Craft Brewers Wary of Modelo Deal

Published in CSP Daily News

Concerned A-B InBev's clout could keep their products off delivery trucks

ST. LOUIS -- Some U.S. craft brewers are uneasy about plans by Anheuser-Busch InBev to buy out Mexican beer maker Grupo Modelo, fearing the company's increased power could make it harder for them to get their products on delivery trucks, reported Reuters.

Brewers, as well as beer wholesalers and members of Congress, have been taking this concern and others to the U.S. Department of Justice, which is investigating whether the $20.1 billion deal complies with antitrust law.

The department has given no sign of being ready to make a decision, the news agency said.

In order to preempt antitrust concerns arising from AB InBev, which is the No. 1 brewer in both the United States and the world, having an additional 5% of the U.S. market, Modelo agreed to sell its stake in Crown Imports, the U.S. seller of Modelo's beers, to Constellation Brands Inc for $1.85 billion (see Related Content below for previous CSP Daily News coverage).

"What they're going to be saying to DOJ is that we [AB InBev] have nothing to do with the distribution of Modelo. But if you think AB InBev doesn't have huge influence on Crown, I have a bridge to sell you," Steve Hindy, a founder of the Brooklyn Brewery, told Reuters.

Post-Prohibition era rules ban brewers in 38 states from distributing their own beers to retailers. As a result, there is a middle tier of more than 3,000 largely independent wholesalers. Small craft brewers rely on these wholesalers to get their beers to the market, and they fear that AB InBev's clout will keep their beer off delivery trucks.

Senators Christopher Coons (D-Del.) and Thomas Carper (D-Del.) sent a letter on Oct. 2 to the Justice Department expressing concern about problems of craft brewers' access to wholesalers.

"ABI's business practices aimed at preventing its distributor partners from associating freely with competitor breweries strikes at [the] heart of competition in the beer market," said the letter. "Consumers will ultimately be harmed."

If the Justice Department were to find that the Modelo deal would hurt consumers--such as by leading to higher prices or fewer choices--it could try to stop it by taking the parties to court or requiring sales of assets to dilute the entity's power, said Reuters.

Although Modelo agreed to sell its stake in Crown to Constellation, AB InBev would be allowed to buy Crown after 10 years, albeit at a high price. Antitrust experts told the news agency that the Justice Department could bar AB InBev from exercising that buyback in 10 years time or ask them to remove it from the current deal.

In the meantime, AB InBev will have no control of the brands in the United States, but it will become the leading brewer in Mexico, which is Latin America's second-largest economy and fourth most-profitable beer market. It also sees a big opportunity in selling Corona around the world.

AB InBev disputes the notion that it will have influence over Crown, which, according to the companies' agreement, will control distribution, marketing, promotion and pricing in perpetuity.

"Grupo Modelo's brands will continue to be imported, marketed and distributed independently in the U.S. through Crown Imports, leaving the U.S. market's shares unchanged," AB InBev spokesperson Marianne Amssoms said. Crown "will continue to manage all aspects of the business, including the selection of wholesalers for Grupo Modelo products."

The National Beer Wholesalers Association, a trade group, said its members had been contacted by the Justice Department. "NBWA is committed to ensuring that the independence of beer distributors is maintained, not weakened, as a result of this proposed acquisition," said the association's CEO, Craig Purser, told the news agency.