Beer industry scrutinized by Treasury Department following wave of consolidation


Dive Brief:

  • The U.S. Department of the Treasury said the Department of Justice and Federal Trade Commission should continue to “examine” the way they review mergers in the beer space while paying “particular skepticism to claims of efficiencies” in assessing future deals. It noted the DOJ should closely monitor the impact on beer distribution from these transactions and how they could hurt smaller operators.
  • In a 63-page report released Wednesday, the department said beer production is heavily concentrated among two major players controlling 65% of the market based on revenue. It noted “major complaints” over discriminatory conduct involving distributors as well as slotting, shelving and other preferential practices despite a ban. 
  • In a statement, Jim McGreevy, CEO of the Beer Institute, said the group was “disappointed by the Administration’s mischaracterization” of the industry. “Despite being one of the most regulated industries in the United States, the beer industry is experiencing an unprecedented level of healthy competition,” he said.

Dive Insight:

As the Biden Administration undertakes a deeper assessment of competition across many sectors of the U.S. economy, the report released by the Treasury Department indicates that the beer industry will be watched especially closely.

Alcohol has seen new wine, beer and spirit companies enter the space during the past few decades, largely through craft offerings. But their emergence has come amid obstacles such as tax policies, local laws and industry consolidation that the government said have impacted these smaller players’ expansion.

In its findings, the Treasury noted complicated state and federal regulations dating back decades, along with “complaints about exclusionary behavior by large producers, distributors, and retailers” may “unnecessarily burden” small firms and make it harder for them to compete. The department also chided other regulators charged with overseeing competition in the alcohol sector, noting that the increased concentration “may have resulted from the absence of consistent merger enforcement.”

The global beer market has rapidly consolidated in recent years as changing consumer tastes, craft beer growth and a surge in the popularity of wine and spirits have siphoned off drinkers, prompting companies to merge to squeeze out cost savings and give them a larger footprint in parts of the world where consumption is expanding.

The most high-profile deal was AB InBev’s $100 billion blockbuster mergers in 2016 with SABMiller that brought Carling Black Label, Budweiser and Michelob Ultra under one roof. Since then, AB InBev and Molson Coors — its chief U.S. competitor — have gobbled up several craft breweries to increase their presence in that popular category.

In looking back at the recent rash of deals, the Treasury report noted that “many arguments from merging parties in support of consolidation do not appear to have been borne out.” For example, while the companies behind the SABMiller and Molson Coors Brewing Company joint venture established in 2007 pointed to its potential efficiencies, research found beer prices increased following its creation, the Treasury report noted. 

The report offered up a host of suggestions for the DOJ, FTC and the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau. They include: taking a closer look at vertical mergers or arrangements that may lead to monopolization or exclusion in the alcohol markets of small firms or new entrants; and addressing complaints of under-enforcement, especially in terms of conduct by larger companies. 

It’s uncertain whether the White House will act further beyond this report, but if nothing else it acts as a not-so-subtle reminder to the beer industry that any future merger deals will be thoroughly scrutinized, especially under the Biden administration.

Many of the large beer giants have already consolidated, leaving few combinations left here in the U.S. that could realistically take place, let alone pass regulatory muster. It could ultimately mean beer companies try to acquire more craft players in order to increase their presence in a certain regional area. At the same time, the alcohol giants will undoubtedly continue to expand their portfolios by moving further into categories like functional beverages, or by entering into additional partnerships with nonalcoholic companies like PepsiCo and Coca-Cola as a way to boost revenue.

“We’re determined to protect what has been a successful, vibrant industry with a lot of small businesses entering it,” while tackling issues that “lead to excessive prices for consumers,” one senior U.S. official told Reuters.

In one example, the Treasury report said measures restricting price competition, called “post and hold” laws, could mean beer consumers are spending up to $478 million a year more than they otherwise would. Post-and-hold laws require wholesalers to provide a list of prices to the state, according to a report by the National Bureau Of Economic Research. For the most part, the laws were enacted at the end of prohibition with the intention of limiting alcohol consumption by raising prices.

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