E-Malt.com News article: US, IL: Beer distribution battle continues

There's a battle going on in Springfield over who brings your beer to market, Chicago Tribune reported on April, 12.

A bill proposed on April, 12 in the Illinois General Assembly would make craft brewers eligible to distribute their own products in the state, but only in limited quantities.

As a noncraft brewer, Anheuser-Busch Cos. would be left on the sidelines, but the beer giant is in the thick of the battle, seeking to distribute its own brews in Illinois. If it is able to gain that right, distributors say, some of the smallest craft beers could be squeezed out of the market.

The outcome could wind up serving as a test case for other states. And the fate of several small craft brewers that have the right to self-distribute may hang in the balance.

The issue dates back to the 1930s and has been a point of contention for decades. Since the end of Prohibition, the alcohol business in the U.S. has been divided into three parts: manufacturers, distributors and retailers. Each state has the power to regulate its own industry.

The latest battle began in late 2009, when Anheuser-Busch set out to buy its biggest Chicago distributor.

Benj Steinman, president of Beer Marketer's Insights, said it's unclear whether Anheuser-Busch's Illinois battle is specific to the state or if the outcome will carry weight when it attempts to buy distributors in other states.

He added that brewers distributing their own products are already allowed in many states, and Anheuser-Busch owns distributorships in New York, Boston and Denver, "so Chicago would be a continuation." The brewer also owns several distributors in West Coast cities, including Los Angeles and San Diego, as well as Honolulu.

Distributors store the products, deliver them to stores and collect state taxes. They also employ thousands of people in Illinois. The St. Louis-based beer giant, owned by Belgium-based AB InBev, argues it should be able to own a distributor. But the Associated Beer Distributors of Illinois maintains that the three-tier system was set up to keep businesses from dominating all aspects of liquor sales.

Early last year, Anheuser-Busch tried to buy its primary local distributor, City Beverage. The brewer has had a smaller footprint in Chicago than its chief rival, MillerCoors, and the purchase was an attempt to gain market share.

The Illinois Liquor Commission prohibited the deal. But Anheuser-Busch took the matter to court, noting that several small brewers have licenses to self-distribute, and keeping it out of the distribution business discriminated against out-of-state brewers. The company has owned Illinois-based distributorships in the past.

Bill Olson, president of the distributors association, said that Anheuser-Busch's distributorship was grandfathered into a 1982 change in the law. The brewer surrendered that license in 2005, he said, when it merged an Arlington Heights-based distributorship with what is now City Beverage.

While Anheuser-Busch battled for City Beverage in court, the 70 percent interest it had sought was purchased by BDT Capital LLC, the Chicago-based investment firm led by Byron Trott.

Earlier this year, a federal judge sided with Anheuser-Busch and ruled the state law was discriminatory. The judge left it to the General Assembly to explain why small brewers were granted licenses to self-distribute, but stayed his ruling. If a bill doesn't pass before the end of May, these breweries, including Murphysboro-based Big Muddy Brewing and Chicago-based Argus Brewery, could lose their licenses to self-distribute.

"You have to start out self-distributing the product and get it out there for people to try it," said Chuck Stuhrenberg, owner of Big Muddy, which opened 18 months ago with permission to distribute its own products. Stuhrenberg said Big Muddy made about 500 barrels last year, compared with 127,000 at Goose Island, the large craft-style brewery that Anheuser-Busch agreed to buy in March.

"That's the way most other states have it. Illinois is just way behind," he said.

In a statement, Anheuser-Busch General Counsel Gary Rutledge said the company has "been working with all parties toward a resolution that would address everyone's concerns, including those of small brewers." To that end, "discussions have been ongoing, and bills have been introduced for this purpose."

He added the company will "continue with our appeal of the court's remedy ruling, which would deny us a right we have held for years to operate as a licensed wholesaler in the state, and where we have held an exemplary record."

The new version of the bill, released Tuesday, narrowly defines what constitutes a craft brewer and the size of craft-brewing businesses that may apply for self-distribution rights.

Rep. Greg Harris, D-Chicago, said that he and Sen. Donne Trotter, D-Chicago, a sponsor of the craft beer legislation, have been looking for a middle ground for craft brewers, Illinois brewpubs and distributors.

"A lot of small brewers would say that some of the distributors may not distribute their brands aggressively and charge them a lot, so it's harder to get a hold in the market," Harris said. "Distributors would say they have the infrastructure to help the craft brewers get a bigger share of the market faster."

The current version does not include Anheuser-Busch. While it's possible the brewer could be included in amendments as the bill works its way through the Legislature, the company has also appealed the federal court ruling, arguing it should be allowed to distribute its own products.

Adding to an already complicated issue, Illinois brewpubs, which are represented by the same industry association as the small brewers under fire, are seizing on the opportunity to seek the ability to self-distribute their products.

Brewpubs, which are limited to how much can be sold from their restaurants, are looking to distribute their products to stores.

"The issue is, I have to pay some company a large portion of my sales to take it from Point A to Point B, which is the opposite of how businesses should be able to operate," said Peter Crowley, owner of Haymarket Pub and Brewery and president of the Illinois Craft Brewers Guild. "We're talking about such small amounts that it's frustrating they're against small business in Illinois."

If Anheuser-Busch receives approval to buy its primary Chicago distributor, Chicago-based MillerCoors is expected to mount a campaign of its own. At that point, local distributors say, they would have a hard time competing on price, and it may affect their ability to bring small craft beers to market.

"If you only have two big brewers in town, the only stuff you're going to find is the stuff they produce," said Jerry Glunz, general manager of Lincolnwood-based Louis Glunz Beer Inc. "We offer choice. We represent 850 different brands and we bring those brands to market every day."

Glunz also sells InBev imports, including Stella Artois and Beck's. If Anheuser-Busch were to take over City Beverage, he's not convinced he'd be able to compete with their prices. Glunz maintains that he's been able to invest in bringing small craft beers to market with profits from Stella and Beck's sales.


13 April, 2011