E-Malt.com News article: USA, KY: Craft brewers oppose AB InBev’s ownership of alcohol distributorship

The beer battle brewing in Kentucky is about to pour over into the General Assembly, Lexington Herald-Leader reported on February 1.

It's a fight over market access that pits small local craft brewers against the world's largest brewer, international giant AB InBev, headquartered in Belgium.

House Speaker Greg Stumbo, D-Prestonburg, filed House Bill 168 to prohibit an entity that has a brewer's or out-of-state malt beverage license from also having a distributor's license, in an effort to make the state's three-tier system for beer parallel to that of spirits and wine. Put in place after the repeal of Prohibition, the system lets alcohol producers sell only to distributors or wholesalers, who sell only to retailers.

While craft brewers such as Lexington's Country Boy and West Sixth Brewery have the support of Lexington-based distributor Kentucky Eagle, the Kentucky Guild of Brewers and the National Beer Wholesalers Association, AB InBev has the backing of Greater Louisville Inc. (Louisville's chamber of commerce) and the Teamsters.

The skirmish began last fall when Anheuser-Busch, bought by a Belgian company in 2008, sought to buy an Owensboro alcohol distributorship. Anheuser-Busch has owned a distributorship in Louisville since 1978 and wants to expand its reach.

But the state Department of Alcoholic Beverage Control was reluctant to transfer another distributor license to Anheuser-Busch, in part because craft beer makers in and outside of Kentucky swiftly filed letters of protest.

Craft brewers fear being squeezed out of the market once a distributorship is in the hands of a brewer that sells primarily its own products.

"If they buy the distributorship," said Daniel Harrison, co-owner of Country Boy Brewing in Lexington, craft brands like his "are left out in the cold."

AB InBev took the matter to court. After Franklin Circuit Court ruled that existing state law does not prohibit a beer maker from also holding a distributor's license, state regulators gave conditional approval but cited "grave" concerns.

"The AB application to expand its distributorship licensure in Kentucky is the most controversial in department memory," wrote Alcohol Beverage Control director Stephanie Stumbo in November. (She is not related to Greg Stumbo.) "Protestors have raised concerns regarding the large producer's apparent efforts to create a vertical monopoly in other states. This allows for potential diminution of product distribution options and limits access for a share of the market by other national and local producers, especially craft brewers."

In Louisville, Anheuser-Busch distributes primarily its own brands and will do the same in Owensboro.

According to Stephanie Stumbo's November letter to Anheuser-Busch attorney Richard Clay, 195 brands reportedly were being dropped and would be shut out of the Owensboro area because they couldn't find a distributor.

Even with another distributor picking up craft brands, Stephanie Stumbo wrote, "one independent distributor cannot logistically carry all other non AB brands on the market. The burgeoning Kentucky microbrewery industry will likely lose market access and sales resulting in lost Kentucky industry, lost growth and capital investment, lost jobs, and lost tax income. Kentucky consumers will continue to lose choice of brands and will likely see increased cost."

Yuengling, a much-sought beer made in Pennsylvania but not sold in Kentucky, said the brewery had encountered "barriers to gaining market access," Stumbo said. The oldest brewery in America, Yuengling was among the beer makers protesting the license transfer, saying its products are not distributed in Kentucky yet and with AB in charge of two markets they might never be.

"If allowed to acquire additional licensing privileges, Anheuser-Busch would have complete control over a significant portion of the wholesale distribution of malt products within your state," David Casinelli, COO of D.G. Yuengling & Son, wrote in 2014. "We have experienced this problem in Ohio, which permitted breweries to own wholesale branches before the Ohio legislature quickly amended this provision last year. This could seriously influence our decision to consider further expansion to Kentucky."

However, Damon Williams, vice president of sales & marketing for Anheuser-Busch Louisville, said many of the brands that were dropped in Owensboro were spirits brands, which his company can't distribute.

Major craft beer brands, such as Magic Hat, Sierra Nevada and Woodchuck, were sold to another of the four distributors in the Owensboro market, he said.

Williams contended that the craft beer market is alive and well, particularly in Louisville, and denied that crafts have trouble getting their products distributed. He pointed to Colorado-based Fat Tire, which announced in January it would begin distributing in Kentucky in March.

"The reality is we are here, we've been here for a long time and the craft business has continued to grow and boom," Williams said.

His company sells about half of the beer sold in Louisville and would love to increase that share, he said. But so would the other four Louisville distributors, which makes for a very competitive market, he said.

Other opponents of House Speaker Stumbo's bill say that by forcing AB InBev out of the distributor business, the Kentucky legislature could kill good-paying union jobs in Louisville.

"We, at Teamsters Local 783, have always considered Speaker Stumbo an ally on workers' issues. However, we are opposing House Bill 168, we believe it is anti-union," John Stovall, president of Local 783, said in an email. "If Anheuser-Busch is run out of the commonwealth and other distributors are allowed to come in and buy up this distributorship, there is no guarantee that these jobs will remain as they are, particularly the ones that are part of our Teamsters Union."

Stumbo's bill has been assigned to the House Licensing and Occupations committee, but no hearing date has been set.

"I have had discussions with those representing both sides of the issue, and we are still working to see if a compromise is reachable in this situation," Greg Stumbo said in a statement.


04 February, 2015