Oligopoly in the Beer Industry - Essay Example

The U.S. beer industry is dominated by three major brewers: Anheuser-Busch, the makers of Budweiser and Michelob, SAB Miller, and Morson Coors. These three account for over 80% of total beer production and are large breweries with annual shipments of over 15 million barrels (31 gallons per barrel) nationwide and abroad. Most of these breweries are located in Texas, Colorado, Wisconsin, and New York State (Tremblay and Tremblay, 2005). Regional breweries produce between 15,000 and 15 million barrels a year, with brews distributed in specific regions.

Most regional breweries are privately held such as Pabst and Latrobe. Regional breweries account for approximately 15% of total U.S. beer shipments. Most of these breweries are located in Pennsylvania, Oregon, Wisconsin, and California (Goldammer, 2005). At the bottom of the industry pyramid are microbreweries and brewpubs, "craft brewers" that produce specialty niche products. They ship less than 15,000 barrels of beer each year and began growing in numbers in the late 1970s. Brewpubs are restaurant-breweries that sell its beer on-premise, a common practice of European producers, and rarely exceed 5,000 barrels in annual output (Goldammer, 2005).

The industry is highly compet. These were developed after the "price wars" in the last three decades, giving consumers the impression of choice in price, taste, and image, and giving microbreweries and importers the opportunity to enter the market in the 1990s (Tremblay and Tremblay, 2005).Other factors, such as the growing size of the Hispanic market, an expanding economy, consumer interest in higher-priced beers, and the wave of market consolidation where the large breweries began buying regional and small breweries led to industry growth.

However, sales in recent years have remained flat (Anheuser-Busch grew by only 0.7% in 2005) due to the health effects of beer and competition from beverages such as wine seen to be healthier. Characteristic of the competition is the recent decision by InBev (of Belgium) to sell regional brewer Rolling Rock to Anheuser-Busch (U.S.) and of SAB (South Africa) to buy Miller in 2002. InBev's decision was made after realizing that though it is the biggest brewer in the world - it bottles premium brands Beck's and Stella Artois - it prefers not to compete with Anheuser-Busch in the locally-brewed segment, limiting itself instead to selling its high margin, imported premium brands (Hannaford, 2006).The U.S.

beer market is therefore full of breweries of all sizes, all with a domestic and some even with an international presence, and foreign brands making inroads into the higher margin specialty brands where the larger, more established brewers are competing with small regional and microbreweries and brewpubs. The nature of the competition, however, is such that larger breweries, which include InBev and SAB which established its presence through its purchase of Miller, can resort