A Simple Graph Explains the Complex Logic of the Big Beer Merger

In the largest ever merger in the brewing business, AB InBev plans to acquire SABMiller. Much of the $100 billion price tag will be for the brand portfolio of the acquired company. What is the strategic rationale for the acquisition of this portfolio, and what is the likely outcome of the merger? A tool we’ve developed for evaluating brand position and strategy offers some insight.

In our HBR article “A Better Way to Map Brand Strategy”, we described a methodology for mapping markets and drawing strategic implications from the relative positions of competitors. We located brands on two dimensions: centrality and distinctiveness, based on consumer perceptions. A brand can be central to a category (as Coca-Cola is to carbonated drinks, and Google is to search), but also be distinctive in ways that make it stand out in a crowded field (as the MINI does among passenger cars, and Dyson does in vacuum cleaners).

By positioning brands on a grid created by crossing these two crucial marketing dimensions we arrive at four quadrants: brands that are both central and distinctive are labeled Aspirational (such as BMW in passenger cars), those that are central but not very distinctive are labeled Mainstream (Ford and Honda), those that are distinctive but not very central, we call Unconventional (MINI and Tesla), and those that are neither central nor distinctive, we label Peripheral (Hyundai, Kia). On the resulting Centrality-Distinctiveness (C-D) maps, we can see how each brand is perceived relative to others in the market, and, importantly, we can draw strategic implications for what they should do if they want to alter their position.

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Applying this methodology to the beer category in the United States, we arrived at the following map for 23 national brands chosen because they had more than 0.3% market share and at least 50% awareness. About half of these brands are owned by the two brewers. On our map, the size of the circles represents beer sales volume.

The brands in blue are AB InBev brands, and the brands in orange are SABMiller brands. It is clear that both companies have independently built a diversified portfolio of brands located in the different quadrants. But the map points up some interesting strategic implications.

AB InBev (by its acquisition of Miller) will be the only player in the mainstream beer quadrant. With brands such as Miller and Busch, the merged company would practically own this quadrant. If you add brands such as Budweiser, Coors, and Michelob, the merged company would own most of the high volume brands in the Mainstream and Aspirational quadrants in the U.S. market.

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We can also see that AB InBev’s brands are on average more distinctive than SABMiller’s brands, giving them more pricing power. In the high distinctiveness unconventional quadrant, AB InBev is a player while SAB is not. Strategically, AB InBev seems to have greater marketing expertise in developing higher distinctiveness brands, at least in the U.S. market. In terms of post-merger synergies, this implies that AB InBev might be able to increase the distinctiveness of the current brands in SABMiller’s portfolio, increasing their pricing latitude, and the contribution margin from SABMiller’s portfolio.

AB InBev’s self-professed brand strategy is to develop “Focus Brands.” From the company’s website: “We have rigorously reinforced our Focus Brands strategy. Focus Brands are those in which we invest most of our marketing money, and to which we dedicate the greatest proportion of our share of mind. With a portfolio of well over 200 brands, we are prioritizing a small group with greater growth potential within each relevant consumer segment.” A likely implication of the “focus brand strategy” is that AB InBev may decide to cull some of SAB’s or its own brands that currently compete against each other in different segments. Brands that are close to each other on C-D maps can be among the fiercest competitors. AB InBev may decide to identify those candidates from the aggregate portfolio that can be cultivated as “Focus brands” of the future. Culling in-house competition (by acquiring it) in certain segments provides greater breathing space for the focus brands of future.

The unconventional quadrant is currently under populated in the U.S. beer market. AB InBev may benefit as the SAB acquisition gives it multiple eclectic brands that have their origins in Latin America, Europe and Africa. Such brands have the potential to become highly distinctive unconventional brands in the American market.

Regardless of how anti-trust regulators evaluate the mega acquisition by AB InBev, the verdict from a marketing perspective is clear. The acquisition gives the joint entity tremendous hold over the American beer consumer’s mind space.