Reyes Beer Division CEO Tom Day challenged the notion that competition in California’s beer market has suffered due to his company’s expansion efforts in the Golden State, according to a letter from the leader of the United States’ largest beer wholesaler to the U.S. Department of the Treasury as part of President Joe Biden’s executive order on competition.
“These complaints, however, are largely voiced on behalf of distributors who were unsuccessful in meeting the needs of brewers and in turn retailers,” he wrote, with a footnote citation pointing to a comment letter submitted by the California Family Beer Distributors (CFBD) in August. “The movement of distribution rights by brewers is a reflection of inefficient or ineffective distributors and is evidence that competition is working, not the opposite.”
Day’s letter to Amy Greenberg, director of the Alcohol and Tobacco Tax and Trade Bureau’s Regulations and Rulings Division, dated September 30, offered several counterpoints to those offered by the CFBD, a trade group representing mostly independent Anheuser-Busch wholesalers that formed in late 2020, and even those raised by Brewers Association president and CEO Bob Pease last week that challenged mergers that he argued threatens to create a “duopoly” in the middle tier.
In the CFBD’s mid-August letter to the Treasury, executive director Kevin Luckey, alleged that Reyes’ “mergers, acquisitions and forced consolidations” of supplier rights have “threatened the health of the California wholesale beer market, and harmed consumer choice.”
According to Luckey’s letter, Reyes now holds a 55% market share of all beer sold in California, compared to a quarter of the market in 2018. In 2020, Reyes acquired 18 million cases from wholesalers in what the CFBD termed “fire sales” of brand distribution rights for below fair market value orchestrated by Reyes. Those moves, the group argued, have left independent distributors “struggling to survive” and harmed market access for smaller brands.
Day called the CFBD’s comments about forced sales “inflammatory rhetoric” that “ignore the fact that brewers make individual choices to move their beer distribution rights to a distributor that provides the most efficient and effective service.” He added that the movement “demonstrates that competition in this industry works, while maintaining the same competitive portfolio of products available to the end consumer.”
Day described competition among wholesalers as “vigorous” and “robust” created by the three-tier system, which he said affords suppliers “many options” to partner.
“This three-tier system helped create one of the most robust craft beer industries in the world, and continues to promote competition and ensure consumer choice in a regulated marketplace, while also allowing new product innovation, as evidence by the recent explosion of hard seltzer and other flavored malt beverage products,” he wrote.
Day also took umbrage with the CFBD’s use of a map showing Reyes’ California territory expansion over the last three years as a reflection of “a reduction in competition.” Instead, Day argued, the map is a reflection of suppliers choosing to partner with Reyes in territories where the largest beer wholesaler in the U.S. previously did not do business.
To back up the comments, Day pointed to California breweries’ ability to choose their wholesaler partners in each territory and noted that brand distribution rights only change hands between distributors with the consent of a brewer. Additionally, he noted that the state’s breweries are able to self-distribute their products.
Day described Reyes as a family-owned business that has grown into “a multinational food and beverage distributor” that distributes beer in seven states and Washington, D.C. Reyes differentiates itself from its competitors “by providing innovative supply chain and sales solutions, along with a robust data analytics platform that improve our customers’ ability to sell products, including through the recommendation of relevant products designed to balance customer’s portfolios,” Reyes wrote.
Whether the comments on competition within the beer, wine and spirits industries lead to change remains to be seen. But terminations and consolidations were a hot topic during the National Beer Wholesalers Association’s annual convention in Las Vegas this week.
In an educational session, Michael Madigan, managing partner of business law firm Madigan, Dahl & Harlan PA, said he believed the Biden administration’s focus was more on “big tech” than alcohol.
“I personally don’t think we’re going to see any significant change on the federal level,” he said, in regards to alcohol.
Meanwhile, incoming National Beer Wholesalers Association (NBWA) chairman Peter Heimark shared his personal story of how a large supplier terminated his family’s distribution business in favor of Reyes.
“Believe me, I’ve been through it. I know from firsthand experience how disruptive force or threatened terminations by suppliers can be to our industry,” he said. “I’m glad NBWA is working with states to protect the laws that keep that from happening.”