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 Budweiser owner AB InBev has 45.8 percent of the U.S. beer market
but has seen sales dwindle at least partially because of rising
craft beer sales.
The U.S. Department of Justice last year probed AB InBev's plan to
buy distributors in response to craft brewers' complaints that it
aimed to curb competition. The purchases of two distributors in
California, two in Colorado and one in New York have since closed.
The beer giant introduced the new incentive program at a
distributors' meeting in late 2015, and the U.S. authorities are
looking into it as part of its antitrust review of
AB InBev’s planned more than $100 billion takeover of global rival
SABMiller PLC <SAB.L> , the two people said.
AB InBev has offered to divest all of SABMiller's U.S. assets, so
there is little expectation that the deal could stumble over craft
brewers' complaints.
There is a precedent, however, for the Justice Department to put
limits on incentive programs. When AB InBev bought Grupo Modelo in
2013, it required the Modelo beers in the United States to be
divested and required AB InBev to refrain from offering incentives
to distributors that would hurt Modelo for three years.
Investigators at the Justice Department have contacted beer
distributors and craft brewers, asking about the incentive plan as
well as AB InBev’s other steps aimed at curbing craft promotion by
distributors, those people said.
The Justice Department declined to comment.
The independent distributors aligned with AB InBev are contractually
required to spend a certain amount each year to advertise AB InBev
beers. Those include products of breweries such as Blue Point or
Goose Island, which used to be craft brewers, but are now part of AB
InBev group.
Under the new incentive plan, AB InBev refunds 75 percent of this
money if its beers make up 98 percent of the distributor's sales,
according to documents provided to lawmakers by AB InBev.
The greater the share of rival beers in a distributor's sales, the
less money it receives, according to the document.
Even if a distributor raised sales of AB InBev beers, it would still
receive less money if craft sales rise faster.
That makes the incentives appear designed primarily to suppress
craft sales rather than boost AB InBev sales, several people
familiar with the plan told Reuters. They spoke on condition of
anonymity to protect business relationships.
A distributor that would want to promote a craft beer would be also
required to run an equal promotion for Budweiser, which becomes
prohibitively expensive, the people said.
AB InBev said it continued to "cooperate fully" with the Justice
Department's review of the merger with SABMiller, which this week
got cleared by the European authorities and which the group expected
to complete in the second half of 2016.
Gemma Hart, an Anheuser-Bush spokesperson, defended the incentive
program as a "reflection of just how competitive the U.S. beer
industry has become."
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"Our voluntary incentive program clearly does not prevent or inhibit other
brands from getting to market," she said, noting that nearly all Anheuser-Busch
distributors carried other brands.
Of the estimated 3,000 U.S. distributors, about 1,100 are aligned with legacy
brewers like AB InBev or MillerCoors and serve big retailers and restaurant
chains as well as small stores. The remaining distributors are much smaller and
do not provide as much access to large-scale retailers.
AB InBev's practices are not outright illegal, but could be deemed as such if AB
InBev is found to be dominant and aiming primarily at shutting out rivals rather
than building up their own sales, antitrust experts said.
Unlike most industries, which may have several distribution channels, beer in
many states must be sold through independent distributors. Most cities have a
distributor aligned with AB InBev, another with MillerCoors and may have a third
that specializes in craft beer.
BIG BEER MARKET STAGNATING
AB InBev, the product of a 2008 merger between Anheuser-Bush and
Belgian-Brazilian brewer InBev, tops the U.S. beer market followed by
MillerCoors, with a 26 percent share.
But the two groups have been challenged by craft brewers, defined as independent
operations make no more than 6 millions barrels a year. They offer everything
from classics to oddball brews like Funky Buddha Brewery's Banana Split Ale and
captured 12.2 percent of the U.S. market last year compared with just 5 percent
in 2010.
Antitrust experts said paying distributors to suppress craft sales could run
afoul of antitrust law. "It's the large manufacturers that are trying to narrow
the channel of distribution that is most cost effective," said Andrew Gavil, who
teaches at the Howard University School of Law. "That's the big story here."
Gavil said that AB InBev would likely defend itself by saying its market share
was hardly dominant.
Andre Barlow, an antitrust expert with the law firm Doyle, Barlow and Mazard
PLLC, said, however, the group had enough of a clout to raise concerns.
"ABI has the power to limit the distributors' ability to distribute the craft
brews."
It can be sometimes hard to prove in court that practices such as incentives
that aim at reducing rivals' sales violate antitrust law because a company could
argue that the practices are good for consumers, other antitrust experts said.
(Reporting by Diane Bartz; Editing by Tomasz Janowski)
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