What’s Big Beer up to? If you pay attention to beer headlines or the blogosphere, you have no doubt noticed folks shining light on Big Beer’s antics.  In my mind, Big Beer’s conduct can be classified into two camps:  Vader (akin to vertical integration) and the Borg (akin to horizontal integration with some psychology mixed in).  It’s kind of funny because Big Beer does things that suggest it wants to exterminate craft beer like pesky Jedi rebels.  At the same time, however, Big Beer is trying to convince whoever will listen that it’s just part of the Rebel Alliance and should be treated as part of it.  Don’t fall for either.

First, what are vertical and horizontal integration? Both are significant in anti-trust law.  Briefly, vertical integration is a process by which a single company seeks to control both the production and distribution of a product to increase market power.  For my purposes, it is akin to Vader’s (actually the Emperor’s) attempt to “crush the rebellion” so that only the Big Beer Empire will remain.  Horizontal integration, just as briefly, is essentially consolidation of multiple companies at the same level of production through various M&A tactics (like mergers, takeovers, buyouts, etc.).  This conduct smacks of a robotic Jean-Luc Picard’s famous “resistance is futile” takeover of the good guys.  Both are dangerous to consumer choice, healthy markets, and continued growth to independent brewers.

Vader: Seek and Destroy

On the vertical integration side, Big Beer continues its quest for galactic domination wherever it can—both legal avenues and possible illegal avenues.

Aside from the obvious fact that Big Beer controls or owns an exceedingly large percentage of distributors, one of the most common ways that Big Beer is seeking to tighten its grip is through state legislatures and legal challenges. An interesting assortment of pro Big Beer measures have passed recently that give, or continue to give, Big Beer advantages over its peace-loving enemies.

For example, North Carolina (home to roughly 150 craft breweries and a thriving craft-beer scene) just experienced a potentially significant setback for its craft breweries. North Carolina only allows craft breweries to self-distribute their beer until they reach an annual production of 25,000 barrels of beer (makes no sense to me, seriously).  At that point, the brewery has to turn over distribution a distributor.  For obvious reasons, there can be significant advantages for independent breweries to self-distribute (i.e., controlling where the product is placed and retaining a higher profit margin).  Then, the House introduced House Bill 500.  Its original language included a provision to allow craft breweries to self-distribute up to 200,000 barrels.  But alas, in late April, the House passed a watered down version of House Bill 500 that stripped the 200,000 number and left it at 25,000.  Guess who contributed a bunch of money to the cause?  Yep.  Vader’s henchmen.*  That is just one example on the legislative side.  There are several more.

Another avenue that Vader continues to march down is the old pay-to-play, we didn’t know it was illegal, bit. Just two days ago, the Boston Globe reported on Big Beer’s anticompetitive behavior in that market: “[T]he brewing giant [guess which] gave illegal incentives worth nearly $1 million to hundreds of Boston-area bars and package stores to push sales of Budweiser and its other drinks while stifling those of other brewers.”**  Of course, obligations attach to free gifts (which, by the way, is a reason that I advocate for some of the less ridiculous tied-house laws out there).  Big Beer’s response?  “We believe that we lawfully provided branded-point-of-sale items to retailers.”  It’s everywhere folks.  Don’t be fooled.

Speaking of anti-competitive behavior, I love this one. Just yesterday, news broke that AB-InBev cornered the entire South African hops market in an effort to prevent American craft brewers from getting their rebellious hands on some much desired hop varietals. ***  Instead, the empire will keep those hops for its own defectors known as AB-InBev’s “High End” division.  It’s like Vader controlling all the light saber crystals in the galaxy.  The good guys simply won’t have the materials to make what they need.  It’s plain that cutting off the supply of new and exciting hops is wrong, but what is stopping Big Beer from expanding this plan?  Independent brewers are simply beside themselves—and more than just a little worried.

And then there is the old “get the lawyers involved” plan. As I’ve posted in prior blogs, the Eight Circuit, in Missouri Broadcasters v. Lacy, and the Ninth Circuit, in Retail Digital Network v. Appelsmith, either have adopted or appear to adopt a heightened scrutiny standard for commercial regulations in the alcohol industry.  At least in California, it looks like manufacturers will soon be able to pay retailers for advertisements at the point of sale.  If you said that sounds like legal pay-to-play, you’re right.  Who is going to control or monitor those “advertising” contracts between Big Beer and retailers?  Who is going to confirm that Big Beer is truly only paying for advertising?  Never mind the First Amendment problem that raises, but a retailer will be free to accept whatever amount Big Beer is willing to pay for “advertising,” of course with the commensurate obligations to exclude the rebels wherever possible.  And guess who supported/funded the litigation?

I’ve said in the past that I am generally a fan of tied-house laws. This is why.  Are there stupid, antiquated laws on the books?  Absolutely.  But there are many, including the law challenged in Retail Digital Network (Cal. Bus. & Prof. Code § 25503(h)), that are helpful to prevent Vader from using his force choke on the industry.  Without them, independent breweries will find themselves at the mercy of the merciless.

The Borg: Resistance is [Not] Futile

In an odd, Jekyll and Hyde turn, Big Beer is trying like mad to have the consuming public believe that it is part of the rebel alliance.

This is where the horizontal side of things comes into play. I recently read Tom Acitelli’s The Audacity of Hops (awesome book—read it), and it contains a very interesting quote from Bill Coors (yes, that Coors):  “When an industry starts to consolidate, you either get consolidated or you consolidate.”  Yep.  That’s happening too.

Many of you know about the proposed merger of AB-InBev and SAB Miller (if you don’t, Google it). The numbers in terms of dollars and worldwide production are insane.  But it’s happening on the independent level with increased frequency.  That is, Big Beer continues to buy up independent breweries at an alarming rate.  While I have listed many Big Beer-owned “crafty” breweries in prior posts, last week kind of broke my heart.  Wicked Weed, a successful North Carolina independent brewery, became part of the Borg collective.  Apparently, it just couldn’t resist any longer.  But independent beer fans and independent breweries reacted in an overwhelmingly negative manner.  The reaction was so strong that Wicked Weed cancelled a large, charitable event called the “July Funkatorium” that was an annual favorite of southern independent beer fans.  And while this is quite a show of consumer power, the Borg will continue moving through the galaxy assimilating as many indies as possible, hoping you won’t notice or won’t care.

The Borg has its own blogs now too. But you wouldn’t know it.  Check out Oct.co [not a typo], “a classier beer magazine” and a partnership between AB-InBev and Conde’ Nast (and possibly other companies).  It is sleek.  It is cool, and it has a Borg feel and angle to it.  (I don’t blame the writers—they gotta make a living too and some of the articles are quite good).  And then there is the debacle between Beachwood Brewing (good people BTW) and the AB-InBev owned TheBeerNecessities.com a few weeks ago.  Basically, Beachwood agreed to do an interview with a freelance writer to help out another small business.  Of course, the article was then published on the Borg-owned website.  Sneaky, sneaky.  Beachwood was having none of it. You can read Beachwood’s statement here: http://thefullpint.com/beer-news/beachwood-brewing-issues-statement-abi-owned-thebeernecessities-com/.  See?  Big Beer is just like those independents, blogs and all.

If this conduct rubs you the wrong way, it should. Resistance is not futile.  It matters who makes your beer.

Let me know what you think. Cheers.

* https://www.craftbrewingbusiness.com/business-marketing/wholesalers-paid-1-5-million-contributions-north-carolina-government-2013-16-castration-house-bill-500/.

** https://www.bostonglobe.com/business /2017/05/09/budweiser-owner-accused-stifling-competition-with-giveaways-hundreds-bars-and-stores massachusetts/ZK4GlD6BTUTSkpQwMuP4uN/story.html.

*** https://www.pastemagazine.com/articles/2017/05/ab-inbev-just-commandeered-the-entire-south-africa.html

Leave a Reply

Your email address will not be published.