Why is the US beer market so consolidated?

There is nothing quite like walking into a neighborhood bar and ordering a local craft beer on tap. It’s almost like you get a taste of the community.

In the United States, there are more than 6,400 operating breweries–which is astounding when you consider that there were just 89 in the late 1970s. And yet, a recent report from the Treasury Department found that just two companies (perhaps you’ve heard of Anheuser Busch and Molson Coors?) account for 65% of all revenue.

It’s easy to blame the lack of diversity in the beer market on big players buying up and/or boxing out smaller producers, distributors, and wholesalers. But the 63-page report, commissioned by an executive order from the Biden administration, found that the government itself was a key ingredient in the state of competition in the industry.

There is a web of complicated regulations that limit sales in the beer market–some of which date back to the end of Prohibition in 1933. For instance, many states limit the shipment of beer directly to consumers, an issue that other alcohol sectors, like wine, do not have to contend with.

There are also questions around the amount of antitrust oversight that this sector is or is not given. For example, in 2017, the federal government approved the $107 billion mega-merger between Anheuser-Busch InBev and SABMiller–two of the biggest beer producers in the world.

However, some, like the Beer Institute, which represents the country’s biggest producers argue that healthy competition does exist in the beer market, as evidenced by the fact that prices increased only 2% last year, significantly below the overall annual inflation rate of 7%.

Unfortunately, some of the industry’s issues are trickling down into consumers’ pint glasses. For example, the report cited studies showing that laws restricting price competition have resulted in beer consumers paying $487 million more a year than they should.

Consumers are already drinking less alcohol in some cases to save money. With inflation on the rise, the beer industry runs the risk of losing even more buyers.

The Treasury department’s study offered some recommendations to bolster sales for smaller brewers. For example, asking the Department of Justice and Federal Trade Commission to spend more time looking into horizontal and vertical mergers and acquisitions. But, these measures will take time to implement, let alone be agreed to.

Until then, my friends, I encourage you all to drink local. Prost.

Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.