Justice Department challenges Bud beer merger
Bottles of Anheuser-Busch Budweiser and Grupo Modelo, Modelo beers are displayed at the Chandi Wine and spirits store on January 31, 2013 in Miami, Fla. Federal authorities filed a lawsuit January 31, to stop the Anheuser-Busch InBev's $20.1 billion takeover of Grupo Modelo.
Anheusuer-Busch InBev got bad news today. The world's largest-beer seller was hoping to become even larger by buying Mexico's Groupo Modelo, which makes Corona. But the Justice Department said not so fast, and filed an anti-trust lawsuit. The DOJ is worried that the $20 billion merger would drive beer prices up for Americans. Beer drinkers are worried the merger could change the taste of imports.
When InBev took over the German import Beck's, it moved the production of the lager from Germany to the United States and it made changes to the recipe to lower production costs.
Matt Simpson is known as the beer sommelier. He writes about beer and taught a beer education class at Emory University. He says InBev tends to hone down the brewing process so it costs less to produce the same beverage, which has consequences.
"There's less flavor, less body and often there is less alcohol," says Simpson.
Immediately customers started complaining about the blander Beck's, and sales dropped. But overall, InBev's strategy has paid off. The company has 39 percent of U.S. beer sales. If it acquires Groupo Modelo, it would jump to 46 percent.
The U.S. market "is essentially a duopoly now," says Peter Reid, the publisher of Modern Brewery Age. The other company in that duopoly is Miller Coors, which controls 26 percent of the market.
"Basically in terms of overall market, in most markets, they are the price leader" says Eric Shepard, executive editor of Beer marketers Insights.
When InBev increases prices, MillerCoors tends to follow. But Modelo doesn't. By not raising its prices, it hopes to narrow the price gap between its more expensive Corona and Budweiser. That price competition, the Justice Department fears, could vanish if InBev owns both brands.