For quite some time Japanese soft drink company, Asahi Group Holdings, Ltd, has been in news due to its proposed acquisition of Carlton & United Breweries (CUB), an Australian brewing company. In August 2018, Australian watchdog, ACCC, had raised competition concerns regarding the acquisition as both these firms manufacture and distribute a range of beer, cider and spirits products in Australia.
This instigated an investigation by ACCC which was focused on identifying the impact on competition of this proposed acquisition. ACCC had asked for views from different interested parties on:
- whether Asahi and CUB compete closely for the supply of beer, cider and spirits products;
- the extent to which large customers, such as supermarket chains, hotel groups or distributors, could sponsor entry or expansion by a rival supplier if the proposed acquisition were to result in a price increase
- the likely impact on prices
Before diving deeper into the recent developments in this case, let us know more Asahi and CUB and the range of products that they manufacture.
Asahi is a manufacturer and supplier of a range of international and domestic beer, cider and spirits brands, including:
- Beer brands– Asahi Super Dry, Asahi Soukai, Peroni, Cricketers Arms, Pilsner Urquell, Grolsch, Mountain Goat, Green Beacon and Two Suns
- Cider brand– Somersby (under licence from Carlsberg)
- Spirits brands– Nikka Whisky, Vodka Cruiser, Woodstock Bourbon, Mist Wood Gin, Untold Spiced Rum, Tequila Blu and Spicebox Whisky
CUB is a Victorian-headquartered Australian brewing company involved in the manufacturing of a range of products which include:
- Beer brands– Great Northern, Victoria Bitter, Carlton Draught, Carlton Dry, Cascade Premium, Pure Blonde, Matilda Bay, Fat Yak, Melbourne Bitter, Crown Lager, Pirate Life, 4 Pines, Foster’s, Reschs and Balter; CUB also imports or manufactures, and then distributes, a range of other beer brands under licence, including Goose Island, Corona, Stella Artois, Belle-vue, Hoegaarden, Leffe, Beck’s, Lowenbrau, Franziskaner, Spaten and Budweiser
- Cider brands– Strongbow, Mercury, Bonamy’s, Little Green, Spring Cider Co, Dirty Granny, Pure Blonde Cider. CUB also manufactures and distributes Bulmers under licence from Heineken
- Spirits brands– Cougar, Black Douglas, Lexington Hill, Karloff, Continental Liqueurs, Coyote and Prince Albert
Recently on 12 December 2019, ACCC released a statement in which it informed that in its view the proposed acquisition will reduce competition in the market for cider and may also reduce competition in the beer market.
ACCC Chair Rod Sims made following comments about the acquisition:
- “The proposed acquisition would combine the two largest suppliers of cider in a highly concentrated market”
- “A combined Asahi-CUB would control the Somersby, Strongbow, Mercury and Bulmers cider brands, which account for about two thirds of cider sales. We are concerned that the proposed acquisition may lead to higher cider prices”
- “Asahi argued to us that cider and beer are part of the same market, but our preliminary view is that cider is a separate market and drinkers do not readily switch between beer and cider”
- “While Asahi is currently a relatively small brewer in Australia, accounting for approximately 3.5 per cent of beer sales here, our preliminary view is that Asahi may act as a competitive constraint on the two largest beer brewers, CUB and Lion, and has the potential to be an even bigger threat in future”
In forming its view, the ACCC spoke with a large number of market participants, including licensed venues, competitors, alcohol retailers as well as industry groups.
The beer market is already highly concentrated and in recent years Asahi appears to have emerged as a vigorous and effective competitor in the supply of beer, which is why ACCC believes that the proposed acquisition may change Asahi’s incentives to use its products to compete against brands presently supplied by CUB and Lion and it may result in the loss of competition between Asahi’s premium international brands and CUB’s premium international brands.
As part of the proposed acquisition, Asahi will acquire the right to supply and distribute AB InBev products in Australia which could provide Asahi strong basis to compete with and constrain the major incumbents, CUB and Lion, one of the reason why ACCC is concerned about the acquisition.
For investigation, the ACCC invited comments from market participants on the several issues which include:
- Whether Asahi is a vigorous and effective competitor to CUB (and Lion) in the beer market.;
- Whether the possibility of future expansion by Asahi imposes constraints on the conduct of CUB and Lion;
- The likely effects of Asahi’s removal as a standalone competitor to CUB and Lion;
- The impact of Asahi acquiring a licence to distribute AB InBev’s products in Australia.
- Strength of the brands of other beer suppliers, including imports and private label;
- Performance and availability of craft beer brands
- The barriers to entry and expansion in beer, in particular the likely timeframe, capital requirements, marketing and advertising costs;
- Likelihood of medium to large scale new entry or expansion of beer products.
This is not the first time, ACCC has raised concerns regarding an acquisition in Australia. For time to time ACCC has raised concerns whenever there is a doubt that any merger or any acquisition could hamper with the competition within a particular industry. For example, last month, following an investigation, ACCC gave the nod to GrainCorp Limited for the sale of its Australian Bulk Liquid Terminals business to ANZ Terminals Pty Ltd.
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