Hand 'Em Over
Mar 29, 2007 - "Enclosed please find our check in the amount of $13,719,421."
So began the letter from Anheuser-Busch Cos. dated Feb. 23 to Peerless Beverage Co., a beer distributor based in Union, N.J.
Across the Garden State that day, three other wholesale houses received similar hand-delivered letters and checks, ranging from $2.41 million to $5.08 million.
The payments represented the St. Louis brewer's attempt to end the New Jersey wholesalers' right to distribute certain beers from InBev NV of Leuven, Belgium.
However, the money was insufficient to smooth the deal. The distributors cried foul and filed suit against Anheuser-Busch and InBev's U.S. division. They accused A-B of using "coercive and abusive" tactics to terminate their contracts without good cause in violation of New Jersey law.
The conflict in New Jersey is only one front in A-B's state-by-state effort to take control of distribution rights for 19 of InBev's premium European beers, includÆing Beck's, Bass Pale Ale and Stella Artois. On Feb. 1, A-B became their exclusive U.S. importer.
The root of the conflict is A-B's desire to funnel all of the brews through its own network of independent wholesalers, so those businesses can benefit from the growing popularity and hefty profit margins of imported beer.
Though some of A-B's wholesalers were distributing those brands before the deal with InBev, more than 80 percent of the volume was handled by other beer wholesalers.
Some of the transitions have been smooth. Major Brands Premium Beverage Distributors of St. Louis earlier this year transferred its right to distribute Bass Pale.
"They offered us a fair price and it made sense for them to consolidate with their dealer network," said Todd Epsten, chief executive of Major Brands. "It took a couple of weeks and a handshake."
However, some other InBev distributors want to keep the beers, or receive a hefty payment for giving up the franchise.
Now, the tug of war has spilled into the courts, pitting one-time InBev distributors against A-B and InBev.
In some states, Anheuser-Busch has gone on the offensive. A-B joined InBev to sue distributors in Arizona, Louisiana and Maryland, asking courts to rule that the distributors' contracts to handle the beers are null and void - or, in the alternative, that they must accept money for the brands.
In Rhode Island, InBev distributors responded to such lawsuits by launching their own suit against the brewers and A-B's wholesaler, alleging breach of contract and civil conspiracy. InBev is the world's largest brewer by volume, while A-B is the largest American brewer.
However, the legal battles have not slowed A-B's aggressive efforts to integrate potentially lucrative import beers into its portfolio. If anything, A-B's legal maneuvering may have spurred some InBev distributors to come to the table, said David Peacock, vice president of business operations at A-B's brewing subsidiary.
"We're more than happy with the rate of transfer that (has) occurred," Peacock said.
About a third of the previous InBev wholesalers have given up the brands, and A-B wholesalers now distribute or have deals pending to distribute about 60 percent of the beers' U.S. volume, up from about 17 percent in January. "We're ahead of where we thought we'd be," Peacock said.