BREWERY-OWNED DISTRIBUTORSHIPS SEEN ON A-B HORIZON

WOULD SPELL DOOM FOR CRAFT BREWERS
WHOLESALERS CALL FOR REGULATION!

Special to the Readers of Milwaukeeworld.com

By Michael Horne

And The Milwaukee World Hound Dog Team

Anheuser-Busch InBev, the "leading global brewer," hopes to self-distribute up to 50% of its products by consolidating and acquiring wholesalers, according to a report issued yesterday, June 24th, 2009, by London-based UBS analyst Melissa Earlam.
That's up from the 20% share predicted when A-B and InBev merged last year, and much more than the 7% A-B InBev already distributes in the US via company-owned wholesalers.

Getting that number up to half of the company's sales will doubtless require a legislative push in a number of states. According to sources, 20 states permit brewers to own wholesalers -- an odd quirk in the much touted Three Tier alcohol beverage distribution system implemented after the end of prohibition. [Wisconsin does not now permit brewers to own wholesalers. All A-B InBev products sold in Wisconsin are dealt through independently owned wholesalers.]

However, A-B InBev products like Budweiser, Stella Artois and Beck's are sold by the company's own wholesalers in 13 places, including Boston, New York City, Denver, Louisville, Canton, Hawaii, Tulsa (they drink in Tulsa?) along with the California cities of San Diego, Stockton, Sylman, Pomona and Riverside.

And, whaddya know? A-B InBev lobbyists in Wisconsin plan to become involved in legislation "relating to Three-Tier Issues in Wisconsin," according to the Wisconsin Government Accountability Board.

WHY OWN THE DISTRIBUTORS?

Owning distributorships gives the brewer an additional 25 - 30% margin on its products. Owning sufficient distributorships to command 50% of its U.S. sales would allow A-B InBev to crush the U.S. Craft Brewing industry, and return us to the condition where virtually all beer sold in those states would be mass-produced A-B InBev products, with a few locals struggling to distribute their own wares in states that provide for it, like Wisconsin does, up to 10,000 barrels per year.

WHOLESALERS CALL FOR REGULATION!
Perhaps the plan for brewery-owned distributorships is what promped the National Beer Wholesalers Association to ask the National Council of State Liquor Administrators to increase regulation of wholesalers at their convention June 14-18, 2009 in Nashville.
As Jeremiah McWilliams, who writes the Lager Heads blog for the St. Louis Post-Dispatch noted:
"It’s not every day that you hear an industry invite more regulation. That has been especially true for beer distributors."
The regulation the distributors probably want is one that would prohibit brewery ownership of wholesalers -- before it's too late.

ONLY PHONY CRAFT BEER CHOICES AT NYC A-B INBEV WHOLESALER
A look at the A-B InBev distributor's product lineup for New York City shows just how limited -- and how corporate -- a selection of beer is available to residents of the nation's most populous city.
In addition to the usual Bud offerings, the NYC distributor offers such craft beer-sounding products as Stone Mill Organic Pale Ale. Sounds nice and old-Vermonty, but Stone Mill is an A-B InBev product.
How about a Kona Beer -- from Hawaii! Once you cut through all the hula nonsense, you'll find that the Kona Beer sold in New York City comes all the way from Redhook, New Hampshire.
That's because it is produced by the Craft Brewers Alliance -- a lovely sounding organization that just happens to be 36% owned by A-B InBev. The CBA also gives us Red Hook, Goose Island and Widmer Brothers beers.
The tough guys in New York City also can buy Bare Knuckle Stout from its corporate-owned distributor. This beer is made by A-B InBev. How about a Winter's Bourbon Cask Ale. That sure sounds Honest-Abe authentic! Sorry! A-B InBev again.

The point is, not a single craft beer is sold by the corporate-owned wholesaler in New York. We could expect the same if A-B InBev is allowed to own even more wholesalers in other states. Furthermore, A-B InBev has been putting heavy pressure on its distributors to only carry A-B InBev products, like the phony "craft beers" listed above.
Some independent A-B distributors, like Milwaukee's Beechwood Distributing Co., market a number of honest-to-goodness craft beers, including New Glarus and Milwaukee Brewing Company offerings.

It is clear that if the brewers will be able to take over the distributors it will spell the end of the craft brewing industry. I can't see any other way around it. There is a terrible paradox and conundrum here -- under Wisconsin law brewers may self-distribute up to 10,000 barrels per year -- about the volume of Lakefront Brewery, which has had a wholesaler (Beer Capitol) for years before it reached that stage. Beyond 10,000 barrels, brewers must hire a wholesaler. Some states absolutely require a distributor for any brewery.
[Over at Buffalo Water Beer Company, we are still self-distributing, but it's getting old -- particularly hauling barrels into basements. (But we still love ya, M's!).--Ed.]

But if A-B InBev and Miller/Coors continue to force consolidation of wholesalers, and then dominate their offerings with their own products, there will be little chance for the craft beer movement to survive.

If the brewers themselves take over the distributors, the craft beer movement will be finished. It is highly improbable that a new system of independent distributors focusing only on craft beers could be established or be successful without the support of major brands in their stables.


For more information see David Kesmodel's article in the Wall Street Journal today.