It is fitting to share a mental model from Warren Buffett in 1991:

An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute and; (3) is not subject to price regulation. The existence of all three conditions will be demonstrated by a company’s ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mis-management. Inept managers may diminish a franchise’s profitability, but they cannot inflict mortal damage.

In contrast, “a business” earns exceptional profits only if it is the low-cost operator or if supply of its product or service is tight. Tightness in supply usually does not last long. With superior management, a company may maintain its status as a low- cost operator for a much longer time, but even then unceasingly faces the possibility of competitive attack. And a business, unlike a franchise, can be killed by poor management.

(source: 1991 Berkshire Hathaway letter to shareholders)

Why has this been on my mind recently? Two headlines from cover the essentials:

The Economist provides the commentary below:

In 1989 Jorge Paulo Lemann and two partners bought a middling Brazilian beer company named Brahma for $50m. A decade later Brahma acquired Antarctica, a rival, to become AmBev. In 2004 a merger with Interbrew, the Belgian seller of Stella Artois and Beck’s, created InBev. Four years later, InBev paid $52 billion for Anheuser-Busch of the United States. As if those deals weren’t dizzying enough, in 2012 the new Anheuser-Busch InBev paid $20 billion for full control of Grupo Modelo of Mexico.

As such, an infographic I discovered in 2013 is perhaps even more fascinating today:



Finally, as an aside, the beer industry in Africa is fascinating: