ST. LOUIS -- A decade ago, Anheuser-Busch Cos. began offering financial incentives to get beer distributors to jettison rival brands. The campaign, known as "100% Share of Mind," was a big hit, helping A-B tighten its grip on the U.S. market. But now, some distributors are rethinking selling only A-B products in the fast-changing alcohol-beverage industry, said The Wall Street Journal.
In the past year, distributors in Texas, Tennessee and elsewhere have decided to eschew A-B's incentives and begin selling rival beers such as Yuengling Lager, as well as wine and spirits, said the report.[image-nocss]
Recently, R.H. Barringer Co. became the first A-B distributor in North Carolina to start selling other brands, acquiring a rival that sells wine and imported beer. Today, about 60% of A-B's sales flow through distributors carrying only its brands, down from about 70% at its peak.
The shift might help competing alcohol brands gain market share, as distributors divert some of their attention from A-B, which accounts for about 48% of U.S. beer sales. For consumers, it means greater choice at their local bars, liquor stores and convenience stores.
Analysts say the movement signals a weakening of the St. Louis brewer's clout in the marketplace, as small-batch "craft" beers and imports, as well as wine and spirits, wrest market share from mass-market brews like Budweiser, the report said.
A-B's exclusive distribution system "was a great business model," but "the consumer environment has changed dramatically," Bump Williams, general manager of the beer, wine and spirits practice of market-research firm Information Resources Inc. (IRI), told the newspaper.
In recent years, some of A-B's 560 independent distributors became frustrated as craft brands surged in popularity and competing distributors snatched them up. Often, the distributors adding such high-margin brews were the same ones that peddled the beers of A-B's top rivals, SABMiller PLC's Miller Brewing and Molson Coors Brewing Co.
A-B wholesalers "are realizing that we have made the competition stronger by basically forfeiting these brands to them," Chris Monroe, vice president of D. Canale Beverages Inc., a Memphis, Tenn., distributor that carried only A-B products until last fall, told the Journal.
As profit growth eroded, A-B distributors began clamoring for the company to acquire brands with higher profit margins and growth rates, said the report. The beer titan has responded over the past two years. It reached a deal to import European beers such as Stella Artois and Beck's from Belgium's InBev SA. And it has expanded agreements to distribute other companies' craft brews, spirits, water and other beverages.
Some distributors began hawking rival products several years ago. Others haven't been able to distribute the InBev products and other new brands from A-B because of franchise laws governing beer sales. The laws, which exist in many states, block a distributor from taking over a brand unless the existing distributor agrees to sell it. Ironically, A-B distributors often backed the adoption of such laws.
When distributors forgo the incentives A-B offers exclusive partners, they are making a bet that they will make up the difference with revenue from the new brands. The incentives include cash payments of two cents a case, access to credit and truck-painting allowances, the report said.
Last fall, 11 distributors in Tennessee stopped being exclusive, in part because the state's franchise law kept them from obtaining the InBev lineup. They all began selling brews made by Pennsylvania' s D.G. Yuengling & Son Inc., one of the nation's oldest beer makers, which was entering the Tennessee market. "We saw a brand with some very strong potential, and we didn't want that brand to fall into competitive hands in the state," Monroe said.
The move may be hurting A-B, the Journal speculated. Yuengling established 3.2% market share in terms of volume in food stores in Tennessee in the 13 weeks ended December 30, said the report, citing IRI. In the same period, three of A-B's four top-selling brands in the stateBudweiser, Busch and Natural Lightexperienced sales declines. Budweiser volume fell 5.4%.
"There appears to be some correlation between Yuengling's entry into Tennessee and the softness in some Anheuser brands," Williams said, adding it is common for Yuengling to grab share from A-B when it enters new markets.
Dave Peacock, A-B's vice president of marketing, told the paper that Yuengling is having a minimal, if any, effect on its Tennessee sales, noting that other brewers experienced similar declines late last year. Still, A-B was not happy with the way it learned of the Tennessee distributors' decision. "We found out later [in their decision-making process] than we would have liked," Peacock said. "When we don't get early communication, it rubs us wrong."
Anheuser continues to champion the exclusivity program, believing it gives distributors the best chance to succeed. "We want their efforts and focus aligned with ours," August Busch IV, A-B's CEO, told the paper. The company is open to talking to its distributors about beer brands it could acquire that would help strengthen their businesses, he said.
So far, the biggest A-B distributor to end exclusivity is Ben E. Keith Co., Fort Worth, Texas. The distributor, one of the nation's largest, sold only A-B beers for about 75 years until last spring. It began selling brews like Trumer Pils, as well as wine and energy drinks that also are not affiliated with A-B. The decision came "after much debate and with the utmost respect" for A-B, Kevin Bartholomew, who runs the company's beer division, told the paper.
Bartholomew is among those who believe such a shift ultimately will benefit A-B, because individual distributors will have enhanced their long-term business prospects.
Some industry observers are surprised a greater number of distributors have not followed. "It really hasn't been a widespread national jailbreak," Harry Schuhmacher, editor of Beer Business Daily, told the Journal.
Some analysts say "jailbreak" may not be far off. Jim LaRose, a Cleveland-area distributor, said he is among those taking a hard look about whether to remain exclusive. He said his sales growth has flattened. "I have to have an outlook toward what it's going to take for me to compete in all tiers of the industry," he told the paper.
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