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American beer market is getting a potentially loaded, $2B investment

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(BUSINESS NEWS) Budweiser is making a HUGE investment in the American beer market but, it’s not without challenge.

Local brews

Budweiser recently announced a four-year, $2 billion dollar investment in the American beer market. For American workers and the national economy, this is quite the welcome gift. However, plenty of local breweries are watching this with fear in their eyes.

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In the details of this investment announcement, we can see a subtle, yet assertive expansion of Budweiser’s strategy to wrangle the craft beer market.

Budweiser is wedging its foot in the door

Of that investment, $54 million will be invested in expanding three other production facilities, with a goal to prepare those facilities to brew multiple types of beer across their entire portfolio of domestic, import and craft beer products. The investments will supposedly prepare their breweries and warehouses for a more fragmented industry.

That $54 million is a large part of a total $146 million to be invested in building and upgrading production and distribution infrastructure.

That still several hundreds of millions of dollars on the table for other investment activities, such as acquisitions. Since 2011, AB InBev has bought out ten large craft breweries and organized them under their High End division. It seems likely that with that much cash available and the upgrading of operations to better brew a wider variety of products, AB InBev will double down on its acquisition of craft breweries.

The reasons why seem obvious

Craft beer’s growth continues to hit double-digit numbers, and that growth is eating into Budweiser’s market share. Buying existing breweries keeps them engaged in a growing marketplace.

However, AB InBev’s actions and words are evidence to an anti-craft beer agenda.

And yet, the purchasing of craft breweries by this conglomerate feeds into that strategy.

Corporations of that size must specialize in supply control, and specialty ingredients for craft beer can be hard to come by. That’s why AB InBev just bought entire reserves of hops from an upstart hop farm in South Africa, strictly for their craft brewers.

That kind of buying power is nearly-impossible to match if you’re an independent brewery.

Second, Budweiser has a history of leveraging dubious (and occasionally illegal) marketing and distribution tactics to muscle competing microbrews off retail shelves and tap walls. In fact, budweiser is currently due to stand trial for doing just that in Massachusetts. And reportedly, they’re getting away with even more egregious violations in the Chinese beer market. They wouldn’t have as much success in these bullying tactics without a craft brand to pedal.

Finally, Budweiser will likely play a long game to cut costs of these craft brews, thanks to its operational optimization. Craft beer has skewed price perceptions in favor of more expensive beers, which makes Budweiser’s cheap lagers look less valuable. That’s a huge loss of brand equity, and AB InBev would rather undercut its other businesses than take a loss on a multi-billion-dollar heritage brand. Closing the price gap between craft and Budweiser, while preserving a positive association of the craft brands they own, is their most likely path forward to accomplish that goal.

Always something else

While funding two beer blogs is one way to preserve that positive association, throwing a lot of money around to create and preserve American jobs doesn’t hurt either. As is usually the case with large corporations, there’s always another reason lying just below the surface.

#ABInBev

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