[Update] Who's Bringing the Beer: Owensboro Caught in Dispute

Oct 17, 2014

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A large brewery’s application to self-distribute has local brewers and distributors worried about the fate of distributorships and microbreweries in Owensboro and across the state. Several businesses and organizations have submitted protest letters to appeal the city’s Alcoholic Beverage Control Office approval of Anheuser-Busch InBev’s application for a license to distribute.

Anheuser-Busch InBev products are distributed by Budweiser of Owensboro, owned by Hand Family Companies of Clarksville, TN. AB InBev intends to buy the Hand Family Companies facility in Owensboro if the Kentucky Alcoholic Beverage Control approves AB InBev’s application.

The difference in ownership is what has many state and national organizations concerned.

Kentucky has a three-tier alcohol industry: brewers, distributors, and retailers. Kentucky Association of Beverage Retailers Executive Director Karen Thomas Lentz says bypassing those tiers by allowing a brewery like AB InBev to own a distributorship could threaten local alcohol businesses and limit choices for consumers and microbreweries. She uses Louisville as an example where Anheuser-Busch has distributed for decades.

“I’m told by retailers in the Louisville market that there are products that they cannot get from the AB distributor in Louisville that retailers in Lexington can get from the Anheuser-Busch distributor in Lexington," said Lentz.

In their protest letter, the advocacy group Alcohol Justice explained their concerns about breaking the three-tier system:

….The second tier of distributors is a vital component of the three-tier system. Distributors help act as a buffer between potentially overzealous producers and retailers. The top priority for ABI and other publicly traded global alcohol producers is turning a profit for its shareholders and rewarding its executives, not listening to local concerns about their potentially harmful product, or placing limits on sales of that product. Owning distributors gives ABI more power to oppose reasonable public health policy regarding alcohol prices and taxes, access and availability, and promotions/advertising.

Kentucky Guild of Brewers Executive Director John King says Kentucky law prohibits microbreweries from self-distributing and if AB InBev is approved to self-distribute in Owensboro, it could replace local beers with its own craft beverages.

“And so we saw it as kind of a potential to hurt some of our sales and businesses as a whole,” said King.

"Why in the world are we allowing an outsider to come in and have rights and have advantages over our guys at home," Daniel Harrison Co-Owner Country Boy Brewing

Many opponents argue that if microbreweries cannot self-distribute, then AB InBev should not be allowed to do so either. Co-Owner of Country Boy Brewing Daniel Harrison says even though microbreweries would still be able to distribute their products in Owensboro through a different distributor, allowing the very large brewer to self distribute gives it an unfair advantage over small breweries. He says it could harm what he calls a growing craft market.

“We got a good thing going on in Louisville, Lexington, all over the state. Why in the world are we allowing an outsider to come in and have rights and have advantages over our guys at home,” said Harrison.

The City of Louisville just released a report that notes how its craft beer economy is growing, something Anheuser-Busch Region Vice President Bob Kelley recognizes.

“The independent distributor market is very competitive from market to market and there are choices," Kelley said. "There’s been no issue at all for craft beers getting through a viable distributor and getting on the shelf of our fine retailers and that clearly shows with the tremendous craft growth over the last several years.”

AB InBev does not distribute any local craft beers in Louisville. Kelley says AB works with 500 independent distributors and owns 17.

The Kentucky Chamber of Commerce initially submitted a letter of concern about possible negative impacts to Kentucky breweries, but has withdrawn it, citing a quick decision and diverse opinions of member businesses.

Kelley says his company owning a distributorship in Owensboro would not hurt the craft beer market and nothing should change for consumers. He says the craft beer market in Louisville has not been hindered by Anheuser-Busch’s distributorship in the city.

But, Mark Meisenheimer of Golden Eagle Distributing, Inc. in Paducah explains the concern he shares with  other local distributors regarding the phasing out of third party distributors.

“If AB is allowed to continue to move into the distribution network, what’s to stop MillerCoors from doing the same thing?” Meisenheimer said. “And then you get back into the tied-house issue. You’ve got MillerCoors house or you got AB house and all the other small brewers and microbrewers are excluded from the market.”

Meisenheimer is also concerned about the impact of such market ownership on communities with local distributorships.

“Another big concern is that the loss of the local business and our community involvement in each little community. We (local distributors) live in the community, our buildings were built by local construction. Our insurance agents are local. All that is going to go away if the brewery continues to grow in that direction where they’re taking over the distribution of their brand,” Meisenheimer said.

AB InBev has a large market share across the globe. Its highest market share is 78.5 percent in Argentina. It has a 47.2 percent market share in the United States. Meisenheimer says AB's market share in the United States was much lower when it bought the Louisville distributorship  in the 1970s.

“So it’s a whole lot, different animal now because they have such a huge market share in the United States," Meisenheimer said. "They’re a lot more powerful and they can block other companies from getting distribution, the small microbreweries.”

Meisenheimer says microbreweries will still have the option to distribute in Owensboro through Clark Distributing, but is concerned that will be their only option.

If Anheuser-Busch were to expand to Paducah, Meisenheimer says he would be out of business. He says his small business would have trouble standing up the capital advantage of AB. He says he wouldn’t want to sell his distributorship but he could be forced by certain economic situations.

Kelley says the AB distributorship in Louisville has followed all government guidelines and regulations set forth in the three tier system. He says that AB wants to maintain the option to own a distributorship to have a say in how its products are delivered to customers.

In an Op-Ed  Kelley responds to industry protest:

Many Anheuser-Busch wholesalers in the Commonwealth of Kentucky support this transaction. Yet, some other wholesalers, including members of a state association with wholesalers who compete with ours, object to our decision to purchase the Anheuser-Busch distributor in Owensboro, which is currently owned by the Hand Family Companies. Some, in fact, are trying to block the transaction even though it is in full compliance with every law and regulation on the books. We strongly object to these maneuvers and simply want our transaction to be approved in a timely fashion, as it should be.

The Louisville Metro Chamber of Commerce, Greater Louisville Inc., along with Eagle Distributing Company of Ashland and Smith Brothers Distributing of Bardstown, have stated their support for the AB InBev transaction in letters to the KY Alcoholic Beverage Control.

Owensboro Assistant City Attorney Steve Lynn says the local Alcoholic Beverage Control office approval of Anheuser-Busch’s application has been appealed. Lynn says no formal hearing has been set but the State ABC Office will discuss the issue in a pre-hearing conference November 21st.