Anheuser-Busch in trouble in Illinois
You win some, you lose some. AB-InBev may have been successful in acquiring the rest of Grupo Modelo it did not yet own, but in the U.S. it has been prevented from buying the remaining shares in a Chicago beer distributor. In its long-standing dispute with the Illinois regulators over the future of its stake in Chicago’s distributor City Beverage, Anheuser-Busch (A-B) has been given until 1 October 2012 to review its case. The request was granted on 20 June 2012.
Last year, the Illinois Liquor Control Commission issued a new law, the craft beer law, which says that brewers cannot operate as distributors too in the state of Illinois.
A-B has owned a 30 percent stake in distributor City Beverage for years. In 2010, A-B tried to buy the rest of City Beverage for USD 150 million to USD 200 million as part of a new strategy to squeeze more money out of the beer value chain. Owning distributors, where possible, is one way to do that.
This move was blocked by the regulators and now A-B finds itself in violation of the new craft beer law.
The delay will give A-B time to negotiate a settlement, or sell its share of City Beverage.
Despite the three tier system preventing brewers from operating as wholesalers, about half of all states in the U.S. grant brewers exceptions. In 21 states where it is legal, A-B has been making moves trying to buy its independent wholesalers – usually family-owned businesses – who purchase Budweiser and other brands from the brewer and sell it to retailers, bars and restaurants within their exclusive designated territories.
Analysts say that if A-B were to acquire all the distributors allowed in states with significant urban populations and brought them up to a decent profit margin, the brewer could realise up to USD 350 million in additional EBIT each year.
However, it could cost A-B an estimated USD 5 billion to buy all the independent distributors, according to reports. Unfortunately, for A-B, most beer distributors, which are highly profitable businesses, have little urgency to sell. And beer wholesaler associations tend to have sufficient political clout in state capitals and in Washington, D.C., to protect the traditional three-tier system of brewer, distributor and retailer.
