Government Launches Probe Of Anheuser-Busch Justice Department Inquiry Focuses On Beer Giant’s Distribution Practices

Beer industry giant Anheuser-Busch confirmed Thursday that the Justice Department is looking into its distribution practices amid allegations the brewer is trying to squeeze smaller rivals off the market.

The maker of Budweiser says it will cooperate with the government. Outside the brewery’s St. Louis headquarters Thursday a black flag with the logo “Making Friends Is Our Business” waved in the wind.

“We are confident that all our practices are entirely legitimate and legal,” Royce J. Estes, Anheuser-Busch’s vice president for corporate law, said in a statement.

Anheuser-Busch, the nation’s largest brewery, received a fax from the Justice Department Thursday morning, informing company officials of the investigation. Estes’ statement said only that it involved the “distribution and sale of beer, including our company’s policies and practices in marketing and distribution.”

Justice Department spokeswoman Gina Talamona would confirm only that the agency is investigating distribution practices in the industry. She declined to say that Anheuser-Busch is the target.

The Wall Street Journal reported Thursday that the department is looking into allegations that Anheuser-Busch is engaging in unfair sales practices that squeeze smaller brands out of the market.

Industry lawyers and executives told the newspaper the investigation is mainly concerned with the brewer’s pushiness in getting beer distributors to carry its products exclusively, and its use of unfair marketing agreements.

Among other things, investigators are looking into a restrictive wholesale distribution contract Anheuser-Busch had its distributors sign in August, giving the company a say in practically all of their ownership and management changes, The Journal reported.

Estes denied claims that it is forcing wholesalers to distribute only Anheuser-Busch products.

“We give our independent wholesalers exclusive rights to distribute our products in a specific geographic area,” he said. “Because we are completely reliant on them for product distribution, we have put in place incentives to encourage the sale and distribution of our products.”

Estes called the program a common business practice and pointed out that participation is voluntary.

But it has sparked lawsuits by small brewers and independent distributors who claim they are being muscled out of the marketplace.

“It’s like a David and Goliath situation,” said Roger Schrimp, a San Francisco lawyer.

Schrimp initially filed a lawsuit on behalf of St. Stan’s Brewing Co., in Modesto, Calif. That lawsuit has since been consolidated with three others in federal court in San Jose.

Six distributors started pulling St. Stan’s products off the shelf without warning last summer under pressure from Anheuser-Busch, Schrimp said. St. Stan’s learned about it when customers complained they couldn’t find their beer.

Schrimp said his client lost about 25-40 percent of its orders, but it has since recovered. Others weren’t so lucky, he said.

“I hate to see these craft brewers being hurt like they are,” Schrimp said.

Industry analysts said there have been rumblings of an investigation for some time.

“Just because they’re taking a look at it doesn’t mean Anheuser-Busch has done anything wrong,” said Tony Vento, industry analyst with Edward Jones in St. Louis.

“The beer industry is growing at a small rate, probably 1 percent to 2 percent over the next five years,” he said. “So they have to grow their sales, and they do that by taking market share away from their competitors. Giving incentives to distributors is one way to do that.”

Some small brewers said the inquiry couldn’t come too soon.

Robert Eilert, co-owner of FMI Brewing Co. in Merriam, Kan., said he doesn’t understand why Anheuser-Busch would target his company. FMI brews about 5,000, or 10,000 kegs, of beer a year. Anheuser-Busch produced 91.2 million barrels last year.

“It would be nice if there was a little bit more level playing ground for all the little guys,” said Eilert.