Moreover, as a key supplier, ABI would have countless opportunities to reward Constellation for following ABI’s lead — and punishing it when it did not, just as it has done for years in disciplining its “independent” distributors. Under state franchise laws, it is nearly impossible for a brewer to terminate a contract giving a distributor the exclusive right to sell a beer in a given geographic area. But over the years, ABI has become very adept at using carrots and sticks to get distributors to toe the line.
According to industry executives I spoke with, Anheuser-Busch routinely provides its distributors with suggested wholesale and retail prices. Those who follow find themselves with lower prices for their beer and extra marketing money with which to sell it. Those who don’t might find themselves at the receiving end of late shipments of smaller allotments of hot products.
ABI also is well-known for discouraging them from selling any craft brands that compete with ABI products, which given its wide portfolio of brands covers just about every segment of the market.
In Ohio, for example, ABI distributors who agreed to help Yuengling expand into that state were recently criticized at a national sales meeting for being “disloyal,” a Yuengling executive told me, while others were treated to repeated visits from ABI inspection teams who filed long lists of alleged violations of the distribution agreement.
In late 2011, ABI provided its distributors with a glossy four-color “Wholesaler Family Consolidation Guide,” in which it declared its aim to further reduce the number of distributors through “voluntary” mergers. ABI vowed to designate a limited number of “anchor distributors” that it wanted to do the buying. They would receive financing and other assistance from ABI. All the rest were expected to sell out, and ABI warned that it would exercise its rights under the distribution contract to prevent them from selling to anyone other than an “anchor distributor,” even if others were willing to pay more.
Among the criteria for selecting “anchor” distributors: alignment with ABI’s pricing strategy, refusal to carry competing products and support of ABI positions on legislative issues.
Over the past decade, there had already been significant consolidation among beer distributors. While this reflects the competitive push to achieve economies of scale, it has also been driven by the major brewers for more “alignment” in their distribution networks — having one distributor in each territory for all of their brands. As a result, the distribution market has also become an effective duopoly, with one ABI and one Miller distributor in each territory, together accounting for well over 90 percent of sales in many markets.