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Beer Companies Await Antitrust Decision in Mexico

Beer Companies Await Antitrust Decision in Mexico

Beer industry giants are eagerly awaiting a decision in Mexico that could limit their distribution

Mexico is the fifth-largest beer consumer in the world.

SABMiller, a South African beer company, and many other small Mexican beer companies are eagerly awaiting Mexico’s antitrust regulator to make a decision.

The coming ruling on the lawsuit will show whether the Anheuser-Busch InBev and Heineken International’s Mexican duopoly of Mexican beer can keep exclusivity agreements with corner stores and restaurants. If the regulator finds that they cannot keep such agreements, smaller competitors could establish a larger presence in the Mexican beer industry.

SABMiller, the second-largest beer company, currently has only one percent of Mexico’s beer market, which it dedicates to small brands and craft brewers. Since Mexico is the fifth highest consumer of beer in the world, the company finds it imbalanced that the Mexican beer market is governed by a duopoly. For this reason, smaller brewers filed the lawsuit. The beer renaissance that is taking place in America could trickle down to Mexico if this lawsuit goes in favor of SABMiller, who would be able to distribute and advertise its small, craft breweries more successfully.

The Week reports that six global giants dominate the world’s beer market. In June, Anheuser-Busch InBev, the largest of the giants, took over the Mexican brewery Grupo Modelo (which owns Corona, Modelo, and Pacifico). It now owns an estimated 55 percent of the Mexican beer market. Meanwhile, Heineken, the third-largest giant, owns Mexican brewery Cerveceria Cuauhtémoc Moctezuma (Dos Equis and Tecate) and accounts for about 43 percent of the country’s beer volume. These two giants have an iron grip on the Mexican beer market with a combined 98 percent ownership of the country’s beer volume.

The Mexican antitrust regulator is supposed to make a decision by the end of this week.

U.S. craft brewers fear Modelo deal will limit their route to pubs

NEW YORK/WASHINGTON (Reuters) - Some U.S. craft brewers are uneasy about plans by Anheuser-Busch InBev ABI.BR to buy out Mexican beer maker Grupo Modelo GMODELOC.MX , fearing the giant's increased power could make it harder for them to hitch a ride on delivery trucks to stores and pubs.

Brewers, as well as beer wholesalers and members of Congress, have been quietly taking this concern and others to the Justice Department, which is investigating whether the $20.1 billion deal complies with antitrust law. The department has given no sign of being ready to make a decision.

In order to preempt antitrust concerns arising from AB InBev, which is the No. 1 brewer in both the United States and the world, having an additional 5 percent of the U.S. market, Modelo agreed to sell its stake in Crown Imports, the U.S. seller of Modelo's beers, to Constellation Brands Inc STZ.N for $1.85 billion.

“What they’re going to be saying to DOJ is that we (AB InBev) have nothing to do with the distribution of Modelo. But if you think AB InBev doesn’t have huge influence on Crown, I have a bridge to sell you,” said Steve Hindy, a founder of the Brooklyn Brewery.

AB InBev already controls more than 47 percent of the U.S. market with brands including Budweiser, Stella Artois and Beck’s.

The nation's No. 2 player is MillerCoors, a joint venture between SABMiller Plc SAB.L and Molson Coors Brewing Co TAP.N , with a 28.4 percent market share, according to Beer Marketer's Insights. Crown, which sells Modelo beers such as Corona Extra, Modelo Especial and Pacifico, is a distant third with 5.3 percent.


Craft beers account for 6 percent of the U.S. beer market, and are growing swiftly, according to the Brewers Association. The number of craft brewers has grown from eight in 1980 to 537 in 1994 to over 1,600 in 2010.

The biggest of the small include Boston Beer Co, Yuengling, Sierra Nevada, New Belgium and Craft Brew Alliance Inc, which makes beer under the Red Hook and Kona brands and is nearly a third owned by AB InBev.

Post-Prohibition era rules ban brewers in 38 states from distributing their own beers to retailers. As a result, there is a middle tier of largely independent wholesalers, over 3,000 of them. Small craft brewers rely on these wholesalers to get their beers to the market, and they fear that AB InBev’s clout will keep their beer off delivery trucks.

Senators Christopher Coons and Thomas Carper and three others agree. They sent a letter on Oct. 2 to the Justice Department expressing concern about problems of craft brewers’ access to wholesalers.

“ABI’s business practices aimed at preventing its distributor partners from associating freely with competitor breweries strikes at (the) heart of competition in the beer market,” said the letter. “Consumers will ultimately be harmed.”

One of the six lawmakers who signed the letter was from Colorado, home to the rival Coors brand. Two are from Delaware, home of the popular craft brew Dogfish Head, which has “One Hundred Bottles of Beer on the Wall” on its voicemail.

If the Justice Department were to find that the Modelo deal would hurt consumers - such as by leading to higher prices or fewer choices - it could try to stop it by taking the parties to court or requiring sales of assets to dilute the entity’s power.

As is normal practice on a deal this big, the Justice Department has met with players in all areas of the beer market in recent weeks to discuss the acquisition.

Although Modelo agreed to sell its stake in Crown to Constellation, AB InBev would be allowed to buy Crown after 10 years, albeit at a high price. Antitrust experts say the Justice Department could bar AB InBev from exercising that buyback in 10 years time or ask them to remove it from the current deal.

In the meantime, AB InBev will have no control of the brands in the United States, but it will become the leading brewer in Mexico, which is Latin America’s second-largest economy and fourth most-profitable beer market. It also sees a big opportunity in selling Corona around the world.

The global opportunity - rather than the U.S. market - is a big impetus for AB InBev to make the major but difficult purchase, though industry sources say the company has had its eye on Corona for years.

“This combination will create meaningful opportunities to grow Corona globally outside the U.S. and Mexico, given AB InBev’s established platform for distribution worldwide and the resources at its disposal,” said AB InBev spokeswoman Marianne Amssoms.

AB InBev also disputes the notion that it will have influence over Crown, which, according to the companies’ agreement, will control distribution, marketing, promotion and pricing in perpetuity.

“Grupo Modelo’s brands will continue to be imported, marketed and distributed independently in the U.S. through Crown Imports, leaving the U.S. market’s shares unchanged,” Amssoms said. Crown “will continue to manage all aspects of the business, including the selection of wholesalers for Grupo Modelo products.”

The National Beer Wholesalers Association, a trade group, said its members had been contacted by the Justice Department.

“NBWA is committed to ensuring that the independence of beer distributors is maintained, not weakened, as a result of this proposed acquisition,” said the association’s chief executive Craig Purser.

Three beer industry sources said they thought brewers and wholesalers might actually be criticizing the deal in hopes of getting concessions from a giant they fear before it’s too late, given the upcoming presidential election, which they think might change the political leanings of the DOJ, and the fact that this is likely to be the last big beer deal for some time.

“If somebody has a strong point of view one way or the other, this will probably be their last chance to have some kind of meaningful impact on how the industry shakes out,” said a craft brewing executive who declined to be identified.

Another one said brewers might be trying to “get a pound of flesh” they weren’t able to get in 2008 when InBev bought Anheuser-Busch for $52 billion.

As the parties jockey, people who attended two separate meetings at the Justice Department said officials there had few if any questions, and the questions that were asked indicated that they were still deciding if they would have concerns about the deal.

Growth Markets

Brewers including SABMiller are racing to expand into fast-growing emerging markets such as Mexico as sales in Europe and the U.S. stagnate. Amsterdam-based Heineken, the third-largest brewer, bought into Mexico with the purchase of the beer unit of Fomento Economico Mexicano SAB in 2010, giving it brands including Dos Equis, Tecate and Sol.

Anheuser-Busch InBev NV, the world’s largest brewer, this week completed the $20.1 billion purchase of the 50 percent of Modelo it didn’t already own.

SABMiller is 𠇎ncouraged by the commission’s deliberation over this significant matter involving anticompetitive activities,” Richard Farnsworth, a spokesman for the London-based company, said yesterday in an e-mailed statement.

Marcela Cristo, a spokeswoman for Mexico City-based Modelo, the brewer of Corona, and Marianne Amssoms, a spokeswoman for Anheuser-Busch InBev NV, declined to comment.

Hugo Loya, a spokesman in Mexico City for Heineken, also declined to comment.

Say goodbye to Four Corners Brewing's iconic 'topless' beer cans

Cracking open a can of Four Corners Brewing Co.'s beloved Local Buzz honey golden ale or El Chingón IPA is not like drinking other canned beers. The Dallas brewery became famous for its so-called 360 End lids, which open like a pop-top on an aluminum soup can and turn the vessel into a makeshift cup.

When they debuted in 2014, we coyly called them topless cans, because words are fun. But beer drinkers be warned: The fun ends next year.

Starting in 2020, Four Corners Brewing Co. will no longer employ the 360 End lid, confirms co-founder George Esquivel.

The decision didn't come by choice, he notes. Manufacturer Crown Holdings is discontinuing the model due to "limited success in the promotion of this product and the local litter laws in parts of the United States and Canada have greatly limited our ability to distribute it in North America," according to an email sent to clients and obtained by GuideLive.

"It leaves a 360-degree hole in our heart to see them go," Esquivel says.

Crown Holdings debuted the 360 End lid in 2010 during the FIFA World Cup Tournament in South Africa. The lid was lauded for transforming a can into legit cup-like vessel that allowed drinkers to take in the appearance and aroma of their beer. It was also, no doubt, an exceptional conversation piece.

Four Corners was one of the first breweries in the country to adopt the 360 End lid, enticed by a simple reason: "They're just badass," says Esquivel. "The 360's crack vs. hiss . they have a very unique and exciting sound."

Several other breweries, including Urban Chestnut Brewing in St. Louis and Sly Fox Brewing Co. in Pottstown, Pa., also use it. Crown Holdings will cease producing them around mid-2019, according to the company's email. Esquivel plans to stockpile enough to keep the signature cans intact through the end of the year, and is planning a goodbye party to celebrate the end of an era.

Google faces two fresh antitrust lawsuits in the EU over its data gathering and advertising practices

Google is facing fresh antitrust action in the EU as officials continue to scrutinize the tech giant's data gathering and advertising practices.

After fining Google close to $10 billion in fines for anticompetitive behavior in the past few years, the European Commission is looking at two probes into the firm's conduct, with both in the early stages.

Politico reported that the Commission sent questionnaires to a host of advertising industry players in December, probing jointly into Google's adtech and data practices. The Commission later confirmed in an email to Bloomberg, writing: "This investigation covers all services of Google, including digital advertising and the ad tech chain."

The new probes may provide an opportunity to test the limits of the EU's proposed Digital Markets Act, which empowers the EU to force a Google restructure, as previously reported by Insider. The content of the questions is said to mirror lawsuits and proposed regulations in the US and the UK.

The Commission has already fined Google for anti-competitive behaviour - over search, shopping, and Android - three times in as many years: first for $2.7 billion in 2017, again for $5 billion in 2018, and once more for $1.7 billion in 2019. The firm has repeatedly rejected the EU's findings, however, and met officials in court to appeal the first fine in February 2020.

The preliminary probes come as the UK's competition watchdog investigates Google's plans to remove third-party tracking cookies from its Chrome browser.

"Adtech helps websites and apps make money and funds high-quality content," a Google spokesperson told Politico. "We have been engaging with the Commission and others on this important discussion for our industry and will continue to do so." Insider approached Google for further comment.

Why one of the world’s largest beer markets only has two competitive beer brewers

In the Mexican beer business, cash is the surest way for beer companies to win a vendor’s heart. The country’s lucrative beer market is the world’s fifth largest by volume, and yet only two companies, AB InBev’s Modelo and Heineken NV’s Cervecería Cuauhtémoc Moctezuma, sell 98% of the country’s beer (55% and 43%, respectively). But companies like Britain’s SABMiller, the world’s second largest brewer by sales, are hoping a looming antitrust decision might help them get a leg up in the country.

Mexico’s antitrust regulators are mulling a complaint filed by SABMiller and a handful of smaller Mexican beer companies about whether exclusive contracts doled out to local vendors by InBev and Heineken are anti-competitive. Both AB Inbev and Heineken dish out cash to corner stores and restaurants to sell only their products. These types of contracts account for some 85% of beer sales, which competitors like SABMiller argue intentionally keep them out of the market.

But winning the anti-trust suit will be an uphill battle, since SABMiller has filed and lost similar lawsuits before. In 2004, after it filed a complaint with the Mexican government citing Grupo Modelo’s exclusive contracts, Mexico’s antitrust agency ruled in SABMiller’s favor. But the decision was overturned when Modelo appealed.

AB Inbev and Heineken got their leg up playing by Mexican beer brewers’ rules. AB Inbev’s purchase of local brewer Grupo Modelo and Heineken’s acquisition of Mexico’s Cervecería Cuauhtémoc Moctezuma from Fomento Económico Mexicano SA (Femsa) gave the two companies access to the local companies’ existing exclusive sales contracts, which granted them 99% of Mexico’s beer sales (SABMiller and smaller brewers have since gained another 1% of the market). In 2003, a food manager at Tony Roma’s in Mexico City told the Wall Street Journal that he had offered customers 28 different varieties of beer until Modelo began paying the restaurant not to. Beer makers have also offered vendors heavy discounts and assistance in acquiring alcohol permits to win their exclusive business.

The clear loser in Mexico’s beer market is the Mexican consumer, who suffers from fewer options. Meanwhile, just across the border, Americans have been happily guzzling a growing list of Mexican craft beers.

Beer Drinkers Ask 9th Circ. For 2nd Round On Anheuser Suit

Law360, Boston (May 5, 2016, 7:12 PM EDT) -- Beer drinkers asked the Ninth Circuit Wednesday to grant a full panel rehearing on their antitrust lawsuit challenging Anheuser-Busch InBev's $20.1 billion merger with Grupo Modelo, arguing they do not need to prove that a merger would increase the concentration of beer companies in a relevant market.

Citing Supreme Court precedent in U.S. vs. Falstaff Brewing, the nine merger opponents say they need only show under section 7 of the Clayton Act that a proposed deal could upset market conditions by eliminating competition, even if it's just potential competition that exerts beneficial influence on the market.

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''The companies would support the PRI, if the PRI in turn would support the companies and help them maintain a dominant market share,'' he added.

BUT even before Mr. Fox's plans are debated in Congress, the antitrust agency has begun acting more forcefully. A few weeks ago, it ruled against Cintra, calling for it to sell its two largest carriers, Mexicana and Aeromexico, as separate and competing entities.

Mr. Fox's economic team withheld comment on the recent Cintra deal, but said it was committed to a strong regulatory agency.

The opposing argument is that Mexican companies need monopolistic power to compete with overseas rivals, especially under the North American Free Trade Agreement. In the wake of the Cintra decision, union leaders have led protests against what they see as any action that would ''jeopardize the future of this country's aviation,'' said Jaime Luis Gonzalez, general director of the Airline Pilots Association of Mexico.

Mr. Gonzalez has threatened strikes and shutdowns if the airlines are split. He would view a breakup as an open invitation for foreign competitors to muscle into Mexico's air travel market, which could lead to layoffs of airline employees.

Cintra officials also balked at the decision, arguing that a unified airline industry could better compete globally. They boast that after taking over the near-bankrupt airlines in 1995, Cintra grew to become Latin America's largest and most lucrative airline company. If it is split, they say, the separate airlines could not hold their own against United States carriers like United or Delta.

The unfriendly reception, however, has not slowed the antitrust commission. It ruled recently that Pemex's gas stations would have to sell lubricants made by competitors of Lubmex, in which Pemex has 49 percent ownership.

Last week, Mr. Sanchez announced that the commission was investigating the selling practices of Coca-Cola in Mexico. Next in line, he said, are the selling practices of two dominant beer manufacturers, Grupo Modelo and Grupo Moctezuma Cuauhtemoc.

If Mr. Fox succeeds in creating regulatory agencies capable of enforcing their rulings, the United States government would welcome the news. Richard W. Fisher, the deputy United States trade representative, recently came to Mexico to argue that its government had not done enough to prevent Telmex from denying competitors entry into Mexico's telecommunications market. AT&T and WorldCom have complained about the interconnection fees that Telmex charges competitors to connect into its network, arguing that the practice violates World Trade Organization agreements.

Although Mexico's federal regulators ordered Telmex this month to slash its interconnection rates by 63 percent, it remains to be seen if the order will be enforced. Telmex could seek another injunction. ''We will be looking to see whether or not these decisions by very earnest regulators will be implemented and enforced,'' Mr. Fisher said. ''I think the signal this will send is critical to the success of the Fox administration.''

Rivals Rejoice, but Await A Remedy Just as Tough

Some competitors of Microsoft Corp. now see an easier time vying with the software company in both new and emerging markets, based on the findings of Judge Thomas Penfield Jackson -- as long, they say, as the ultimate remedies in the federal antitrust case are as toughly worded as were Friday's ruling.

Microsoft has made many bitter enemies over the years, and for most of them, Judge Jackson's findings were the sweetest kind of vindication. While also trying to assess the ramifications, many of them spent the afternoon and evening simply savoring the court's opinion.

Ray Noorda, the former chief executive of Novell Inc. who had what was often described as a Captain-Ahab-like fixation with Microsoft, was "smiling from ear to ear," said an associate. And the regular Friday beer bust at America Online Inc.'s Netscape Communications Corp., whose tangles with Microsoft helped set off the suit, turned into one of the most jubilant ever, attendees said.

Former Netscape Chief Executive Jim Barksdale said he and his wife, Sally, had a celebratory dinner. "We had a little champagne to start it off with," he said. "I know there were a lot of people in Palo Alto and Mountain View who were celebrating. I talked to some this morning who said they were up a little too late."

New Computing Options

One reason the decision drew so much attention was that, besides the sheer size of Microsoft, technology today is ripe with possibilities. New kinds of computing devices are becoming popular, from handheld units to TV set-top boxes to "thin clients" that do nothing but surf the Internet. And in software, entirely new business models, like the one behind the free Linux operating system, are being tried.