Wednesday, November 18, 2009

Beer Wars, wine and politics

Beer rules wine -- not in taste, but in distribution and regulation.

The documentary "Beer Wars" got me to thinking about this. It's not a great movie: director Anat Baron is allergic to alcohol and thinks she knows craft beer because she was general manager of Mike's Hard Lemonade (only in this film are those two italicized phrases used in the same sentence.) This is why she wastes lots of screen time on a small brewer trying to sell caffeinated beer, and doesn't understand why the audience for that product would be satisfied with a corporate version for half the price.

That said, seeing the scale of corporate domination of beer is shocking, and while wine is only mentioned in the film as beer's "rival," an unspoken truth is that politically, wine is beer's bitch.

Anheuser-Busch InBev controls more than half of the US beer market. MillerCoors controls about 30 percent. The US actually has more breweries -- over 1,400 -- than any other country. But they're fighting for a tiny share of the market, and it's difficult to find real microbrews (not corporate lookalikes like MillerCoors' Blue Moon or Anheuser-Busch InBev's Wild Hop) in most US stores.

Baron's voice is grating but her visual style is excellent, with snappy cuts among 50-year-old beer ads, amusing animated parts, and well-shot interviews. She lingers on shots of shelf space, with Anheuser-Busch InBev products stacked floor-to-ceiling. Do we really need Bud Light in 24 packs, 12 packs, 6 packs, mini cans, maxi cans, etc.? Of course not, but the strategy pushes competitors right off the shelves.

This strategy has implications for wine as well, and not just the open competition for young American throats.

Anheuser-Busch InBev is so powerful that in most states it has its own distributors who carry no other product. Stores have to kowtow to them, and beer gets more floor space than it might deserve, but that's not the only impact.

The really interesting part of "Beer Wars" for a wine drinker is political. Wine drinkers are used to viewing the three-tier distribution system (producers can't sell directly to stores, they have to sell through a distributor) through our own lens. But it's not wine that drives the unholy coalition of distributors and the religious right that keeps most Americans from being able to order wine from the Internet -- it's beer.

Almost every member of Congress, and many local politicians as well, get contributions from beer distributors who are seeking to preserve their legal non-competitive, easy money. Baron reports on the three-tier system, but she doesn't understand the implications because nobody would order Mike's Hard Lemonade from Amazon even if it were possible. Wine is another story -- wouldn't people in Michigan like to order whatever Napa Valley Cabernet they want? Of course they would.

My favorite scene from the film comes when Baron tracks down one Oregon congressman who took no contribution in his previous election. She asks him why not, and he says, "They didn't offer." Bingo, he got beer-distributor cash for the next election.

The upshot is, wine lovers trying to get state laws changed don't just run into opposition from the local wine and spirits distributor, powerful forces in their own right. They're also up against Anheuser-Busch InBev, which likes the system just fine the way it is, and its protection flank of paid-for politicians. A company that spends billions on advertising and promotion always has extra cash for local officials considering any change in the status quo.

Wine has no corporations anywhere near that powerful; it takes the top three combined to equal Anheuser-Busch InBev's market share.

Gallo holds about 21 percent of the US market. The Wine Group is up to 18 percent and Constellation is down to 15 percent after selling the Almaden, Inglenook and Paul Masson brands to the Wine Group. Moreover, the top 10 companies hold 76% of the US wine market, less than just the top two beer companies.

Unlike with beer, there's still room in the US wine market for small wineries to compete, usually by focusing their attention on just a few states. Actually changing the rules of the game to make nationwide competition possible isn't going to happen, though -- not while practically every successful politician in the country is getting a bit of the proceeds from the unstoppable sales of Bud Light.


Anonymous said...

Isn't AB owned by a Belgium group now? It's now the largest brewer in the world, just can't think of the name.

W. Blake Gray said...

Jo: Yep, that's right -- it's Anheuser-Busch InBev now. Brands they own include Becks, Stella Artois, Michelob, Bass, Labatt, Lowenbrau, St. Pauli Girl and a whole bunch of others beyond Budweiser and Busch.

Some, like Wild Hop, they try to conceal their ownership of. Others can be found on this page:

Steve Stevens said...

Great piece, Blake, thanks for the insight. I hadn't thought about it from the angle of AB's influence.

From a political perspective, most business owners can expect that Republican leaders will generally support initiatives to decrease government involvement and regulation of their operations even if democrats won't. But wine producers can't make this assumption and they end up stuck in the philosophical and legal middle.

Not that politicians have it easy either. Discussions about revamping the US alcohol distribution system always seems to become about deregulating alcohol sales and that makes it difficult for politicians of any persuasion to support changes with any real conviction.

I think many felt that the 2005 New York/Michigan Supreme Court decision was going to be the first domino to fall in the destruction of the three-tier system and that just hasn't happened.

As you point out, the AB InBev influence may have much to do with that.

Tom Merle said...

The King Kong of beers rules. You're right about the absence of a real three tier system in the brewski world. A decade or so ago, some distributors started carrying a few craft beers, until Augie roared from on high: carry those beers and you can forget about carrying ours. Case, as it were, closed.

Just remember how John McCain got all those houses...

W. Blake Gray said...

Thanks for the kind words, guys.

Steve, I remember celebrating the Supreme Court decision, thinking this was going to finally wedge open the wine market. It helped in NY, but Michigan, a state with a burgeoning wine industry and one that could use more economic activity, has gone backwards. For the reason why, you can trace the political contributions.

Tom: I had forgotten that John McCain doesn't know how many houses he owns! Ah, the Presidential campaign of 2008 -- those were simpler times, an elementary school play on a national scale.

Steve Stevens said...

Michigan seems to take proportionately more heat for the sines of their wholesalers, no? I wonder if they are actually that much worse than states like Alabama and South Carolina or if the spotlight from Granholm v. Heald is just that unforgiving.

Steve Stevens said...

oops, previous post should have read "sins of their wholesalers."

W. Blake Gray said...

Partly the latter. The Supreme Court spoke specifically to Michigan. But I believe Michigan is better in many ways than Georgia, a state you know far better than I.

But it's also the fact that we don't expect much out of Bible belt states with no real wine industries to speak of. We expect more from Michigan, and it disappoints.

Steve Stevens said...

Boy, don't get me started on Georgia. Metro Atlanta has a much more savvy and vibrant wine culture than it gets credit for, but it's still ruled by alcohol policies enacted by a pretty conservative state.

And we don't have many of the the cool, ex-movie star republicans over here. We have more of the Strother Martin, "what we have here is a failure to communicate" republicans. Let me know if you need any because, really, we have a lot.

But I get your point about Michigan versus southern states. Makes a lot of sense. Regardless, I suppose it's pretty difficult to quantify and compare levels of dysfunction within state governments.