What does it take to remain the King of Beers? Bribes/Incentives.

14039718059_6e8a1c9852_bhttp://www.motherjones.com/tom-philpott/2015/12/big-beer-wants-take-away-your-craft-beer

I ran across this article, and have been noodling its ramifications. I usually get some grief when I tell people I won’t support ABInBev in any way, shape, or form. When I tell people I won’t buy Goose Island, Golden Road, or Elysian Brewing, no matter how good those beers remain, I am usually given some line about “as long as the beer is good, I’ll drink it.”  And then I’m told I’m inconsistent because I’ll drink Lagunitas or Ballast Point even though they’re no longer craft. I am very consistent and this article explains why.

See, even though Lagunitas is 50% owned by Heineken, and Ballast Point is now wholly owned by Constellation Brands, who also owns such illustrious brands as Corona, Pacifico, and Modelo, neither of these macro breweries is ABInBev, and yeah, there’s a difference.

“Distributors whose beer sales are 98 percent InBev brands can get as much as $1.5 million in rebates—as long as they don’t also sell some popular craft brews as well.”

Yeah, I’ll say there’s a difference.  It’s one thing if you make a great product and sell it for a low enough price. If you do that, you deserve all the marketshare you can get. That’s NOT what this is. This is squashing other brands using advantage given to you by an outdated, unnecessary system. How do you go about doing something like this?

Well, when Prohibition was ended (repeal day was just celebrated the other day, by the way) the government instituted a well-meaning, yet like other regulations attempting to protect people from themselves misguided system called the 3-Tier System. This system says that, by and large, breweries cannot sell directly to retail. You have the producing tier, the distributing tier, and the retailing tier. This is supposed to prevent the sort of widespread drunkenness we saw before Prohibition. So how do you game this kind of a system?

A pretty good beer selection, yeah? You might be surprised...

A pretty good beer selection, yeah? You might be surprised…(Click the image to zoom in.)

First off, if you’re going to use the system to your advantage such that no one else can, you want the system to be around for as long as possible…longer than that, even.  So you build up a lobbying network. These lobbyists will use money, gifts, and anything else you can get your hands on to bribe politicians to squash any attempt to eliminate or ease this system’s impact on other breweries. They’ll also bribe politicians to squash any attempt, however much sense it makes, to eliminate the 3-Tier system. Distributors, as the sole source of booze, will help you in this as much as they can, so you won’t be alone.

Next, you buy out or otherwise use your clout to push other brands out of the market. If they’re your brands, you can torpedo them, or push them cheaply instead of market alternatives. Buy distributors in states which inexplicably allow you to do so, and then use these distributors to only push your brands. Sell just enough competitors’ brands to avoid antitrust litigation and stay under the radar. It’s not ideal, but it’s the cost of doing business.

Where competitors can’t be bought or pushed out, file flippant and pointless lawsuits. Yeah, this will cost you something, and they’re frivolous lawsuits, so you’ll lose them or they’ll be thrown out, but the proportional cost to the smaller breweries will be HUGE. They’ll capitulate or go out of business long before you will. They just don’t have the clout or cash to pay the high-powered lawyers that you can.

Finally, in states where you can’t buy distributors directly, offer ridiculous amounts of rebates and incentives to make it worth their while to ONLY push your brands. And that is where this article is. It’s been happening for decades now, and even our own St. Stan’s brewery in Modesto was involved in a class-action lawsuit against AB back in 1997. Read this story and you’ll find it sounds all-too-familiar. This has been going on for a LONG, LONG time: http://m.spokesman.com/stories/1997/oct/03/government-launches-probe-of-anheuser-busch/

The same image as above, with the macro beers marked. Shocking?

The same image as above, with the macro beers marked. Shocking? This is a valuable real estate arrangement, and breweries will do what they have to do in order to take up as much space as possible. Look at the percentage of macros at the most valuable eye-level row, second from the top.

You want to know why I refuse to buy any beer where the profit goes to ABInBev? This is why. I’m tired of their underhanded manipulation of a market they would otherwise have a smaller and smaller share in every year. Even with this ridiculous garbage going on, they’re still shrinking. Rather than improve, change, and adapt to the changing tastes of the market, they’re using tactics like this to squash breweries who have put their entire livelihoods on the line to make a product they believe in.  So are their heavy-handed tactics working?  Here’s another quote from the original article:

“At least one distributor has dropped a craft brewer as a result of the incentive program. Deschutes Brewery President Michael Lalonde said Grey Eagle Distributing of St. Louis last week decided it will drop the Oregon brewery behind Mirror Pond Pale Ale because it ‘had to make a choice to go with the incentive program or stay with craft.'”

Is it legal? Nothing says that brewer can’t offer incentives. They’re voluntary, and a distributor can always just opt out of the incentive program. But distributors exist to maximize their profit, and they can most effectively do so by taking the money offered by ABInBev.

What’s the solution? Well, with as much money as is wrapped up in politics, I’m not sure there is a solution. I’m not advocating for a law to prevent lobbying.  I’m advocating for a world where government doesn’t have enough power to meddle in the lives of beer drinking citizens. Lobbying wouldn’t be worth the expense in such a world, and that’s how you get rid of all this corruption. At the VERY least, I’m advocating for the elimination of the 3-Tier system. It’s arguably past the point of usefulness, if it ever WAS useful, and is now only a hindrance and a tool by the big brewers to wield a Mjolnir-like hammer against small businesses. Not all distributors would go under, and the need for distributors would still be there.  Huge breweries will likely still sell through distributors who have the logistics in place to supply more markets than the brewery could otherwise.  But it means AB loses their hammer against the smaller breweries, because brewers no longer HAVE to use the 3-Tier system.

Personally, I’ll continue my crusade against ABInBev. Yeah, no Goose Island Bourbon County Stout for me. No Golden Road. No Elysian Pumpkin Ales.  I don’t care how good these brands taste, they’re not for me. You should do what you feel is right, of course, but I hope I’ve made a persuasive argument against buying any beer owned by Annheuser Busch. Am I potentially harming the workers at those breweries? Yeah. And I have nothing against people trying to make a living, but there are other breweries and jobs out there. ABInBev’s practices are harming a lot more than just the jobs at one brewery. My crusade has absolutely no impact on ABInBev’s bottom line, I know, but it’s all I can do. If enough of us take up the fight, it’ll definitely be a bigger impact.

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