Abuse of Power

No one cares about how the sausage is made, but a story last week illustrates why small breweries band together. Because the big guys have enormous resources, and they abuse it to get market access—and squeeze out the competition. Heineken is the most recent offender. Follow the link to hear the full description of the scheme. Here’s a taste:

The New York State Liquor Authority (SLA) on Wednesday finalized a $1.25 million settlement agreement with Heineken USA Incorporated (HUSA) for 42 alleged violations of the state’s Alcoholic Beverage Control (ABC) law.

According to the TTB, HUSA also reimbursed retailers who purchased the so-called “patented” and “revolutionary” on-premise technology through “disguised” credit card transactions. HUSA was also accused of making “slotting fee payments” to retailers, which were disguised as “permissible activities” such as consumer sampling experiences that never took place.

The demand for Heineken in the US is very low (Lagunitas helps, but the company’s market share is tiny), but it’s a huge company with boatloads of cash. So one way to ensure sales is to rig the system by buying handles. This puts beer in pubs that would otherwise reject it and keeps beer that people would prefer to buy out.

Heineken is far from the first or worst offender—just the most recent to get caught. Buying taps, freebies, obscene discounts or free kegs—this stuff happens routinely. It’s a part of the corruption that’s built into the three-tier system. The incentives put in place 85 years ago were designed to reduce the power of breweries by creating a wholesale tier. But big breweries still have the cash to affect the system—in some states, it’s legal for breweries to own their own distributors—and regulation is weak and inconsistent.

People often say “it’s all about the beer,” but this isn’t precisely true. I am writing from a Logan Airport Hilton, and the bar here had Sam Adams, AB products, and precisely one local craft beer (Jack’s Abbey). It’s really about the beer that’s available. And big breweries have more money to make sure their beer is the beer you have access to.

Hazies are fun, distribution is boring. But it’s really important.

Jeff Alworth6 Comments