The monopoly in Peru’s beer market

Backus and Johnston started like a relatively small Peruvian brewery in the Rímac district of Lima, the family owned business has since then been bought and sold and is currently owned by South African brewing giant SAB Miller. Backus owns, manufactures and distributes the three most popular brands in Peru: Cristal, Pilsen and Cusqueña, which altogether account for nearly 95% of the market.

Such a strong grip on the market did not come easy for Backus. The company was born in 1879 and consolidated its position throughout the 20th century with Peru’s most popular beer, Cristal. In 1994 they took over the country’s oldest brewery and their main rival: Pilsen Callao, and in 2000 they acquired breweries in the south of Peru, which earned them the right to produce and sell Cusqueña.

Backus now has 5 production plants in Peru, located in Lima, Motupe, Cuzco, Arequipa and Pucallpa in the Amazon. Together, they have the capacity to produce 15.6 million hectoliters of beverages annually. The plant in Arequipa, in fact, was named SAB Miller’s number one production plant globally for 13 consecutive months, beating another 180 plants in 75 countries.

Their position is so strong that so far it has been impossible for other companies to mount sizeable competition. In 2004 the Brazilian AmBev tried to enter the Peruvian market, but could not compete. Not only did they lack the brand recognition that Backus built, but they could not access containers and packages, because these too were manufactured by Backus. AmBev also ran into trouble when trying to distribute their product, as they couldn’t match the cheap prices Backus offered retailers through partnerships.

The beer market in Peru, then, is now a classic case of a monopoly. Backus has such a well consolidated position that competition cannot find profitable conditions, and that cannot be good for the industry. The absence of competition is known to stagnate innovation and give way to practices that hurt consumers, such as price fixing.

Backus will now have to prepare to become a part of an even larger monopoly though, as the world’s largest brewer AB InBev, owner of brands such as Corona and Budweiser is already on the approval phase of their project to buy SAB Miller, the second largest brewer in the world, in a massive $104 billion all-cash bid.

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