In the wake of Anheuser-Busch InBev seeking to buy SABMiller for $100 billion and some change, the middle distribution tier of the American alcohol industry has been under severe scrutiny by the consumer, beverage makers, the U.S. government and CBB. How can you not flip the eff out when you read the world’s largest brewer introduced a new incentive program last month that could offer some independent distributors in the United States annual reimbursements of as much as $1.5 million if 98 percent of the beers they sell are AB InBev brands?
Well, it’s reassuring to hear that the real pros in the industry — the National Beer Wholesalers Association — testified on this very subject to Congress, making some very impressive arguments. The below statement was read by NBWA President and CEO Craig Purser. This is his testimony before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights. It’s super long, but it is actually an amazing diatribe that any beer professional should read, full of great insights. In fact, it’s the most honest thing we’ve read on Big Beer and alcohol distribution in the United States in a long, long time. We thank the NBWA for sharing.
Chairman Lee, Ranking Member Klobuchar and distinguished members of the Subcommittee, on behalf of the nation’s independent beer distributors (wholesalers) and their 130,000 employees, thank you for the opportunity to testify today.
I am here to discuss the proposed acquisition of SABMiller (SAB) by Anheuser-Busch InBev (ABI) — the number one and number two brewers in the world — as well as the sale of the MillerCoors joint venture to Molson Coors.
I will provide insight into how these two business deals could have competitive implications for the American independent beer distribution system, today’s competitive marketplace and the vast choice and variety of beer available to consumers.
There’s no question that America has entered a new golden age for beer, with unprecedented variety and quality offered by more than 4,000 breweries, compared to less than 50 in the 1980s. Sales by craft brewers grew nearly 18 percent in 2014, representing more than 11 percent of the overall beer market. You would be hard pressed to identify another industry that has experienced the same explosive growth in such a relatively short period of time.
But the true winner is the American consumer, who now enjoys an incredibly broad spectrum of innovative, independently produced beer products for every taste. What makes this consumer choice possible? The evidence points to a robust and competitive system of independent distribution which reduces barriers to market for brewers of all sizes, creates a competitive playing field for brewers of all sizes and keeps pricing competitive for consumers.
A critical issue before this Subcommittee, and the full Judiciary Committee, as you consider these transactions is how to preserve America’s golden age of beer — which is fueled by the independent beer distribution system.
The proposed transactions lead to further industry concentration
Consumer advocates, craft breweries, retailers and independent distributors have expressed concern that ABI’s increased leverage and anticompetitive aspects of the proposed MillerCoors divestiture may reduce access to distribution — reducing choice and raising prices for consumers.
One understandable source of this concern is the sheer magnitude of the two transactions being proposed, which cannot be ignored. ABI, the largest brewer in the world, is attempting to acquire SAB, the second largest. Additionally, in the U.S., Molson Coors has agreed to purchase, from ABI, SABMiller’s 58 percent stake in the MillerCoors joint venture and the global rights to both Miller and Coors legacy brands. Currently, ABI and the MillerCoors joint venture account for nearly 71 percent of beer sold in the U.S.
If the proposed deal closes, 57 percent of the world’s global beer profit would fall within the ABI and SAB combination. By comparison, Heineken, the next largest global competitor, is at 11 percent, and Molson Coors, the largest U.S. competitor to ABI-SABMiller, would be just under 3 percent of that same global profit pool.
The resulting concentration could upset the equilibrium of the current U.S. beer market, which today can be fairly characterized as a “consumer pull” marketplace, where the consumer possesses the power to create market demand for popular beer brands. Through coordination with local retailers and local, independent beer distributors, the market responds to that demand.
The scale and market power being proposed in this merger could lead to a “supplier push” method, where brewers possess the scale and market power to dictate brand choices and beer sales. The most likely way this happens is if the large brewers exert pressure on independent distributors not to carry rival brands and on retailers to design their shelves to disfavor or remove rival brands. Just a few days ago, the Wall Street Journal reported on distributor incentive deals that could greatly disadvantage craft and other brewers.
The role of independent beer distributors in the American marketplace
In particular, these transactions could disrupt a critical component to the success of the industry: the combination of an open and independent distribution system with a state-based regulatory system that has worked so well for so many over the years. The U.S. beer market is thriving because of a robust and competitive system of independent distribution that reduces barriers to entry, reduces brewer and consumer costs, and fosters the explosion of choice and variety desired by consumers.
The Justice Department noted in its most recent beer merger review that, “Effective distribution is important for a brewer to be competitive in the beer industry.” A study by the Boston Consulting Group underscores that the current system of beer distribution in the U.S. is “open, freely competitive and driven by consumer choice.”
In the most general terms, independent beer distributors purchase beer from a variety of breweries and then sell and deliver beer products to local, licensed retail accounts. Getting a new beer to market is something that beer distributors do every day with tremendous success.
In the current marketplace, independent beer distributors build brands by working with their licensed retail customers to meet consumer demand for choice and variety in products ranging from imported beer from around the world to new American craft beers and other malt-based products and ciders.
Beer distributors provide access to capital and scale for brewers and importers as they can purchase larger quantities of product and also offer warehousing, marketing, promotion, sales and delivery of a heavy, climate-sensitive, perishable product. In addition to these economies of scale, beer distributors also invest in labor, transportation, energy, product integrity and take on other relevant responsibilities related to the selling and transporting of beer.
Independent beer distributors also invest considerable time, energy and resources in developing relationships with both large and small “on-premise” retailers (like restaurants and entertainment venues) and “off-premise” retailers (like grocery stores and convenience stores) in their markets. These distributor investments and relationships are an intangible value to brewers of all sizes by allowing them to receive the market attention that is necessary to compete, prosper and grow.
The photographs below illustrate the value of the existing system of beer distribution by highlighting the marked distinction between the consumer choice and variety in the beer industry and the state of affairs in the soft drink industry. As reflected in the “on-premise” soft drink photograph, a consumer in a restaurant usually has access to either Coca-Cola or Pepsi products, but not both, while a beer consumer in a restaurant or bar is typically met with a wide variety of brand choices on tap or on the menu.
The same holds true with an “off-premise” retailer account, where the soft drink aisle reflects Coca-Cola products and Pepsi products, whereas often hundreds of brands are found on the beer aisle. This variety is made possible by the independent sales and logistics work of local distributors.
The result of this open and independent system of distribution has been a beer industry renaissance — the new golden age — where breweries enjoy unrivaled access to market and consumers enjoy unprecedented choice and variety.
Click Next below to read more of the outstanding insights from the NBWA, including the major threats to the system.