When Industry Analysis Goes Flat
Posted: December 27, 2012 Filed under: are you kidding me?, Corporate strategy, current events, economics, law and society, Markets, Vertical integration 1 CommentBarry Lynn, apparently some sort of John Kenneth Galbraith wannabe, has an amusingly cockeyed post over at the Harvard Business Review blog. He seems to think that state regulations protecting local beer distributors from vertically integrated competitors are the font of virtue, preserving needed diversity in the beer market by allowing craft and micro-brewers to get their product delivered. But if the big brewers were legally able (and motivated) to foreclose distribution of the small brands, they would be legally able to do it without vertically integrating into distribution (by requiring exclusivity).
A simpler analysis: When there were many competing major brewers, independent multi-brewer distributors made economic sense, since they eliminated needless duplication of sales and delivery of all those brands to retail establishments. With the consolidation of the beer industry into two giant companies that own all the big brands (and a shift from on-premises to at-home consumption), a single-brewer distribution firm can now internalize almost all those economies. Then the beer industry starts to look a bit more like the soft-drink industry, where two major firms own and develop all the major brands and we don’t blink an eye at their bottler/distributors having exclusive relationships with the upstream brand owners or even being vertically integrated with them. If your local Costco or supermarket won’t carry a micro-brew or an off-brand soda, it’s unlikely to be due to market power on the part of the distributors.
UPDATE: It seems that AB InBev, owner of Budweiser and many other beer brands, is indeed shifting to more of a product innovation strategy and running into distribution problems with these new products:
“That’s not to say that AB InBev has perfected the process. Profit this year was hurt by higher distribution and administration costs in the U.S. as the brewer struggled to keep up with demand for Platinum and Lime-A-Rita, which required extensive — and expensive — countrywide distribution.”
So maybe there are strategic reasons why AB InBev would want more control over its distribution pipeline.
StrategyProfs.net 
Almost 50 years ago Ralph Nader put out a book entitled “Monopoly Makers”. The examination of regulations as the pathway to a monopoly power was true then. It is true today. The mindset that shifts from serving value to the customer to controlling the customer and limiting competition dies hard. Humans want to protection from a better product, delivered at a lower price and at a faster speed. We have witnessed the arguments against WalMart stores in the neighborhood. The protesters promise to visit the local stores and pay the premium price. However, what they fail to understand is that the Big Box stores can only handle a finite number of items. A smaller store that focuses on the products at either edge of the category candd provide a better experience, higher margin and build repeat business… Why limit competition for commodity products and indifferent service when there are higher margins available at the fringe-? Different items, greater quality and exemplary service… Why does Nordstroms beat the big box and low-cost online stores such as Jos.A.Banks-?
If one wishes to compete-Do not get in a commodity fight. Focus on the customer’s experience and perceived value…