Jun 162020

Decades ago, the term partnership in the beer industry meant something.  There were a number of national exclusive houses that were single brand wholesalers, predominantly AB, Schlitz, and Coors.  The same was true for regional beers. For example, many Pabst-only and Hamm’s-only houses were located in the mid-west and exclusively carried those brands.  Chicago had Old Style distributors and both the east and west coasts had their own key houses.  At one time, a partnership existed between both the brewer and the distributor. This relationship was critical as the success of one was dependent on the success of the other. There was nothing else to fall back on for support.

We all know, however, what happened:  the onslaught of AB, the rise of Miller, and the expansion of Coors, coupled with multiple mistakes by regional breweries caused a massive consolidation, first with the wholesalers, and then later with the brewers. Along came the rise of key imports, and soon crafts started to become a factor. Wholesalers quickly represented 20, 30, or more vendors. The industry had changed.

AB, with close to 50% share of the market, used an incentive to keep its wholesalers exclusive, a move which was successful. By 2008, when InBev took over AB, more than 70% of the AB wholesalers were exclusive in the U.S. This program benefited both tiers of the industry. Many AB distributors’ owners were loyal to Augie Busch III, as he had made them rich; while the brewery also benefited from the fact that these wholesalers were exclusive. Obviously, there were exceptions to this exclusivity, predominantly in rural parts of the country where a wholesaler had to have multiple brands to survive. But this was frequently the exception rather than the rule. Soon after InBev took over ABI, the wholesaler incentive program ended, which basically opened the door for all AB houses to begin adding new beers. This continues even today.

These changes over the decades have altered the meaning of the word partnership and the definition of a partnership between a brewer and a wholesaler in the 1960s is much different than the meaning in the 2020s.  A longtime beer industry executive said many years ago that there is no longer a partnership between wholesalers and brewers, that the relationship now is purely business.

Multi-brand distributors, protected by self-induced state franchised laws, are in the position to squeeze out many of their vendors. The beer wholesalers today are diversified and are not as dependent on only one brewery as they were in the past. If a brewery developed a strategy that conflicted with that of the main supplier, the wholesaler might not execute the breweries’ strategy. This could aptly apply to a supplier’s pricing strategy.

Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 U.S. 877 (2007), is a U.S. antitrust case in which the United States Supreme Court reversed the 96-year-old doctrine that vertical price restraints were illegal per se under Section 1 of the Sherman Act.  The aforementioned case replaced the older doctrine with the rule of reason. Resale price maintenance (RPM) is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer’s product at certain prices: at or above a price floor, or, at or below a price ceiling. If a reseller (distributor) refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with the said wholesaler. This marked a dramatic shift in how attorneys and enforcement agencies addressed the legality of contractual minimum pricing and essentially allowed the reestablishment of resale price maintenance in the U.S. in most commercial situations.

As the economy slowly returns to a new normal, many of the surviving breweries will be aggressively ramping up their marketing and sales efforts. The continued existence of these breweries will depend on the success of the aforementioned efforts, but breweries that put their trust in wholesalers will also put their survival in those wholesalers’ hands.

Partnership is the way. Dictatorial win-lose is so old school.

 Posted by at 6:00 am