Biden administration targets Big Booze as part of antitrust probe
The North Bay’s massive alcoholic beverage industry is bracing for what could be a wave of regulatory overhauls as President Joe Biden seeks to increase competition in a beer, wine and spirits market that is increasingly controlled by a handful of big companies.
Noting the past of such trust-busting presidents as Theodore Roosevelt and Franklin D. Roosevelt, Biden said last month it is again time to rein in companies that have gotten too big at the expense of competitors and consumers. While Big Tech companies such as Facebook and Google have drawn plenty of attention, the administration also has its eyes on Big Ag and Big Pharma.
“Rather than competing for consumers, they are consuming their competitors,” Biden said in a July 9 announcement of an executive order directing a dozen federal agencies to review competitive economic barriers. “Rather than competing for workers, they’re finding ways to gain the upper hand on labor. And too often, the government has actually made it harder for new companies to break in and compete.”
That regulatory review includes Big Booze.
As part of his initiative, Biden instructed the Treasury Department to submit a report to the White House on the status of competition in beer, wine, and spirits and whether there are barriers that “hinder smaller and independent businesses or new entrants from distributing their products.” He also instructed the Alcohol and Tobacco Tax and Trade Bureau — which is under the Treasury Department — to update its regulations for “rescinding or revising any regulations of the beer, wine, and spirits industries that may unnecessarily inhibit competition.” There have been more than 120 comments filed as of Thursday on the topic.
Any possible action could have major ripple effects locally as Sonoma and Napa counties are at the heart of the premium US wine business, contributing to a multibillion-dollar economic impact regionally.
This probe comes exactly as there has been massive mergers-and-acquisition activity in the local wine business during the first half of the year, most notably when E. & J. Gallo Winery in January completed an acquisition of low-price wine brands from Constellation Brands Inc. in a blockbuster $810 million deal.
Sonoma County also is home to around 30 craft brewers who are navigating a tough marketplace that has been long dominated by Anheuser-Busch InBev, which had a 39% market share last year, though that was down from almost half 10 years ago. Even one of the biggest craft beer companies, Lagunitas Brewing Co. of Petaluma, is still a small fish in the American beer landscape as its parent company, Heineken USA, has only a 3.2% overall share.
There also are about two dozen Sonoma County distillers that have to compete against international behemoths such as Diageo, Beam Suntory and Bacardi USA.
“I think this is very serious. Will it ultimately make a difference? It really depends,” said Robert Tobiassen, president of the National Association of Beverage Importers and who also was chief counsel at the Alcohol and Tobacco Tax and Trade Bureau.
If the Biden initiative does have an effect, such actions could benefit businesses such as Third Street Aleworks of Santa Rosa, a microbrewery that has been in business more than 25 years and went under an ownership change two years ago.
Third Street has had some success during the pandemic by pivoting more to retail sales, which now account for about 80% of its beer sales. Before the pandemic, it sold only about 10% through stores and taprooms as opposed to its downtown brewpub, said Chris Frederick, managing partner.
The Santa Rosa brewery has been able to expand into the Sacramento area and now has three salespeople. It has been self-distributing its beer rather than relying on wholesalers that largely control the retail system under the three-tier system (producers, distributors, retailers) that arose in the aftermath of Prohibition and the 21st Amendment. Third Street has found smaller grocers such as Molsberry Market and Oliver’s more receptive to stocking its products compared to the big chains.
With retail shelf space limited, it can be harder for smaller or independent alcohol producers to break through with retailers and large distributors that are heavily reliant on the alcohol industry’s largest players for the bulk of their revenue. The leverage enjoyed by the biggest players with the broadest portfolio of products combines to make it difficult for upstarts to break through.
“When it comes to comes to the system set up for beer, it hasn’t been easy for us to break into those big box stores,” Frederick said. “A lot of that retail space is controlled by the distributorships.”