Anheuser-Busch Drafts a Big New Player for Its Middle-Tier Power Game
Football is back on television, and your humble Hop Take columnist is not above a sports metaphor. To wit: coaches teach linebackers to watch the running back’s numbers coming out of the backfield. You can throw fakes with your hips and head, but your chest will signal where you’re going.
Now imagine the running back is Anheuser-Busch InBev’s (ABI) three-tier operation. The head is the corporate mothership, developing products that may or may not work, pushing out marketing campaigns and press releases that tell its side (and only its side) of the story, and generally keeping the rest of its strategy to itself. The hips are its retailers, who can, and do, shimmy and shake semi-independently across the sales calendar. And between the two, the numbers: ABI’s wholesalers. Watch the macrobrewer’s mighty red network, and you’ll figure out where it’s going. After all, the only way to get there is on its distributors’ trucks.
Drill this operational truism into your head, peewees. Because ABI has been doing a lot of juking lately — and by the looks of things, there could be more to come before the clock runs out on 2025.
Earlier this month, the trade publication Beer Business Daily (BBD) — which has made its bones since the late ‘90s by staying on the speed dials of the nation’s chattiest beer distributors — reported rumblings that an ancient evil had once again reared its head within the King of Beers’ vast empire. “[ABI] has asked at least three wholesalers to fill out and sign an Exhibit 5 by next week (notice of intent to sell), or risk termination,” noted the insider sheet on Aug. 1, in its standard un-bylined prose. “This comes just weeks after wholesalers in Colorado and North Dakota have been crewed.”
The following week, both BBD and its also-sourced-up rival, Beer Marketer’s Insights, had more details on this middle-tier esoterica, and they weren’t pretty. In a “stunning and unprecedented development,” reported the latter outlet on Aug. 4 in its own un-bylined dispatch, ABI was forcing “a handful of distrib[utors], mostly smaller to mid-sized and in midwest, with one in west” to cash out over allegations that they’d sold old Busch Light Peach into their markets — which would be “crossing a big line in [ABI]’s equity agreement.”
Without boring you to death, the upshot here is that the country’s biggest brewer is either threatening to, or actually trying to, put some of its nominally independent wholesalers out of business over pretexts that read pretty f*cking thin on the (web) page. It can’t actually make the unnamed houses in its crosshairs sell: Thanks to the majestic wisdom of the perverts that cooked up the 50 different systems that regulate the alcohol trade in the United States, these are technically discrete firms. But if they don’t sign away their brand rights, ABI will try to fire them for cause, leaving them with nothing. The targeted distributors don’t appear to be any of the major consolidated houses that might have the resources and leverage for a decade-long court battle over franchise rights. At the same time, with beer sales soft and all the other major brewers’ volume spoken for, losing ABI’s volume could be existential. “For a small distributor, [ABI] is the dominant player in your portfolio,” says a middle-tier veteran with knowledge of the company’s distribution network, speaking anonymously with Hop Take to preserve industry relationships. “Without having [its brands] on your trucks, there’s just not much of a profitable business left.”
(ABI did not respond to a request for comment.)
The stakes are high, and the potential humiliation of losing a wildly lucrative multigenerational ABI franchise over some bad Busch Light is huge. But it’s also reasonable to assume that ABI had other, more substantive grievances with the distributors currently in its doghouse. That was the subtext I got from the trade publications’ reports on a conference call that other ABI distributors — ones not on the verge of ruin — organized to present “a different narrative” from that in the earlier coverage. It’s a national network, and there are good distributors and bad distributors within it. Perhaps ABI, finally getting its feet beneath it after the Bud Light fiasco (during which all its distributors took a bath, and a few dared to grouse publicly about it in an extraordinary bit of rank-breaking that the mothership could not have appreciated), is taking this opportunity to cull the latter from its herd.
“Really, [ABI] is doing what I think just about every supplier out there would want to do if they had the leverage, which is trying to exert some sort of influence over the middle tier, to return to pre-pandemic levels of service and engagement,” says Kevin McGee, a one-time beverage-alcohol attorney who recently returned to practicing law after selling Anderson Valley Brewing Co. (AVBC) earlier this year. An underperforming distributor is hardly unheard of, particularly among craft brewers. McGee found himself embroiled in not one but two lawsuits over the past couple years to extricate AVBC from distributorships that he felt had deprioritized on-premise draft sales, in-person visits to independent accounts, and other hallmark practices of a wholesaler that’s actually hustling. The difference is ABI has the leverage that literally no craft brewer — hell, not even Molson Coors — has to demand its distributors hand over the Clydesdales’ reins.
California is fairly unique among the states in that it has virtually no franchise protections for distributors facing ABI’s sell-or-die ultimatum. But most states have enshrined statutes in their legal codes for distributors to defend against this very scenario. “An outfit like [ABI] is the scale producer that franchise laws were intended to corral,” says McGee. “For the most part, [they have] to do with terminating relationships.” Franchise protections are extremely strong, and pre-InBev Anheuser-Busch last seriously tried to overcome them in Florida, where a lawsuit over control of Roger Maris’s family distributorship in the mid-’90s sprawled into an 11-year-long mainstream media saga that racked up tons of bad press and a $120 million legal settlement. “[ABI] hasn’t attempted a major termination for cause in 25 years, to our knowledge — they’re out of practice,” wrote BBD on Aug. 3. “They apparently forgot it’s tough to do outside of California.” And it is.
That might have been the end of this column, but on Wednesday, ABI juked again. A press release from the firm announced plans to sell its wholly owned distributor (WOD) in New York City to Southern Glazer’s Wine & Spirits (SGWS), the country’s biggest booze distributor. Recall, just a few months ago, ABI took Cutwater Spirits away from the flailing Republic National Distributing Co. in California and a dozen other states, took No. 2 vodka-seltzer NÜTRL away from its independent wholesalers there, and handed both to SGWS as part of a multi-state shift. It was a head-scratcher, as I wrote at the time. While SGWS is working on its “total beverage” pivot, it’s still firmly in the full-bottle wine and spirits business, and lacks beer distributors’ institutional expertise on high-velocity, low-margin, single-serve stuff. That ABI is now entrusting SGWS to service its entire portfolio in four of the five NYC boroughs (Brooklyn wasn’t the WOD’s territory) by the end of the year when the terms-undisclosed deal closes is an astonishing vote of confidence in a largely unproven partner’s ability to navigate one of the most complicated, competitive, and valuable markets in the country. “Talk about making a big splash in a major market,” my middle-tier source remarks. “That [ABI] was willing to divest a significant asset to them really [suggests] that it must have a strong belief that Southern is going to be a partner for the future.”
In the release, SGWS announced new investment, a dedicated New York “total beverage” division, and a new hire plucked from the last WOD ABI sold in Ohio to run it. We’ll know soon enough if that is enough to execute at the level the macrobrewer demands.
(SGWS did not respond to a request for comment)
But logistics are one thing, and leverage is another. As I argued when the Cutwater/NÜTRL news broke, there’s a strategic upside for ABI in tapping SGWS. Beyond whatever contract terms the mega-wholesaler offered…
A more substantive explanation might include some power games between ABI and its affected wholesalers, with the former forfeiting short-term sales growth on its canned cocktails in exchange for more leverage over the latter on matters of beer distribution. (And scaring the hell outta the unaffected wholesalers that still have NÜTRL in the rest of the country; scant few states offer franchise protections on liquor, after all.) You could even imagine some score-settling in the mix, a reminder to the red network who calls the shots after the unprecedented public grousing some distributors indulged in during the right-wing boycott of Bud Light.
Three months later, the numbers on the jersey are looking a lot clearer coming out of the backfield. Rest assured, SGWS paid dearly for the NYC WOD: “That’s a really expensive neighborhood [ABI] sold,” McGee jokes. But the deal also delivers the macrobrewer a more Seinfeldian “hand,” demonstrating to the rest of the red network that it’s willing to grant primo chunks of its empire to interlopers aligned with its priorities. “It’s clear to me that [ABI] wants consolidation [and] is trying to disrupt its distributor system,” says the middle-tier vet. “If I’m a small, independent distributor, I’m kind of looking over my shoulder a little bit, even if I have a great relationship” with the company. In that light glints a throughline: The Cutwater/NÜTRL shift, the Exhibit 5 inquisitions, and now the NYC WOD sale all look like ABI clawing back power from middle-tier frenemies real or perceived. Also glinting: the fact that ABI’s equity agreement grants it “match-and-redirect” power to control to whom strong-armed independent wholesalers sell. And of course, ABI still operates about 10 WOD divisions across the country, including California. The macrobrewer could use another deep-pocketed heavyweight there to bash heads with Constellation Brands-aligned Reyes Beverage Group — and SGWS could use beer volume to answer its rival mega-wholesaler’s post-RNDC push into wine and spirits. Put plainly, the throughline points towards a deeper alliance between the country’s biggest brewer and its biggest booze distributor. And that’s just what we can see from the sidelines.
🤯 Hop-ocalypse Now
Trump’s trade war has been hard on the entire beverage-alcohol business, and earlier this week, the beer industry took another direct hit. The U.S. Department of Commerce finalized guidance indicating that it does consider aluminum can lids and ends to be “aluminum derivatives,” thus subject to an enormous 50 percent levy under Section 232. In a blog post, the Brewers Association warned that this “could contribute to higher packaging costs” for U.S. craft brewers. But hey, look at the bright (heh) side: at least this is also bad news for Ball Corporation, which just last week announced it was looking to reduce its exposure to beer! Hmm… actually, that’s not very uplifting, is it? Who knew silver linings would be so tough to find in a story about aluminum?!
📈 Ups…
Monday Night Brewing is expanding to another Atlanta location… The Brewers Association’s head honcho Bart Watson has the measured take on Gallup’s seemingly scary recent drinking sentiment poll…
📉 …and downs
Mark Anthony Brands filed plans to lay off more than 140 workers at its New Jersey plant… The Brewers Association and The Beer Institute are crosswise on how they’d like the Alcohol and Tobacco Tax and Trade Bureau to handle nutritional/allergen labeling… Spindrift is killing off its hard seltzer…
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