The craft beer industry has grown from serving a niche market to fostering a revolution in how Americans consume this iconic beverage. From blondes and pale ales to porters and reds, the growth of craft brewing has created an environment where the tasteless pseudo-lagers of years past are far from the only option widely available to beer connoisseurs.
Currently, there are over 3,500 craft breweries in the United States – up from only 110 thirty years ago – and the industry’s sales are on the rise. Given all of this competition, Anheuser-Busch InBev, the company responsible for retrograde brews like Budweiser and Michelob, wants to make up for lost sales.
Sadly, in an attempt to accomplish their goal of selling more subpar beer, they’re turning to a pernicious form of cronyism rather than fair market competition, harnessing an outdated government regulation to halt the progress of their increasingly popular craft rivals.
The beer industry has long been held down by a Prohibition-era regulatory relic known as the “three-tiered” distribution system. Today, craft brewers are still burdened by a regime that forces all beer-makers to sign a contract with a distributor, who then sells their product to restaurants, bars and stores. This means brewers cannot work directly with companies that put their product in front of consumers; an unnecessary regulation that creates a monopolistic middleman.
This distributorship regime is what Anheuser-Busch is now taking advantage of in an effort to squeeze out their small competitors. Since craft breweries cannot engage in mass distribution of their own product due to these nanny-crony laws, the parent company of the increasingly unpopular Bud Light is now exploiting this government-mandated monopoly.
As Tripp Mickle at the Wall Street Journal reported, “The world’s largest brewer last month introduced a new incentive program that could offer some independent distributors in the U.S. annual reimbursements of as much as $1.5 million if 98% of the beers they sell are Anheuser-Busch InBev brands.”
Mickle went on to explain that, “Distributors whose sales volumes are 95% made up of Anheuser-Busch InBev brands would be eligible to have the brewer cover as much as half of their contractual marketing support for those brands, which includes retail promotion and display costs.”
While it’s true that with this program, Anheuser-Busch is technically “playing by the rules,” the rules themselves are what have banned the type of market that if in tact, would allow the free flow of craft beer alongside the declining brews of the past. Absent a legally forced contract with a distributor, many of which are starting to drop craft brands as a result of Anheuser-Busch’s “incentive program,” small brewers would be free to sell their products directly to restaurants, stores, and consumers as they see fit.
Instead, as is all too often the case, a big company being squeezed by superior competitors is latching onto an archaic, legally mandated monopoly, denying consumers access to a product for which there is clear demand. From a free market perspective, the solution is to dismantle the three-tier distribution scheme in question, allowing craft brewers to sell their wares directly – bypassing the monopolistic scheme Anheuser-Busch has found a way to unfairly leverage.
Our less market-oriented friends on the left often identify the same problem with “Big Beer” trying to push out its smaller competitors. Instead of seeking to repeal the regulations that created a legalized monopoly in the first place however, they want even more unnecessary government intervention in a market that requires very little.
Writing at liberal Mother Jones, Tom Philpott lays out the problem with the three-tiered system as described above, but his first instinct isn’t to question the regulatory scheme itself. Instead, he asks if what Anheuser-Busch is doing is legal under antitrust laws; hoping that the government might break up the giant company’s monopoly, yet seemingly blind to the fact that it’s a legally mandated one; far from an example of a market problem.
All in all, it’s clear that what Anheuser-Busch is doing in an attempt to minimize competition from its craft competitors could not take place in a truly free market. Even under strong restrictions, sales of craft beer are growing at a rate set to outpace the old brands.
Imagine what kind of craft creativity could be unleashed for all to enjoy if the government would simply get out of the beer industry’s way altogether! That would certainly be a development worth raising our glasses to.