Brew and Booze News

Beer News – This Just In … The Department of Justice Likes Craft Beer


ABI logoModeloSAB11

For all those out there who wonder just how your federal tax dollars are spent, on Thursday, the Dept. of Justice filed a lawsuit to stop Anheuser-Busch InBev (ABI) (the Belgian-Brazilian parent of Budweiser and Michelob and Stella Artois and Boddingtons and Beck’s and Leffe and Labatt and Hoegaarden and Bass and … well just about everything), the largest beer corporation in the US, from acquiring the third largest beer corporation in the US; Grupo Modelo (the parent corporation of Corona and Victoria and Pacífico and Negra Modelo and Modelo Especial and Estrella and León and … well just about everything brewed in Mexico). Apparently, while the combined corporation would represent only 46% of the total sales in the US, ABI would own the best selling beer (Bud Light) and the top selling import (Corona). Additionally, the DOJ’s argument revolves around a concern that, if the merger were to be approved, ABI, as the number 1 brewer at 46% market share, and MillerCoors, with 29% of the market, could drive price increases and control distribution routes as they would control over 75% of the market. Without getting into too much legalese, the DOJ is looking at how ABI developed and marketed Bud Light Lime as an example of an attempt to stifle competition. ABI proposed a product to compete with Corona and even went so far as to copy the distinctive bottle. Now, rather than continue to compete against Corona with the inferior selling (and flavored) BLL, the DOJ is suggesting that the proposed merger is just an attempt to buy the competition.

Moreover, post-prohibition, federal laws are in place that ban brewers in 38 states from distributing their own beers to retailers. As a result, a group of approximately 3,000 independent distributors has emerged. This group of distributors provide transportation and storage for beer from the time it leaves the brewery until it arrives at a retailer (i.e. bar, restaurant or store). A second concern at the DOJ would suggest that by merging with Grupo Modelo, ABI will be able to “takeover” distributors trucks and force the local craft beers off of trucks in favor of ABI (and to some extent, MillerCoors) products.

So, if the ABI merger were to go through the DOJ fears that:

  • competition will be stifled and beer prices will rise;
  • the market will constrict to two major players and beer prices will rise;
  • and finally, the major players will in essence “takeover” the distribution network; craft brewers will be unable to get their beers to market; the market will further constrict and beer prices will rise.

The link below will take you to a video at the Huffington post that can provide a little more detail on the DOJ’s opposition to the merger and ABI’s response.

http://videos.huffingtonpost.com/business/justice-department-sues-to-stop-$20bn-beer-merger-517659715

4 replies »

  1. I read most of the complaint. I found fascinating the portion arguing that Modelo is currently a price foil to AB and MillerCoor’s near-colluded pricing strategy (the discussion of AB’s pricing strategy handbook and its stated goal of pricing strategy transparency to competitors was pretty funny). If true, this merger should have to fail.

    I also found it interesting/baffling that Corona is “high end”, and its pricing strategy is pressuring AB and Miller Coors premium brands. High end?

    Like

  2. It’s good to see the DOJ doing their jobs! I mean, just when Craft Beer explodes and consumer’s get access to quality stuff, it would be sad to see it fall apart because of those greedy swill merchants.

    Like

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