A-B InBev’s Brito defends acquisition of SABMiller, says it should not alter domestic beer market | St. Louis Public Radio

A-B InBev’s Brito defends acquisition of SABMiller, says it should not alter domestic beer market

Dec 8, 2015

Updated 9:13 a.m. Dec. 8 with Brito testimony - A-B InBev’s Brito defends acquisition of SABMiller, and says it should not alter domestic beer market.

AB InBev CEO, Carlos Brito says the company’s planned purchase of SABMiller is about expanding “the reach of iconic American brands such as Budweiser” to new markets around the world, “particularly in Africa, Asia and Central and South America.”

In comments prepared for today’s hearing before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, he says the roughly $108 billion transaction is not aimed at altering the U.S. domestic beer landscape - which includes a rapidly expanding craft beer industry. “What it is not about is changing our competitive position in the U.S. beer market,” Brito says.

“AB InBev will not acquire any SABMiller assets or operations in the U.S.” In fact, Brito says the transaction will likely increase competition at home because the company plans to sell SABMiller’s interest in MillerCoors to Molson Coors upon approval of the acquisition by U.S. regulators. Brito compared that to his company’s 2013 divestiture of Modelo’s entire U.S. business to Constellation, which he says created “an independent, fully integrated and vigorous domestic competitor.” That divestment came in a settlement with the Justice Department following the company’s $20.1 merger with Mexico’s Grupo Modelo SAB.

A-B InBev CEO Carlos Brito testifies before a Senate committee Tuesday morning.
Credit Jim Howard | St. Louis Public Radio

Brito also addressed concerns that AB InBev’s acquisition might limit the availability of supplies and distribution for craft brewers. “The other aspects of our operations, including total beer production, our utilization of beer ingredients and supplies and our commitment to the three-tier system, will remain similarly unchanged as a result of this transaction,” says Brito.

Following the repeal of Prohibition, states implemented the so-called “three-tired system” to divide corporate interests in beer production, wholesale distribution and retail sales. In most states, companies may not have an interest in more than one tier. Meaning that producers sell to wholesale distributors, and distributors then sell to retailers. However, in some states companies may have an interest in two of the three tiers.

Brito says that just as with brewers, competition among the country’s approximately 3,300 wholesalers is “robust.” Roughly 500 of those wholesalers are Anheuser-Busch distributors, “the vast majority of which carry competitive brands.” Brito says the 21 distributors owned and operated by the company represent a “modest footprint in the second tier” that has existed for more than 100 years. He says the company intends to continue distributing 90 percent of its volume through independent distributors with about 10 percent distributed by the company’s wholly owned distributorships.

Brito says the company expects to complete the transaction with SABMiller in the second half of next year, subject to regulatory clearances. “We are working proactively with the regulatory authorities around the world to ensure approval.”

Bob Pease, CEO of the Brewers Association, says A-B InBev should be required to divest itself of several company-owned wholesale distributors and should be prohibited from using incentives to get independent wholesalers from carrying competing brands - especially craft brews.

Pease says A-B InBev has executed “strategic economic maneuvers to reach into the wholesale tier of the industry through direct ownership, direct financial support of consolidation, and a variety of direct and indirect financial incentives to encourage wholesalers to deal exclusively with A-B InBev products.”

Pease urged senators to push the Justice Department to insist on added protections as a condition of A-B InBev’s acquisition of SABMiller. “Left unchecked, these practices will further restrict competition. Alternatives, such as government oversight, supervision and enforcement would take years of effort. The immediate damage to competition that we have already seen in ABI’s recent tactics cannot be remedied by relief provided years after competition is destroyed.”

Diana Moss, president of the American Antitrust Institute echoed Pease’s concerns. “If allowed to proceed, the merger would stifle important competition from smaller rivals such as craft brewers that compete with A-B InBev-SABMiller brands, further raise beer prices to consumers, reduce choice and diversity, and jeopardize innovation in this important sector.”

She says should the Justice Department decide not to block the merger of the two largest brewers, “it will be imperative to craft a powerfully effective remedy to address its anti-competitive and anti-consumer potential. Anything short of that would fail not only to fully restore competition in a market where A-B InBev-SABMiller would operate jointly going forward, but also exacerbate pre-existing competitive problems in the U.S. beer market.”

Original article - With the world largest brewer poised to acquire the world’s second largest brewer, senators want to know what the deal will mean for competition in the U.S. beer market and what impact it may have on craft brewers nationwide.

The Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights is scheduled to hear from Anheuser-Busch InBev’s CEO Carlos Brito Tuesday, along with Molson Coors CEO Mark Hunter, and representatives of craft brewers, beer wholesalers and the American Antitrust Institute.

Last week, craft brewers in Oregon filed an anti-trust lawsuit in U.S. district court, claiming its acquisition of SABMiller  would give A-B InBev,  control of about 71 percent of all sales volume nationwide. They say the resulting “global beer behemoth” would have an estimated market value of $275 billion giving it “sufficient monopoly power to exclude competition and raise prices.” Plus, they say the deal will leave consumers with fewer choices, less innovation and a “deterioration of quality.” 

A-B InBev’s vice president for legal and corporate affairs, John Blood, dismissed those claims as being “without merit,” in an emailed statement to St. Louis Public Radio. “The U.S. beer market has never been more competitive, with strong growth from craft brewers, and nothing in this transaction will change that fact.” Blood says the purchase “provides a compelling opportunity to extend the reach of AB InBev’s iconic American brands, such as Budweiser, to markets outside the United States.”

Credit Tom Nagel | St. Louis Beacon file photo

In October, A-B InBev announced it intended to purchase SABMiller for about $108 billion. In anticipation of U.S. regulatory concerns, A-B InBev said that, as part of the transaction,  it would sell SABMiller’s interest in MillerCoors LLC to Molson Coors Brewing.

Squeezing competition 

The Wall Street Journal reported last week that A-B InBev is offering an “incentive plan” that could provide lucrative reimbursements to independent distributors if “98% of the beers they sell are AB InBev brands…”

In November, three U.S. senators, “with robust craft brewing industries” in their states, wrote to Attorney General Loretta Lynch and asked that the Department of Justice ensure A-B InBev’s purchase of SABMiller does not “squeeze out America’s craft brewing industry, stifle innovation, further constrain beer distribution to U.S. retailers, or create further barriers to entry.”

In their letter, Sens. Angus King, I-Maine, Susan Collins, R-Maine, and Jeff Merkley, D-Ore., said that small independent brewers exist in all 50 states and have expanded at a “staggering rate.” They note the number of craft brewers has more than doubled from 2011, “going from 1,776 to 3,739.” The letter says small and independent craft brewers contribute about $55.7 billion to the U.S. economy and support more than 424,000 jobs.

The senators say craft beer now drives expansion of domestic beer sales. “Large brewers have taken notice and have taken actions that we believe may amount to exclusive dealing and other violations of antitrust law,” the senators’ letter continues. “For instance, while many craft brewers lawfully and successfully distribute beer in their local markets, the recent purchases of craft breweries and distributors by AB InBev suggests a dangerous plan to constrain distribution channels to the detriment of its competitors.”

Three-tier system

Following the repeal of Prohibition, states sought greater control over the flow of alcohol and a source of new revenue. They began to separate the production, distribution and retail sale of beer. In most states producers are required to sell only to wholesale distributors, with those distributors selling to retailers. In a few states, companies may have an interest in any two of the tiers, but in most, companies may not have an interest in more than one tier of the system.

Will craft beers be shut out?
Credit Véronique LaCapra | St. Louis Public Radio

Typically, producers offer wholesalers exclusive permission to distribute their products by region. That arrangement means that rather than two distributors competing to sell AB InBev products in the same region, they’d more likely compete with a distributor selling Coors products in that area.

But the growth of craft brews also presents distributors with other concerns. One independent distributor who did not want to be identified told St. Louis Public Radio that they can have an inventory problem. He said consumers may experiment with the new beers, but eventually they find one they like and then sales of other craft beers fall, leaving distributors holding stock retailers don’t want.