Modern Day David and Goliath
May, 1997 – Boonville, CA – As some of you may already know, tiny Anderson Valley Brewing Company has entered into a class action suit against Anheuser-Busch Corporation, the largest brewery in the world. We, and several other micro breweries in the western states are taking action against what we consider to be unfair exclusionary business practices on the part of A-B, in violation of the Sherman Act and the Clayton Act, better known as the "Tied House" laws. Ken Allen, President of Anderson Valley Brewing said, "The King Of Beers has become the Despot Of Beers, and we’re not going to take it anymore. We think what they’re doing is illegal, immoral, and unethical, and we want them to lay off."
We entered into the case on behalf of ourselves and several micro breweries, in Hawaii, California, Oregon, Washington, Nevada, Arizona, Montana, and Idaho, all of whom have had distribution agreements terminated by certain distributors, ever since Anheuser-Busch told their distribution network, to only handle their products, and abandon others, most specifically the micro produced craft brews. Since March 1996, scores of distributors have yielded to the behemoth brewer’s strong arm tactics, and have broken off or reduced distribution agreements with the smaller craft breweries. Many of these craft breweries have had a difficult time replacing these distributors.
From March 1996 to the present, A-B owned 11 distributorships, and had agreements to sell its products through approximately 900 independently owned distributorships, throughout the U.S. (118 of those, in the involved seven states). These tend to be the strongest and most connected distributors in their regions. Evidence of the network’s strength is visible in almost every establishment that sells beer, as the public can find A-B products virtually everywhere. Smaller, truly "independent " distributors often do not have the resources to distribute products as widely as larger distributors. They often are already at the peak of their distributing capabilities and cannot accept new products or accounts, and they often do not have refrigerated storage to properly hold the more fragile craft brews. In California alone, there are approximately 125 craft breweries, which sell their products using off-site distribution, and need such distributution to survive.
So, if Goliath is so strong, why is he picking on the little guys, and taking such drastic actions? Well, in 1994, craft brew sales accounted for 1.3% of the national beer market, 2.5% in 1996, and an estimated 6% in 2000. August Busch III, owner of Anheuser-Busch, perceived this growth as a threat, when he visited a distributor in Hawaii, and saw the amount of space this distributor devoted to craft brewed products. In response to this discovery, a mandatory conference was held in St. Louis for approximately 900 wholesale distributors, at which Mr. Busch told them they were to give "100% share of mind" to his brewery. According to several industry sources Busch stated that;
"On average, 94% of all of your sales are Anheuser-Busch products. Some [of the distributors] are using the core to marginally increase their profit, however, which will hurt both of our businesses in the long run. [This has] already cost [our] shareholders millions of barrels and hundreds of millions of dollars in returns on their investment. You have 100% share of our mind, we must have yours. That means that each of you exert your undivided attention and total efforts on Anheuser-Busch products… If you sell our competitor’s products, can you still give us your best efforts? I don’t think so… We cannot win without your undivided loyalty and attention… Share of mind is the key to our mutual success." 1
At the same meeting, the brewery’s President, Pat Stokes, said;
"We strongly object to the premise that a wholesaler’s sales personnel can adequately service both competing brands and our brands. There are too many conflicts on selling shelf space, display coverage, distribution, promotions and general strategy… We object to base loading where our products are used to provide the critical mass required to cover the [distributor's] fixed costs and non A-B brands are used to provide marginal profits." 2
Several distributors voiced their concerns that the craft brews had become an integral part of their product line, and retailers would need to supply craft brews to their customers. Anheuser-Busch responded that they would provide their own "craft" brews to satisfy that demand. They supply "craft" brews by purchasing a controlling interest in existing independent craft breweries, as they did with Red Hook Brewing, in Washington, and also by redesignating some of their existing products, such as Michelob, as "craft" brews.
A-B instituted a distributor rating system in which "A" distributors (those that carry only A-B products) receive such benefits as: personalized ads, free painting on trucks, free point of sale merchandise, and even financing for such things as the purchase of other distributorships. The "E" distributors (their lowest rating, for uncooperative distributors) get none of these perks.
The mega-brewery continues its anticompetetive attack on the craft brewers by forging new agreements with its distributors which provide: that 25% of each wholesale distributor shall be owned by an A-B approved manager, with day-to-day operating control of the business; that A-B has the right and option to purchase any ownership interest in any distributorship offered for sale, to anyone other than a member of the owner’s family; that those distributors which still offer competing brands must ensure that their employees salaries, commissions, and incentives for selling A-B products are "equal to or greater than" any such compensation for the sale of competing products; that A-B may inquire into any marketing plans that distributors have for competing brands (information that used to be privileged knowledge between distributor and each individual brewery, giving the giant even more of a marketing edge over competitors than their seemingly limitless coffers already provide), and, perhaps most surprising, that distributors may not solicit their retailers to carry competing products and may not solicit retailers to convert any A-B brand shelf space, draught placements, or displays to any competing product (this basically means that even if a distributor carries another brewery’s products, he can not try to sell them to his customers).
So, what has Budweiser done for you lately? Well, they’re trying to take away your freedom of choice and force you to drink only their products. Perhapse the worst part is that they think you won’t even notice, because they’ll be replacing quality brewed, independent craft brews with their own pod-grown micro look-alikes. We’re fighting back, and invite you to do the same.
1 Beer Marketer’s Insights, 3/25/96, Vol.27, No.6.
2 (Id.)
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