CLEVELAND -- Two Ohio beer distributors have sued MillerCoors LLC for canceling their partnerships with the beer giant, in a move that highlights rising tensions in MillerCoors's distribution network, The Wall Street Journal reported.
Beverage Distributors Inc., Cleveland, and AFP Distributors Inc., Gloucester, Ohio, filed suit in federal district court in Columbus last week requesting injunctions to bar MillerCoors from proceeding with plans to end shipments to the distributors September 25 and transfer the business to other distributors, the report said.
MillerCoors, a two-month-old [image-nocss] joint venture combining the U.S. operations of SABMiller PLC and Molson Coors Brewing Co., has canceled agreements with distributors in a handful of states in recent weeks, said the newspaper. MillerCoors is seeking to take advantage of laws in those states that generally let suppliers void contracts when ownership changes occur, according to the report.
The terminations are part of a wider mission by MillerCoors to consolidate the network of about 560 distributors that sell Miller or Coors products, a move that would help the brewer slash costs.
MillerCoors, the second-largest U.S. beer maker by sales, has been more aggressive in seeking to pare its network than many distributors and industry observers expected, Michael Mazzoni, an industry consultant, told the newspaper. "It's unprecedented to do this in the industry on a broad scale."
The brewer had signaled it would seek, where state laws allow, mergers between Coors and Miller distributors in the same territory. But many observers are surprised that the company also has pursued tie-ups between distributors that already sold both sets of products and did not overlap geographically, said the Journal.
The approach carries risk, some distributors and analysts said, because maintaining healthy relations with distributors is important to success in the U.S. beer market, where by law nearly all beer must be sold through distributors. "The timing of this somewhat messy situation is not optimal," because MillerCoors's chief rival, Anheuser-Busch Cos., "is putting up the best [sales] numbers it's put up in a long time," Benj Steinman, editor of Beer Marketer's Insights newsletter, told the paper.
Consolidation of beer distributors has intensified in the U.S. in recent years, reflecting a desire by both brewers and distributors to gain economies of scale.
MillerCoors declined to comment to the Journal about the Ohio suit. But Leo Kiely, CEO, said it would be "short-sighted" if the brewer did not take advantage of the favorable laws in certain states to slim down its network, the report said.
Tom Long, president of the joint venture, said a more streamlined distribution network would help the company offer better service to large retail chains and to compete better with Anheuser-Busch, he told the paper.
Jim Conway, owner of Beverage Distributors, told the paper that "it's most unfortunate" that MillerCoors sent him a letter last month terminating his distribution agreement effective September 25. Andrew F. Phillips, who runs AFP Distributors, declined to comment.
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.