Jorge Paulo Lemann, have made their reputation on what RBC Capital Markets analyst James Edwardes Jones calls a “Rottweilerish cost management philosophy.” The company more than doubled its operating margin to 32.5 percent last year compared with 2004, when Belgium’s Interbrew merged with Lemann’s AmBev.
Combining AB InBev and SABMiller would create the one of the world’s top 10 companies and surpass Procter & Gamble Co. and Nestle SA in market value. With a combined 30 percent share of the global beer market, the merged entity will force competitors to become more efficient. Heineken, the third- largest brewer, had an operating margin of 14.4 percent last year while Carlsberg had 14.3 percent.
“As your competition gets bigger and bigger, it gets tougher and tougher to compete,” said Andrew Holland, an analyst at Societe Generale. “Heineken and Carlsberg face an enlarged ABI-SAB, and notably a management team that have an extremely good track record.”
AB InBev said it intends to make an offer for SABMiller, which said only that it had been told by AB InBev about its plans. Shares of both rose.
Carlsberg declined to comment. A spokesman for Heineken said the company is following the situation with interest but won’t comment further until the situation becomes clear.
Craft beers, made by smaller breweries that typically highlight their local appeal, have taken a chunk of the industry’s market share. Microbreweries supplied 11 percent of the U.S.’s beer in 2014, compared with 5 percent in 2010, according to the Brewers Association, based in Boulder, Colorado.
To be sure, AB InBev’s fixation on efficiency may even complicate life for managers at SABMiller, according to Francois Mosnier and Eamonn Ferry, analysts at Exane BNP Paribas. In a March report, they collated a list of corporate slogans of the two brewers, arguing that the cultures clash.
“We are never completely satisfied with our results, which are the fuel of our company,” says one of AB InBev’s corporate maxims. “Focus and zero-complacency guarantee lasting competitive advantage.”
SABMiller, which says it expects its people to “go the extra mile and to be dissatisfied with the concept of average,” also says: “We work hard and toast our achievements… with (what else?) a cold beer at our onsite bar!”