AB-InBev incentive program potentially a huge blow to craft beer

Sorry for the alarmist headline, but it feels warranted. While everyone was watching the Beer Voltron form overseas, Anheuser-Busch InBev had a domestic plan ready to boost its declining sales that could have a much bigger impact on shelf space across the country, this from the Wall Street Journal. This plan is a distribution incentive program that would reward distributors for selling a majority of AB InBev products.

From the Wall Street Journal:

The world’s largest brewer last month introduced a new incentive program that could offer some independent distributors in the U.S. annual reimbursements of as much as $1.5 million if 98% of the beers they sell are AB InBev brands, according to two distributors who requested confidentiality because they were asked not to discuss the plan. Distributors whose sales volumes are 95% made up of AB InBev brands would be eligible to have the brewer cover as much as half of their contractual marketing support for those brands, which includes retail promotion and display costs.

AB InBev, which introduced the plan at a meeting of distributors in St. Louis, estimates participating distributors would receive an average annual benefit of $200,000 each.

The same story goes on to mention one craft beer casualty that’s already happened as a result:

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.”

So, what do you think? Worth the alarm? For this reason or not, the government is at least peering over the fence to see what’s going on. It was just October that word spread that the Justice Department was investigating claims that AB InBev was/is trying to curb craft beer distribution. Much of that is focused on the effect of distributor acquisitions, which do seem dubious and against the point of the three-tier system to begin with, but take a gander at this nugget from the aforementioned story:

Antitrust regulators are also reviewing craft brewers’ claims that AB InBev pushes some independent distributors to only carry the company’s products and end their ties with the craft industry, two of the sources said, noting that the investigation was in its early stages. AB InBev’s purchase of several craft beer makers in recent years means that it is in a position to offer a greater variety of products itself.

If antitrust regulators actually do care that “AB InBev pushes some independent distributors to only carry the company’s products and end their ties with the craft industry,” well, um, they just made it an actual policy by starting this rewards program. So, investigation over? What else needs to be seen?

The craft beer industry is certainly up for making its case. Yesterday, a U.S. Senate hearing convened to examine the Beer Voltron merger. Cheers to J. Wilson of Prescott, coordinator for the Iowa Brewers Guild, who delivered this message as best he could.

“While market access is an on-going battle that small craft brewers have infiltrated by offering a wide range of locally-produced, flavor-forward products, the ability to produce or package them could soon be hindered if the merger is allowed,” Wilson said. “This mega-brewery would have an even greater impact on brewing inputs such as malted barley and hops and packaging materials like bottles and cans. The hops supply is already tenuous and while malt production can easily be increased, expansion of hops acreage is costly and hop plants take three years to reach maturity.”