The Alcohol Industry's Plan to Give America a Giant Drinking Problem
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All that changed quickly after Anheuser-Busch lost its independence. The executives from InBev who took over the company did things quite differently. During the negotiations to buy Anheuser-Busch, InBev made it clear that the Busch family would have to go, and at the old headquarters in St. Louis other changes soon followed. Executive offices were literally torn out and replaced by an open floor with matching desks. The private-jet fleet was put on the block. Company cars disappeared. So did 1,400 jobs, retiree life insurance, and contributions to the employee pension plan. Managerial pay was reduced to equal or less than the average for similar jobs in other industries, with bonuses tied strictly to performance. Salaried workers lost little perks like free beer every month, and hundreds of staff BlackBerrys were recalled. Cost cutting was the new imperative.
Then, after eliminating everything it could at home, the new regime turned to squeezing more out of its increasingly nervous partners, the wholesalers. And, today, with only one remaining real competitor, MillerCoors, the pressure it can put on its wholesalers is extraordinary. A wholesaler who loses its account with either company loses one of its two largest customers, and cannot offer his retail clients the name-brand beers that form the backbone of the market. The Big Two in effect have a captive system by which to bring their goods to market.
Here’s how it works in practice. In 2011, Anheuser-Busch InBev (“A-B”) sent out a Wholesaler Family Consolidation Guide to each of its contractors. The language is blunt:
Do you share the same vision as A-B on issues of importance to the industry, including support on legislation that can affect our competitive position? …
Are you selling competitive products in a fellow A-B wholesaler’s territory?
The introduction to the guide begins:
We ask all wholesalers to use the guide’s self assessment tool to objectively consider their capabilities and goals. Wholesalers who aspire to be an Anchor Wholesaler can identify any gaps they have in these qualities and build a plan to address them. Some wholesalers might remain committed to their current market, but realize further acquisitions are not right for their business. Others might decide now is the best time to consider whether a sale is in their best interest.
There are many aspects of an aligned wholesaler, and an explicit focus on our portfolio of brands is paramount. Those who are aligned with us only acquire brands that compete in segments underserved by our current portfolio and that bring incremental sales, not brands that have a negative impact on the A-B portfolio.
The guide emphasizes the last point: an aligned wholesaler is one who “shares the company’s long-term vision for how to operate successfully and grow business in conjunction with Anheuser-Busch InBev’s strategy.” So distributors are caught in an impossible bind: they either do the brewer’s bidding, including selling their businesses to favored “Anchor Wholesalers,” or they lose Anheuser-Busch InBev as a client.
And if the wholesalers try to push back? Anheuser-Busch InBev will get rough. In Arkansas, to take a prime example, a state inquiry revealed that the company was charging as much as $5 more per case (a huge margin against the average price of around $15) to some wholesalers, an obvious effort to run them out of business. In addition, through a second practice called reachback pricing, the company retroactively reset the value of its wholesale contracts once its wholesaler’s retail terms were known. The technique allowed it to reduce wholesalers’ profit margins. And when the state legislature took up a bill to make these practices illegal, Anheuser-Busch InBev filed a letter of protest “on behalf” of its wholesalers, in effect forcing those who disagreed with its practices to identify themselves if they chose to give the motion their public support.