WIth CUB now safely in Asahi’s hands, a competition assessment conducted by the ACCC shows it allowed the sale despite Asahi having a significant impact on competition.
The ACCC found that neither future market entrants or Australia’s 600 craft brewers were likely to “replicate Asahi’s competitive presence” and the regulator instead appears to be betting on the strength of the divested Beck’s and Stella Artois brands to replace that competition.
Asahi’s impact on competition ‘significant’
The assessment, published six weeks after the approving the sale, shows that the ACCC considered that Asahi’s impact on competition was “significant” despite it only having a 3.5 per cent market share.
Confusingly the ACCC found that while small players such as Asahi “significantly affect the intensity and/or quality of competition” in Australia’s “highly concentrated” beer market, it also considered that a new entrant or other existing smaller competitors were unlikely to replicate Asahi’s competitive presence.
“The ACCC considered that Asahi is in a unique position to compete against the two main incumbents, Lion and CUB, particularly in craft beer and premium international beer,” the assessment noted.
“Asahi is a well-resourced global competitor and offers a strong portfolio of brands in Australia.
“Prior to the proposed acquisition, Asahi was committed to growing its Australian operations. Asahi’s presence in the on-premise channel made it a key competitor for taps that were not contracted to Lion and CUB.
“Market feedback indicated that Asahi acted in a way that constrained the beer prices of Lion and CUB.”
Small brewers not effective competition
The watchdog found that despite their growing numbers Australia’s craft brewers provided little competitive pressure on Lion and CUB.
“Although there are a large number of individual craft beer brands being sold in Australia, with apparent low barriers to smaller-scale entry, these independent craft brewers only have shares of no more than 0.5–1 per cent each.
“The ACCC considered that while the presence of independent craft brewers may increase consumer choice, individual craft brewers may not place effective competitive constraint on the two large incumbents.”
Brand size key to competition
With the ACCC finding that the current “small players” are unlikely to provide competition to the big two brewers, it appears to be banking on the strength of a divested Beck’s and Stella Artois – and AB InBev’s ongoing interest in strongly supporting the brands in Australia – to create viable competition.
The competition assessment noted that “brand awareness, along with marketing expenditure, are extremely important to increasing share in the beer market”.
“Market feedback indicated that even competitors with established distribution networks can face difficulties in establishing new profitable brands,” it said.
As a result of the competition concerns, Asahi offered court-enforceable undertakings to divest itself of Beck’s and Stella but protect them in the market place by treating the divested products as Asahi products for the purposes of any supply arrangement with an on-premise or off-premise venues for three years.
Asahi must appoint an ACCC-approved independent auditor to monitor Asahi’s overall compliance with the undertaking.
The details of the ACCC’s assessment creates special interest in who will acquire the divested brands.
The Australian Financial Review reports that Rothschild Australia has been appointed to facilitate the sale with the kitchen sink of “local brewers as well as international groups and private equity” touted as potential purchasers.
The ACCC found that the beer market in Australia is “highly concentrated with CUB and Lion accounting for approximately 80 per cent of the market”.
“The next largest beer suppliers are Coopers with approximately 5-7 per cent share, Asahi with approximately 3.5 per cent share and CCA with approximately 1-2 per cent share,” the Public Competition Assessment noted.
With pre-sale Asahi “providing close competition…in the premium international beer” market, sale of the brands to one of the existing players would seem to thwart the divestment’s ability to alleviate the ACCC’s concerns.
The PCA noted that Coopers, which has been mooted as a potential buyer, already controls distribution of significant international brands Carlsberg, Sapporo and Kronenbourg, as well as Fix Hellas and Mythos.
Coca-Cola Amatil controls Coors and Miller Genuine Draft as well as Fiji Bitter, Vailima and Vonu.
With the loss of Asahi as a significant competitor, the sale of the brands to either of these players would represent a further concentration of the domestic market without adding to competition, seemingly contrary to the reason for their sale.
The sale process continues.