Antitrust Lawyer Blog
In an indirect way, today’s craft beer renaissance in the United States was made possible by prohibition. The Eighteenth Amendment to the Constitution, normally referred to as prohibition, was in part a reaction to the system of “tied houses” that dominated the alcohol retail market. Brewers at the time exerted tremendous exclusive control over retailers and used that control to pressure sales without concern for the safety of customers or the general public. When prohibition was repealed, the states were tasked with putting in place systems that would prevent a repeat of this harmful state of affairs. The answer was simple, they created a three-tiered system where independent distributors stand between brewers and independent retailers.
The three-tiered system was put in place to prevent brewers from having too much control over what consumers purchase. Truly independent distributors and retailers want to sell beer driven by consumer demand, and do not want to be beholden to one or two powerful brewers. Consumers can seek out whatever beer tastes the best, and retailers can get a diverse array of brands from their independent distributor.
However, large beer brewers are actively working to reverse the benefits of a three-tiered system by exerting control over distribution. To be sure, craft brewers are raising alarm bells over Anheuser-Busch InBev (ABI) incentive programs that significantly reward distributors whose ABI sales reach 98% of their total volume. Besides employing its incentive programs, ABI has become the largest and fastest growing distributor in the United States. ABI is also adding retailer locations at a fast clip so it is involved in all three tiers in various locations around the country. Recently, ABI has employed a strategy of actually purchasing craft brewers in an effort to destroy the craft brews that do not sell out. Indeed, ABI recently announced purchases of Four Peaks Brewing and Breckenridge Brewery. ABI’s purchases of craft brewers harm the remaining independent craft brewers in a round about way. Distributors carry craft brews to meet retailers and its consumers demand for craft brews, but with these craft brew purchases, ABI can replace independent craft brands currently carried by a distributor for ABI owned craft brands. ABI’s move into craft brews allows distributors to meet the demand for craft beer while also hitting ABI incentive targets. Accordingly, distributors will likely carry fewer independent craft brews in the future.