A report on competition in the U.S. beer, wine and spirits markets by the U.S. Treasury Department has called out the alcohol industry, specifically Big Beer for anti-competitive practices.
The report by the Treasury Deparment is the result of a broad executive order by President Biden in July, 2021 to scrutinize the alcohol industry’s market structures, with a focus on reforming “threats to competition” and/or “barriers to new entrants” posed by industry consolidation.
The report by the department has identified several competitive issues in the annual $250 billion alcohol industry, including beer, wine, and spirits markets. If the issues are remedied, it would allow entrepreneurs, small businesses, and new entrants to compete on a level playing field with larger market participants.
The Treasury pointed out that there are more than 6,400 breweries, 6,600 wineries, and 1,900 distilleries in the U.S., driven by the growth of new entrants to the market and craft breweries. However, there is a serious threat to competition due to market consolidation especially in the beer industry.
Anheuser-Busch InBev (AB InBev) and Molson Coors currently control 65% of the U.S. beer market. These two beer giants have continued to take over smaller breweries through mergers and acquisitions. The most high-profile deal was AB InBev’s $100 billion merger in 2016 with SABMiller. Since then, both AB InBev and Molson Coors have captured several craft breweries.
The beer market failure caused by Big Beer
Major Big Beer companies are monoplizing the U.S. Beer market. As the report pointed out, they are doing this by,
- practicing “exclusionary behavior” that keeps out small companies or makes it more likely that they’ll sell to a parent organization; and
- discriminatory conduct and banned practices like slotting (manufacturers pay fees to obtain retailer patronage).
Big Beer propaganda to cover their market sabotage
The report notes that the increased concentration “may have resulted from the absence of consistent merger enforcement” by regulators.
Big Beer is already deploying propaganda attacks against the report. The Beer Institute, a lobby front group that represents AB InBev and Molson Coors, called the report a “mischaracterization”.
The Treasury Department has also looked into laws and regulations that could be affecting competition. With an example to “post and hold” laws that require wholesalers to publicize prices and hold them for a set period of time. These laws can be an easy target for price collusion. Any change to regulations must be done with public health in mind. For example, the post and hold laws increase the price of alcohol products which reduces consumption and the resulting harm caused by these products.
The Treasury Department has made several suggestions to the Department of Justice (DOJ), Federal Trade Commission (FTC) and the Tax and Trade Bureau of the Treasurty Department. They include:
- Scrutinize the alcohol industry, specifically on how acquisitions and consolidation impact distribution, pricing, and innovation in the industry.
- Focus specifically on vertical mergers. These are deals that consolidate different supply chain functions for a trade good or service and are highly likely to create monopolies and inch out the competition.
- Address complaints of under-enforcement, especially in terms of conduct by larger companies.
- Change labeling rules to protect public health and to limit the impact of lobbying. Noting that as of 2017, alcohol companies reported 303 lobbyists in Washington.
It is unclear how the DOJ and FTC will proceed regarding the findings of the report. Since The FTC and DOJ have been focusing on anti-competition at the macro-economic level, it is possible the alcohol industry, especially Big Beer, will come under investigation in future.
U.S. Department of The Treasury: “Press Release – Treasury Releases Competition Report for Alcohol Market, Recommends Boosting Opportunity for Small Businesses“
Market Realist: “Alcohol Industry May Be Anti-Competitive, Treasury Says“