President Joseph R. Biden issued an executive order last week, which he said during a press briefing would “help restore competition so that we have lower prices, higher wages, more money, more options, and more convenience for the American people.”
“The heart of American capitalism is a simple idea: open and fair competition — that means that if your companies want to win your business, they have to go out and they have to up their game; better prices and services; new ideas and products,” Biden said.
The executive order (EO) includes a 72-point plan to be carried out by several federal agencies to increase competition across myriad industries by implementing practices that include the over-the-counter sale of hearing aids, the legalization of importing prescription drugs from Canada and preventing landlords and service providers from limiting consumers’ choices for internet access.
Included among these orders to foster competition is a request for the heads of several federal agencies to study the competitive landscape of the alcohol industry, with a goal “to protect the vibrancy of the American markets for beer, wine, and spirits, and to improve market access for smaller, independent, and new operations,” according to the EO.
The EO calls on Secretary of the Treasury Janet Yellen, Attorney General Merrick Garland and Federal Trade Commission Chair Lina Khan to assess the state of competition in the current market structure of the U.S. beer, wine and spirits industries and submit a report to the White House Competition Council within 120 days of Biden’s signing of the executive order.
The White House asks Yellen, Garland and Khan to identify barriers to market entry for new businesses and threats to competition including:
- “any unlawful trade practices in the beer, wine, and spirits markets, such as certain exclusionary, discriminatory, or anticompetitive distribution practices, that hinder smaller and independent businesses or new entrants from distributing their products;
- patterns of consolidation in production, distribution, or retail beer, wine, and spirits markets;
- and any unnecessary trade practice regulations of matters such as bottle sizes, permitting, or labeling that may unnecessarily inhibit competition by increasing costs without serving any public health, informational, or tax purpose.”
After the assessment is complete, the EO charges the Alcohol and Tobacco Tax and Trade Bureau (TTB) to consider the following within 240 days of Biden’s signing:
- “initiating a rulemaking to update the Alcohol and Tobacco Tax and Trade Bureau’s trade practice regulations;
- rescinding or revising any regulations of the beer, wine, and spirits industries that may unnecessarily inhibit competition;
- and reducing any barriers that impede market access for smaller and independent brewers, winemakers, and distilleries.”
The Brewers Association (BA), the trade organization that represents the nation’s small and independent craft breweries, said it “applaud[s] President Biden for recognizing the need to promote a fair, open, and competitive marketplace in the sale and distribution of beer.”
“Over the past three decades the American beer consumer has embraced a diverse beer market filled with the unique, quirky beers produced by over 8,500 small, independent breweries,” BA president and CEO Bob Pease told Brewbound in a statement. “But substantial consolidation within all three tiers of the industry make it increasingly difficult for small, independent brewers to succeed in traditional distribution channels and in big chain retail.”
When small craft breweries seek to enter traditional distribution, they are sometimes met with suffocating franchise agreements, or stiff internal competition with other brands for attention. Additionally, the middle tier has undergone extensive consolidation in recent years, resulting in small breweries having fewer paths to market.
The Reyes Beer Division, the country’s largest beer distributor, has acquired numerous smaller wholesalers in California over the last two years, and made eastward expansion with acquisitions in Indiana and Maryland.
Redwood Capital has become active in the last two years, acquiring two large Anheuser-Busch InBev houses that also distribute craft brands. A-B has also made deals among its wholly owned distributor network recently, selling one Colorado-based wholesaler to Norcross, Georgia-based Eagle Rock Distributing and acquiring Los Angeles-based Ace Distributing.
Reyes’ and A-B’s activities drew the eye of industry watchdog group Alcohol Justice, which sent a letter in December to then-California Attorney General Xavier Becerra imploring him to investigate both companies’ practices for antitrust violations. Alcohol Justice also called out A-B’s record-setting $5 million offer-in-compromise, which the TTB levied against the world’s largest beer manufacturer for allegedly anticompetitive actions in its sports sponsorships.
The Beer Institute (BI), which represents American breweries of all sizes, said it “look[s] forward to working with the President and his Administration to ensure the beer industry can continue to support jobs and provide Americans with their favorite alcohol beverage.”
“Since 2010, we have seen more than 10,000 new breweries permitted, and today — from agriculture and manufacturing to construction and transportation — the beer industry supports more than 2 million American jobs and contributes more than $331 billion to the nation’s economy,” BI president and CEO Jim McGreevy said in a statement to Brewbound. “Consumers are benefiting from the growing number of brewers and beer importers, with more choices for beer than at any other time in our nation’s history.”
A White House blog post providing additional context for the EO points to a study of the former MillerCoors joint venture that showed that the merged company and A-B were able to engage in “tacit coordination” to drive beer retail prices up, rather than down. In their study, economists Nathan H. Miller and Matthew C. Weinberg found that the price of A-B, Miller and Coors products began to increase in 2008 after the launch of MillerCoors, a joint venture between SABMiller and Molson Coors, which Miller and Weinberg said the Department of Justice approved “on the basis that merger-specific cost reductions would likely outweigh any anticompetitive effects.”
Miller and Weinberg tracked the retail price of Bud Light, Miller Lite, Coors Light, Corona Extra and Heineken, and found that all five brands’ prices declined over the five years before the JV’s launch.
“After the merger, the prices of Bud Light, Miller Lite, and Coors Light increase by about 8% and there is no obvious continuation of the downward trend,” they wrote. “The prices of Corona Extra and Heineken do not exhibit any persistent increase and instead continue along a downward trend. The price gap between the cheaper domestic beers and the more expensive imports shrinks over time in the post-merger periods.”
Heather Boushey and Helen Knudsen, the White House blog post authors concluded that “consolidation does indicate a market power problem with the consequence that consumers are facing higher prices than they would if the market was more competitive.”
In addition to the assessment of the beer industry’s competitive landscape, the EO also calls for an end to non-compete agreements, a tool frequently used in the beer industry under the guise of protecting trade secrets. In his address during the press briefing, Biden estimated that one in three companies nationwide require employees to sign non-compete agreements, which he called “absolutely ridiculous.”
“If your employer wants to keep you, he or she should have to make it worth your while to stay,” Biden said. “That’s the kind of competition that leads to better wages and greater dignity of work.”