Think Tank Lambastes Big Beer Brewers, Modelo Sale

Dec. 14, 2012 — -- Pretty much everyone agrees on beer. So what's political about it?

Beer also happens to be big business, and as such, debate over markets and regulation follows it, right into the halls of a Washington, D.C., think tank.

With Anhueser-Busch Inbev seeking a controlling share of Grupo Modelo, the brewer of Corona and Modelo Especial, the D.C.-based New America Foundation criticized the sale, which it says would solidify a virtual duopoly of the American beer market, as Inbev and its counterpart, Miller Coors, dominate the U.S. beerscape.

In a new report, the think tank argues for stronger state and local controls, raising some political and philosophical questions about markets, competition, consumer choice and the role of government in controlling enterprise to help the little guy -- all with an eye toward boosting the panoply of microbrews that, New America says, will be squeezed out of the U.S. market.

"The diversity that we see, just in that little 5 percent of the marketplace ... is greater than anywhere else in the world," said Barry C. Lynn, director of New America's Markets, Enterprise, and Resiliency Initiative, at a panel hosted at the think tank's Washington offices Wednesday. "It's a result of that marketplace that was put into place in the 1930s."

As Lynn and others see it, Big Beer has been squeezing that post-Prohibition model of how beer is sold in America, with brewers, distributors and retail sellers each separated in a three-tier system geared to prevent monopolies. New America's panelists said that Anhueser-Busch Inbev and Miller Coors had pushed that system to its limits by pressuring distributors to carry only their products, taking advantage of their size to crowd independent brewers out of bar taps and off store shelves.

"They have a great level of influence on what's supposed to be an independent tier in pressuring those distributors to favor their product," said Dogfish Head Brewery's Sam Calagione, who appeared as a panelist Wednesday.

Calagione came face to face with the monolithic, large-brewer-influenced distribution industry when he began his now widely popular brewery in Delaware in 1995. He called the local Anhueser-Busch distributor to inquire about carrying his beer. "It was really a one-sentence phone call," Calagione told the audience at New America. "They said, 'Sorry, we're not picking up any new products.'"

The beer market appears to be flourishing with independent brews, but it isn't as diversified and variegated as it seems: The two giants own a stable of brands, aside from the Buds and Millers, that includes Red Hook, Widmer, Goose Island, Corona, Old Dominion, Leinenkugel, Blue Moon, Shock Top and Rolling Rock, having acquired the smaller labels over the years.

New America and Calagione agree that beer laws should allow small brewers to self-distribute, and that they should prevent large brewers from essentially programming distributors to crowd out the competition, as New America claims AB-Inbev has done by disseminating a Wholesaler Family Consolidation Guide to its distributors. "It's about consumer choice -- the fact that the craft-brew segment is growing is about consumer power," Calagione said on Wednesday. New America's Lynn made a case for regulation, and against laissez-faire economic conservatism: "We have an instance that proves markets are moral -- if you make them so."

But beyond the talk of consumer power and federalistic local controls lies a more immediate case New America is making: that the Obama administration should block the sale of Grupo Modelo to AB-Inbev. The Justice Department has been studying the competitive effects of the merger, talking to distributors and craft brewers to determine how and if the deal should proceed, and whether AB-Inbev should divest from certain brands to avoid anticompetitive advantages.

"Brewing five gallons of homebrew in the White House is not a sufficiently powerful action," Lynn said, referring to the White House Honey Ale brewed by White House chef Sam Kass. Lynn called on the administration "to assist us in opening competitive markets again, free from domination from any very large companies."

As part of the deal, Modelo will sell its controlling share of Crown Imports, which distributes Modelo in the U.S. The deal would add Corona, the largest imported brand in the U.S., to AB-Inbev's portfolio.

Large brewers say they don't see New America's concerns as legitimate. The Beer Institute, the trade association composed of large and small breweries, including AB-Inbev and Miller Coors, pushed back against New America's criticism.

"Critics of today's brewers miss the point that small brewers in this country are already enjoying a generous tax advantage over larger brewers and all importers, a policy designed to open pathways to the marketplace. In fact, the small brewers in this country are experiencing explosive growth – their dollar sales were up 14 percent in the first half of 2012 – and they represent the fastest-growing segment within the industry, having added 442 new breweries in 2012 alone," said Beer Institute President John McClain, in a written statement provided to ABC News. "This indicates that the craft brewing sector is doing just fine producing high-end beer for high-income consumers, despite a sluggish economic recovery impacting hard-working, middle class Americans."

McClain's group finds itself in the tricky situation of commenting on a dispute between two factions among its members. It offered this defense after ABC sought comment from Anhueser-Busch, which contacted the trade group.

"Today's panel sounded a false alarm over alleged public health dangers stemming from consolidation among some brewers," McClain said. "Contrary to assertions made today, these moves by U.S. brewers and importers have proven to be positive for our consumers, as well as our investors and for the economy as a whole. Today, brewers contribute more than $223 billion to the economy in primary and secondary impact, and from supply chain businesses to retailers, beer helps employ more than 1.8 million Americans."

Calagione, for his part, isn't sure he opposes the deal. "I'm not saying we're 100 percent against it," he said, while expressing "grave concerns" over "more pressure against bringing craft brews to market."

Regardless of what New America, Calagione or the Beer Institute say, the $20 billion sale is entirely in the hands of the Justice Department. If it goes through, craft brewers will discover whether their fears are borne out.