A state investigation found the King of Beers skirting the rules to claw its way into Seattle's independent beer scene.
Source: Seattle News
By Daniel Person
May 18 2016
On Oct. 3, 2015, the rock band Overkill played the Showbox in downtown Seattle. But two of the people in the crowd weren't there for the thrash metal.
Rather, Jeanne Reschan and Kraig Seltzer wanted to see what beers the venue had on tap. To a casual observer, the offerings at the Showbox might look pretty diverse: A Goose Island from Chicago, a 10 Barrel from Bend, an Elysian from down the street, and, for the less adventurous, Bud and Bud Light.
However, to Reschan and Seltzer, the beer list raised a red flag.
Operating undercover for the Washington Liquor and Cannabis Board, the officers were looking into allegations from a small brewer that accused Anheuser-Busch InBev of cutting a deal with the music venue to gain exclusive access to its bar, thus cutting off small competitors from a lucrative market. The night of the Overkill concert wasn't doing much to disprove the allegation: While Goose Island, 10 Barrel and Elysian have kept their own names and handles, they are today wholly owned subsidiaries of Anheuser-Busch. The aquisitions are part of the mega-brewer's attempt to get a cut of the huge craft beer market that was created in part to provide people an alternative to marginal offerings like Budweiser. On further inspection, Reschan and Seltzer counted 15 beers and hard ciders on tap or in bottles that were for sale at the Showbox that night. All of them were either partly or wholly owned by AB.
These findings were included in an evidence report charging AB with exerting "undue influence" on the Showbox, Showbox SoDo and Marymoor Park, all owned and operated by AEG Live NW, with food and drink services provided by Wolfgang Puck Catering. While a bar serving only one brewery's products is not in itself illegal, the state is charging that AB, working through a third-party distributor, entered into sponsorship contracts at the three venues to achieve a monopoly position, which does run afoul of regulations. Based on its findings, the state has fined AB $150,000. The complaint does not name AEG or Wolfgang Puck Catering as parties.
AB denied any wrongdoing during an informal hearing last week, meaning the case will be heard by an administrative judge some time this summer. However, whatever the outcome, the case clearly shows the effect AB's recent shopping spree of popular craft breweries could have on beer consumers and makers if left unchecked.
The state's investigation of AB's business practices comes as craft brewers across the country raise alarm at what appears to be large breweries' more aggressive marketing tactics after years of losing ground to small competitors. Last October, Reuters reported that the U.S. Justice Department was investigating charges that AB made deals with beer distributors that locked out smaller competitors. As Reuters put it, "Once AB InBev buys a distributor, craft companies say they find that they can't distribute their beer as easily and sales growth stalls."
"We are looking into a lot of these practices. This is a nationwide issue. Our director has gone to several states just to talk about these problems," says Jennifer Dzubay, a commander in the LCB's enforcement division. "Are we seeing it? Yes. I think it's becoming more prevalent everywhere in the United States."
To the consumer, though, these developments have been obscured by the fact that the corporation has so many beer labels to work with, a product of its ongoing efforts to purchase craft breweries across the country.
"With the big guys buying all the brands, it is hard to tell" when a single brewer takes over a bar, said Brian Smith, spokesman for the LCB. Regarding AB's monopoly at the Showbox, "I wouldn't know, and I drink beer."
According to the LCB complaint, in addition to the documentation provided by the undercover officers at the Overkill show, managers at the Showbox admitted that AB had exclusive access to its bars.
Posing as event organizers looking to rent the Showbox Sodo for a private event, one officer asked whether they could have Coors Light served. An employee at the venue "shook her head 'no' and said they had an agreement with Anheuser-Busch." The LCB says an investigation later turned up the agreement, which covered the Showbox, Showbox Sodo, and Marymoor Park through December 2016. In all, Dzubay says, the investigation took "five-to-seven months."
Dzubay says AB is not the only company trying to put this kind of pressure on bars. However, she says investigations into the claims are often frustrated by unspoken agreements that are common in the buddy-buddy world of beer distribution.
"What's difficult on the enforcement said is that there are often verbal contracts we don't see. We'll get complaints we'll dig into, but then we need someone to testify," she says. "We haven't closed a lot of these cases. We can't get the documents . or we don't have the testimony."
However, in this case the bar managers didn't seem to know the agreement with AB was not in line with state law, and so were more forthcoming than usual, Dzubay says.
While the case brought by the LCB pertains to a fairly arcane piece of alcohol regulation, Dzubay contends that practices uncovered by her division do hurt Seattle's beloved craft beer industry.
"There is some truth that the little guys have to fight harder because the big guys are paying to get in, buying their way into the market," she says.
As it happened, just prior to news breaking about the fine-first reported by Beer Marketer's Insights and verified through a public records request-Seattle Weekly spoke to Steve Luke, who was a brewer at Elysian but left to start his own brewery, Cloudburst, shortly after AB bought Elysian in January 2015. He noted that on a national scale, AB's attempts to corner markets through distribution and sponsorship deals speaks to why people should avoid their products.
"AB InBev has been bleeding for the last five to six years. They're bleeding to craft beer, which has been seeing growth. They would love to kill the craft beer industry and that's why people shouldn't be drinking their products," Luke says. When it comes to AB's purchase of small breweries, "They'll say, 'This is a way of getting this great beer to more mouths,' and that's bullshit to me. It's such a disingenuous veil."
We have a message into Anheuser-Busch's corporate media line for comment.
Update: After this story posted, a spokesperson for AB provided this comment by email: "AB does not agree with the allegations in the Notice. AB met with the state recently and will continue to respond to the Board in a timely manner."
Asked if anyone from AB would be available to elaborate on the case, the representative said the above is all AB would be saying about the matter at this time.