Massachusetts regulators Tuesday extended their crackdown on anticompetitive practices in the beer industry to the biggest target of all, Anheuser-Busch, saying the brewing giant gave illegal incentives worth nearly $1 million to hundreds of Boston-area bars and package stores to push sales of Budweiser and its other drinks while stifling those of other brewers.
The charge by the state Alcoholic Beverages Control Commission — and the large scale of the alleged “pay-to-play” scheme — buttressed complaints by small breweries that underhanded tactics are pervasive in the US alcohol industry as large brewers and distributors try to stanch the steady loss of market share to the craft beer movement.
The case also promises to be a complex and challenging enforcement action, targeting an international corporate goliath — Anheuser-Busch parent AB InBev, based in Belgium — and involving more than 400 smaller businesses that allegedly received the incentives.
Anheuser-Busch said in a statement it has “been working with the ABCC since [it] first raised questions about permissible trade practices by wholesalers within the state. We believe that we lawfully provided branded point-of-sale items to retailers and plan to contest these allegations.”
In a report detailing their 14-month probe of Anheuser-Busch’s aggressive tactics, ABCC investigators concluded that the company in 2014 and 2015 gave away equipment worth $942,200 to 441 Massachusetts alcohol retailers. The finding was based on financial records the agency obtained from Anheuser-Busch’s distribution and sales subsidiary in Medford, which is the exclusive source of Budweiser and the company’s other beers in metropolitan Boston.
The free gear allegedly included 70 “Budweiser signature draft towers,” prominent chrome-plated beer-dispensers that stand apart from other taps along a bar counter and are worth up to $3,500.
Anheuser-Busch also gave away more than 500 Budweiser-branded refrigerators to package stores and other retailers, ranging from basic units worth $500 to more elaborate coolers with video displays worth as much as $5,700, the ABCC said.
Sales representatives for Anheuser-Busch “offered the refrigeration equipment to the retailer at no cost,” investigators wrote, “provided that the equipment was only utilized for Budweiser products.” The company also paid for its delivery and installation, the ABCC said.
The ABCC has scheduled a June 20 hearing on the charges. The Anheuser-Busch unit in Medford faces a suspension or revocation of its liquor license. Alcohol licensees are frequently permitted to pay fines based on their revenues in lieu of serving such suspensions, however.
Anheuser-Busch claimed it halted the giveaways in 2015, when state regulators launched a wide-ranging investigation of trade practices in the local beer industry.
While such arrangements are common in other industries, such as the grocery business, they are forbidden under the stricter rules that govern alcohol sales in most states. Massachusetts prohibits alcohol suppliers and wholesalers from providing retailers anything of “substantial value” in an effort to persuade them to buy a particular brand of alcoholic drink.
ABCC officials have said the state’s pay-to-play ban helps ensure a fair marketplace for smaller beer-makers that can’t afford to pay bars and package stores for placement.
Small brewers argue that allowing a large company to use illegal means to lock up half the taps in a bar, for example, leaves every other brewer to fight over the remaining few, effectively bottlenecking their access to the market.
“Because of these pay-to-play deals, I go into a bar and I don’t even get a chance to sell my beer, because somebody with more money has blocked off all the taps,” said Rob Burns, cofounder of Night Shift Brewing in Everett and president of the Massachusetts Brewers Guild industry group. “I see these places with branded coolers, branded umbrellas — those are expensive. I couldn’t afford to give away five umbrellas to every bar that sells our beer.”
Burns noted that small, home-grown breweries are also competing against a number of craft beer brands acquired by Anheuser-Busch, which is promoting them heavily.
“I’m less nervous about them trying to shove Budweiser down peoples’ throats, but if they start coming in to craft bars with IPAs and undercutting our prices, that’s a real threat to us,” Burns said. “It allows retailers to give the illusion of choice and diversity on the shelf or on the tap list, but really, your money is only going to one company.”
The ABCC did not name or charge any of the hundreds of retailers it said received the equipment from Anheuser-Busch.
In March, Anheuser-Busch faced similar charges in California, where regulators cited four Los Angeles-area distributorships owned by the company for giving televisions, coolers, and draught equipment to dozens of retailers. To settle the case, Anheuser-Busch agreed to pay $200,000, train its staff on pay-to-play prohibitions, and stop similar incentive programs at its other wholesalers in California.
Though on the books for decades, the pay-to-play law in Massachusetts had been little enforced until 2016, when the ABCC levied a $2.6 million fine against Craft Brewers Guild, the state’s largest craft-beer distributor, for paying at least $120,000 in “kickbacks” to several restaurant groups to carry certain beers. The company is contesting the penalty in state court.
Only one of the five bars charged in that case, Jerry Remy’s in the Seaport, was penalized. Its owners have sued the ABCC to have the sanction overturned, saying the pay-to-play rule only blocks wholesalers from giving inducements, not bars from accepting them.
The ABCC’s struggle to hold retailers accountable for pay-to-play is a concern for small craft brewers, who say they are routinely hit up for cash, equipment, or services when they try to persuade bar managers or store owners to stock their brews. Brewers want a clearer ban on retailers making such demands, as well as harsher penalties, such as forcing retailers and distributors to actually shut down during license suspensions instead of paying fines.
“If Boston had to go a week without Budweiser, that would be more than just a shot across the bow,” Burns said. “The penalty has to be really high so it’s not worth the risk.”
In 2016, AB InBev merged with SAB Miller, creating a company responsible for an estimated 28 percent of all beers sales in the world. In approving the deal in the United States, federal antitrust regulators stipulated AB InBev must seek additional approval before acquiring distributors or craft beer brands. AB InBev was also banned from offering incentives to independent distributors to not sell craft beer made by competitors.
According to media reports, AB InBev’s craft-beer acquisitions and incentive programs had previously been the subject of Department of Justice investigations.
Dan Adams can be reached at firstname.lastname@example.org. Follow him on Twitter @Dan_Adams86.