ST. LOUIS -- Anheuser-Busch Cos. plans to change a decade-old exclusivity incentive with wholesalers in order to keep them happy and committed to its products, reported The St. Louis Post-Dispatch. Now some of the benefits of "exclusivity" that are traditionally reserved for distributors who carry only beers from A-B or its allies will be bestowed upon wholesalers who carry some competing brands.
The idea is to keep wholesalers in the fold, while granting leeway to sell a small amount of beer from competing sources, such as local craft breweries, the report said.
The plan could be [image-nocss] a way out from an "all-or-nothing" dilemma that arose too often for A-B's liking: should wholesalers ditch their exclusivity agreements with A-B in order to carry attractive niche beers, or stick with the company even though it blocked access to some nifty brews?
The exclusivity system started to fray last year, said the report. Some wholesalers defected, and A-B's percentage of beer shipped through exclusive houses dropped to 60% from nearly 70% in 2006, it added.
According to the newspaper, August A. Busch IV, A-B's CEO, told analysts in February that the current form of exclusivity is "working against" the company.
A-B is "trying to provide an avenue to the high-end," Dave Peacock, vice president of marketing at the company's domestic beer subsidiary, told the paper. "We want a profitable, healthy and viable wholesaler."
The new program could be particularly helpful in the Southeast and Southwest, where franchise laws tend to block wholesalers from grabbing new brands, Evan Athanas, vice president of sales and wholesale operations at A-B's domestic beer unit, told the Post-Dispatch. The volume of outside beer won't be "a distraction to our business," he said. "A few small brands would benefit" A-B's wholesalers.
When A-B became the master U.S. importer of European beers from Belgium-based InBev last year, executives suspected the deal could get messy. The St. Louis-based brewer wanted to move the high-end beers—including Stella Artois, Beck's and Bass Pale Ale—into wholesale houses that carried only A-B beers, said the report.
The high-end beers, commanding higher prices and a sophisticated cache, were meant to reward A-B's network of 600 independent wholesalers, responsible for carrying beer to grocery stores, bars, clubs and gas stations. But the transition was a hassle in some states, said the report. It sparked lawsuits and caused some bars to run out of InBev beers. Because of state franchise laws, some A-B beer distributors could not get the beers, leaving a hole in their portfolios.
A-B has taken a "warmer, fuzzier approach" to distributors, Mark Swartzberg, an analyst with Stifel, Nicolaus, told clients in a March 24 research note cited by the paper. Changing exclusivity could be a "win-win-win," he said. "If a brand in question does not directly compete against an A-B brand, all parties have an opportunity to share in the upside of delivering on the brand's unrealized value."Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.