A-B Prevails in Distribution Dispute in Illinois

Brewer allowed to retain 30% ownership in City Beverage

Published in CSP Daily News

ST. LOUIS -- Anheuser-Busch Cos. has emerged victorious in a dispute with beer and liquor wholesalers over regulation in Illinois, reported The Chicago Tribune. The controversy threatened the distribution of Budweiser and other A-B products in the Chicago area, where the St. Louis brewer has the second-largest market share, behind MillerCoors LLC.

The wholesalers sought to force A-B to divest its 30% ownership interest in City Beverage, a Chicago distributor, arguing that large brewers are prohibited by Illinois law from owning middlemen.

But the Illinois Liquor Control Commission ruled Wednesday that the ownership interest is lawful, although it acknowledged the law is vague about cross-ownership restrictions.

In a four-to-two decision, the commission went against the findings of its legal division, which had recommended City Beverage lose its licenses unless A-B sold its minority stake, said the report.

"I have no illusions that today's ruling will permanently end this disagreement among various members of the Illinois liquor industry," Steve Schnorf, acting chairman of the commission, said in a statement cited by the newspaper. "However, the commission is very comfortable that it has correctly applied the law, as it currently stands, to this matter."

Commissioners Amy Kurson and Bill Morris disagreed with the majority decision. In a written dissent cited by the paper, they said the intent of Illinois laws controlling the industry is to prohibit cross-ownership and maintain the state's three-tier system of selling alcohol, in which separate companies make the product, ship it and sell it to consumers. Under the law, wineries and distillers are specifically prohibited from owning more than a 5% interest in distributors. But that prohibition is not applied to brewers, the commission said.

In a statement cited by the Tribune, A-B said it is pleased the commission upheld the law and its longstanding practice of allowing the company to own an interest in a licensed distributor.

The brewer, a subsidiary of Belgium's Anheuser-Busch InBev, has been looking to streamline its distribution network by buying wholesalers and self-distributing. The distributors are usually independent companies with exclusive contracts to sell Budweiser and other A-B brands in a certain area.

In 2010, A-B informed Illinois regulators that it intended to buy City Beverage, which has four distribution operations in the state. A-B has been allowed to distribute beer in Illinois since 1980 and had acquired 30% of City Beverage.

But the liquor commission blocked the deal to preserve the state's three-tier system. Anheuser-Busch took the matter to court, noting that several Illinois microbreweries distribute their own beer and that keeping the company out of the distribution business discriminated against out-of-state brewers.

A federal judge sided with A-B and ruled the state law was discriminatory, said the report. But the judge denied the company's request to remedy the law by granting out-of-state brewers the right to distribute their own products in Illinois. Instead, the judge left it to the General Assembly to clarify the state's distribution rules. Legislators responded by creating a law in 2011 that banned in-state and out-of-state brewers from self-distribution, the report said. They granted limited distribution rights to microbreweries.

Based on the new law, three trade groups--the Associated Beer Distributors of Illinois, the Illinois Licensed Beverage Association and the Beverage Retailers Alliance of Illinois--have argued that it is illegal for A-B to hold an interest in City Beverage. A-B had said the legislative changes did not affect its right to maintain its stake in City Beverage.

Bill Olson, president of the Associated Beer Distributors of Illinois, said in a statement cited by the Tribune that the ruling impairs Illinois' authority to regulate alcoholic beverages. "Without independent distributors in the state's three-tier regulatory system, a brewer could influence every aspect of the sale of beer in the state," Olson said.