Biden’s Antitrust Crusade Targets Alcohol
As inflation spikes, the administration and its congressional allies have accused an ever-expanding list of industries of anti-competitive behavior: meat processors, gas producers, even grocery stores. Now the alcohol sector is in the crosshairs.
In a lengthy new report, the Treasury Department calls for enhanced scrutiny of mergers between alcohol makers and for more aggressive crackdowns on anticompetitive behavior—in an industry overflowing with healthy competition.
While Treasury’s report does raise some legitimate concerns about anticompetitive trends in the wholesaling tier of alcohol, it fails to make the case that alcohol has a far-reaching antitrust problem requiring federal intervention. In fact, officials at Treasury call the alcohol sector a “flourishing” industry that is “unusual in a contemporary U.S. economy where many markets are dominated by a few, national brands.”
The report reads like an exercise in bureaucratic dissonance. First it notes that America’s two largest brewers, Anheuser-Busch and Molson Coors, account for 65 percent of the beer market nationwide. Then two paragraphs later, it admits that the number of breweries in America grew from less than 100 in 1983 to 6,406 by 2020. If the administration thinks enhanced antitrust scrutiny is necessary in an industry with 6,000 new market entrants, it’s hard to imagine what industry would be spared.
Thanks to the craft beer boom, the large brewers’ market share has decreased by 5 percent since 2010. Treasury understatedly alludes to this, noting that the trend toward premium and super-premium beers—which are predominantly made by craft breweries—has “challenged” Anheuser-Busch and Molson Coors in recent years.
The report also argues that the higher the market share a single alcohol maker possesses, the greater temptation it will have to increase prices. It neglects to mention that over the past several decades, beer prices have increased significantly less than the Consumer Price Index.
The report is also concerned that large macrobreweries will increase their market dominance by buying independent microbreweries. The report speculates that these big brewing conglomerates could exert undue pressure on alcohol wholesalers and retailers to carry their products, thereby gobbling up grocery store shelf space that is reserved for microbrews.
To the extent craft alcohol makers face market access issues, however, it’s most often because of competition issues at the wholesaling tier of alcohol, not because of large brewers buying smaller ones. That’s because nearly every state in America has a three-tier system for alcohol, requiring alcohol producers, wholesalers, and retailers to all be legally separate entities. Alcohol producers are largely barred from selling their products directly to retailers or consumers, forcing them to go through wholesalers.
These state laws insulate alcohol wholesalers from competition by giving them a government-mandated middleman role in the supply chain. Many state governments make the problem worse with stringent franchise laws and exclusive territory rules that grant specific wholesalers de facto monopoly sales rights over certain brands in many regions. Unlike alcohol producers, wholesalers are rapidly consolidating. As a result, small craft alcohol makers often find themselves locked out of many markets.
But the Treasury fails to identify the right fix for this problem. Small alcohol producers would benefit most not from more federal scrutiny of brewery mergers but from state-level reforms that overhaul the three-tier system. Most notably: If more states allowed brewers and distillers to ship their products directly to consumers, craft beverage makers could circumvent potentially collusive wholesalers that prioritize macro beers over micros.
Although Treasury speaks favorably at points in the report about direct-to-consumer shipping for alcohol, it ultimately stops short of endorsing it, noting that the “balancing of public policy values is best addressed by a democratically-elected legislature.” That’s a fair point. The agency should heed its own advice.
Image credit: David Prahl