(St. Louis Post-Dispatch (KRT) Via Thomson Dialog NewsEdge) Apr. 4--The story slugged SL-A-B-dumps-exclusivity-0404, sent by MCT Regional News for Apr. 4, had a problem headline.

The headline should read "A-B changes exclusivity incentives for distributors."

Please delete the original version and use the corrected version below.

A-B changes exclusivity incentives for distributors

By Jeremiah McWilliams

St. Louis Post-Dispatch

Apr. 4--Beer wholesalers are the bridge between Anheuser-Busch Cos. and American drinkers. A network of 600 independent distributors does a lot of grunt work for the St. Louis-based brewer: fighting for bar taps and shelf space, making sure beer stays fresh and trucking beer to grocery stores, bars, clubs and gas stations.

When angst creeps into the relationship, it's a problem.

That's why Anheuser-Busch, the country's biggest brewer, is changing a decade-old exclusivity incentive to keep wholesalers happy and committed to its brews.

Some of the benefits of "exclusivity" -- traditionally reserved for distributors who agree to carry only beers from Anheuser-Busch and its allies -- will be bestowed upon wholesalers who carry some competing brands.

The idea is to keep wholesalers focused on selling A-B products, while granting leeway to sell a small amount of beer from approved competing sources, such as local craft breweries.

The plan could be a way out from an "all-or-nothing" dilemma that popped up too often for Anheuser-Busch's liking: Should wholesalers ditch their exclusivity agreements with A-B to carry attractive niche beers, or stick with the company even though it blocked access to some nifty brews?

The exclusivity system started to unravel last year. Some wholesalers defected, and Anheuser-Busch's percentage of beer shipped through exclusive houses dropped to 59 percent from nearly 70 percent in 2006.

August A. Busch IV, Anheuser-Busch's chief executive, told analysts in February that the old form of exclusivity worked well through the latter half of the 1990s and for a couple of years in the early part of this decade. But now the system is "working against" Anheuser-Busch.

The dilemma: A-B has worked hard to create a "nice arsenal of crafts and a nice level of imports," including a number of beers from Belgian brewer InBev, Dave Peacock, vice president of marketing at A-B's domestic beer subsidiary, told the Post-Dispatch. But franchise laws in some states made it difficult for A-B to transfer InBev distribution rights to its wholesalers.

In response, A-B crafted a new deal. Distributors unable to carry A-B's "aligned brands" -- such as Stella Artois or Grolsch -- because of franchise laws or other obstacles will now be allowed to add "competitive volume." This new class of distributors can carry beers -- or water or tea, but not wine or distilled spirits -- from companies other than Anheuser-Busch or its partners.

That slice of outside business can total up to 3 percent of the wholesaler's sales, measured in cases. The "competitive" beers must be approved by Anheuser-Busch to make sure they don't compete too hard against Budweiser, Bud Light or other key beers. A-B executives say they'll be reasonable but may deny some applications if the beers would pose competitive risks.

"If a brand in question does not directly compete against an A-B brand, all parties have an opportunity to share in the upside," Stifel, Nicolaus analyst Mark Swartzberg wrote in a March 24 research note.

Wholesalers who add authorized beers will get 1 cent per case from A-B, a four-day extension of credit and $1,500 per truck for new paint jobs.

The amount of outside beer won't be "a distraction to our business," said Evan Athanas, vice president of sales and wholesale operations at A-B's domestic beer unit. "A few small brands would benefit" A-B's wholesalers.

Anheuser-Busch is "trying to provide an avenue to the high-end" part of the market, said Peacock. "We want a profitable, healthy and viable wholesaler," he said later.

Wholesalers who carry Anheuser-Busch beers exclusively will get the same benefits as before: six days of added credit, 2 cents per case and $2,500 for paint jobs on trucks.

The new arrangement also adds a performance incentive to get distributors roaring behind A-B's "core" brands -- Budweiser, Bud Light, Michelob, Busch and Natural beers. Distributors that hit sales targets on core brands will get an extra penny per case.

Anheuser-Busch apparently felt the need to go out of its way to protect its relationship with wholesalers, said Edward Jones analyst Jack Russo. "It does show that (A-B is) being more flexible," he said. "They have to be, because the world has changed and consumers want variety."

That realization led Anheuser-Busch to become the U.S. importer of swanky European beers from InBev last year. A-B wanted to move the high-end beers -- including Stella Artois, Beck's and Bass Pale Ale -- into wholesale houses that carried only Anheuser-Busch beers.

But the transition quickly got messy, sparking lawsuits in some states. Anheuser-Busch wholesalers blocked from getting the beers were left with gaping holes in their portfolios.

Now, changing exclusivity could be a "win-win-win" and evidence of Anheuser-Busch's "warmer, fuzzier approach" to distributors, Swartzberg wrote last month.

Grey Eagle Distributors in Maryland Heights, the Anheuser-Busch distributor for St. Louis County and one of the state's biggest beer houses, indicated that the agreement could be useful.

"We will be open to exploring new opportunities to help grow our business according to the revised agreement," chief executive David Stokes, son of A-B chairman Patrick Stokes, said in a statement. "But we will remain focused on selling and marketing Anheuser-Busch's core brands and supporting the needs of our customers."

To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.

Copyright (c) 2008, St. Louis Post-Dispatch
Distributed by McClatchy-Tribune Information Services.
For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

[ Back To TMCnet.com's Homepage ]

Discussions: