Following recent revelations in The Wall Street Journal that Anheuser-Busch InBev (NYSE:BUD) offered incentives to distributors to be virtually exclusive to its brands, craft brewers are alarmed that the brewer of Budweiser, Bud Light, and other mass produced and "crafty" beers would push them out of the market. Anheuser-Busch has taken a number of actions lately that raise concerns that it is trying to use its distribution muscle to lock out rivals, and coupled with its proposed merger with the world's second largest brewer, SABMiller, fears of a monopolistic position have been heightened.
Does it matter?
The Journal said Anheuser-Busch offered incentives to distributors valued at as much as $1.5 million if the brands they stocked were 98% or more from A-B. If at least 95% of the brands they carried qualified, the distributor could have the brewer pay for up to half of their contractual marketing support for the brands. Anheuser-Busch estimated that participating distributors could each receive $200,000 annually, on average.
Anheuser-Busch is already under Justice Dept. investigation over its purchase of a number of regional distributors due to comments it made that it was looking to dramatically reduce the number of outside brands they carried. That raised fears among craft brewers, who have seen their share of the beer market grow to 11% by volume as mass brewed beer sales declined, that A-B was trying to make it harder for them to win shelf space at retailers.
It appears that in its zeal to stanch hemorrhaging sales, Anheuser-Busch could be jeopardizing its merger with Miller. The union of the world's two biggest brewers has already raised antitrust hackles among many, even after the Budweiser maker agreed to sell off Miller's interest in the MillerCoors joint venture it has with Molson Coors. Such brazen attempts to muscle out smaller brewers puts the $108 billion merger at risk as regulators may seize on its actions as proof of what it could do when it completely dominates the market.
The incentives deal is already sparking some small protest among retailers. A small chain of restaurants in North Carolina got a bit of publicity by announcing it was refusing to sell any brand of Anheuser-Busch beer at any of its chain of restaurants. Even if such protests grow to include others, they are unlikely to impact A-B's positioning, but they do highlight the negative image the brewer is projecting by using its size to stifle competition, and that could spill over into the considerations of antitrust regulators.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Anheuser-Busch InBev NV. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.