Anheuser Weighs Consolidating Distributors

Anheuser Weighs Consolidating Distributors

Analyst Reports Brewer Is Considering Wider Ownership of U.S. Distributors, but Firm Plays Down Potential Shift

Anheuser-Busch InBev NV is studying the idea of consolidating its network of independent U.S. beer distributors, perhaps by owning many more distributors itself, according to an analyst report that represents a potential blow for the beer titan's roughly 600 distributors.

Management at the maker of Budweiser and Stella Artois is exploring the concept of someday selling as much as 50% of its U.S. beer volume directly to retailers through its own distributors, up from 7% today, according to the report Wednesday by Melissa Earlam, a UBS AG analyst who recently met with company leaders, including Chief Executive Carlos Brito.

But Anheuser, the world's largest brewer by sales, Wednesday appeared to play down the potential strategic shift. "There is no change in our current U.S. strategy," a spokeswoman said in an emailed statement. "Anheuser-Busch InBev has no plans to force consolidation. Consolidation has been occurring for many years, and we believe it will and should continue."

Anheuser is considering more direct beer sales, UBS says. Above, an Anheuser brewery in Columbus, Ohio, last year.

The company believes consolidation "should happen voluntarily over time," she added. She also said the company has no plans to "significantly expand" company-owned distributorships "at this time."

If Anheuser moved to more direct sales of beer, it would allow the company to lower its costs and grab gross margins currently flowing to distributors. Even if the brewer doesn't pursue that path, the threat of such a shift could compel more of its independent distributors to merge, which would help lower the brewer's costs, Ms. Earlam wrote. "At the least, we believe this is a powerful negotiating tool with distributors," she said.

The report is the first serious indication that the brewer based in Leuven, Belgium, intends to put the squeeze on its distribution network to improve its own profitability. Potentially billions of dollars currently flowing to distributors could be at stake.

InBev has reduced costs at Anheuser since acquiring the company for $52 billion last fall. But its distributors so far mostly have been spared the knife.

Mitch Watkins, an Anheuser distributor in Twin Falls, Idaho, said he doubts that major changes are in store for distributors. "I think consolidation is going to occur, but it's mostly still going to be because of competitive pressures [among distributors], and not because A-B InBev is going to swoop in and try to change the system," said Mr. Watkins, who is vice chairman of the National Beer Wholesalers Association, an Alexandria, Va., trade group. He said it would cost billions of dollars for the brewer to buy distributors, in addition to potential legal and regulatory obstacles it could face.

In the U.S., the vast majority of alcohol products are sold through distributors under a complex regulatory system erected after the repeal of Prohibition in 1933. State laws generally require that makers of alcoholic beverages sell them to distributors, which mark up the prices and ship the products to bars and stores, which then sell them to consumers.

Anheuser has 13 distributors of its own in cities such as New York, Denver and San Diego, and could seek to acquire more of them. Such ownership is permitted in 20 to 25 states, said to John Hinman, an alcohol-industry lawyer in San Francisco.

Pursuing acquisitions of distributors could be complicated, because they enjoy certain legal and contractual protections that can make it difficult for producers to replace them, Mr. Hinman said.

Some retailers and producers have gone to court to challenge the so-called three-tier system in recent years, seeking to cut out distributors. Some efforts, most notably in the wine industry, have been successful, but in many cases courts have upheld state laws that require sales to go through distributors.

Anheuser's chief U.S. rival, MillerCoors LLC, has pushed for consolidation among its distributors since SABMiller PLC and Molson Coors Brewing Co. combined their U.S. units to form the joint venture last year. However, it hasn't tried to buy distributors itself.

A MillerCoors spokesman declined to comment on Anheuser's potential plans. He said MillerCoors doesn't support "any significant changes" to the traditional beer-distribution system in the U.S