‘See you in court’ AB InBev hawks fly back at US Justice Feds
In a strongly worded release justifying its action, the DOJ said the merger would stifle innovation, and harm price competition, since Grupo Modelo priced “aggressively” where rivals like Molson Coors were happy to follow market leader AB InBev’s annual practice of raising prices.
The first and third market players, AB InBev and Modelo together, would control around 46% of annual US beer sales worth $80bn, the DOJ explained, with No.2 player Miller Coors controlling around 29%.
The DOJ said the attempt by AB InBev/Modelo to allay competition concerns – by selling Mexican rival Modelo’s 50% interest in Crown Imports to JV partner Constellation Brands – was insufficient.
Crown Imports would not be a true competitor, the DOJ argued, since it would be wholly dependent on AB InBev for its supplies of Corona and other Modelo brands.
Modelo spoils AB InBev’s pricing script
Currently, there was price competition in the US market, the DOJ said: “By pricing aggressively, Modelo – through its importer, Crown Imports, puts pressure on AB InBev to maintain or lower prices, especially in certain parts of the country.”
AB InBev’s own internal documents confirmed Modelo’s importance as a competitor, the DOJ added, and showed that AB InBev had a pricing plan to establish, in the brewer’s own words, “the highest level of [price] followship” by large rivals.
“AB InBev believes that its conduct plan provides the highest possibility of “sustaining a price increase” and “ensuring competition does not believe they can take share through pricing”,” the DOJ said.
But the department said Modelo had ripped up AB InBev’s script by pursuing a ‘momentum’ plan, whereby it aimed to narrow the price gap between its imports and AB InBev products such as Bud Light, “stealing market share from AB InBev by enticing consumers to ‘trade up’ to Modelo beer”.
“AB InBev executives acknowledge that Modelo has ‘put increasing pressure’ on AB InBev competitively, and that Modelo’s strategy is at odds with AB InBev’s well-established practice of leading prices upward with the expectation that its competitors will follow suit,” the DOJ said.
AB InBev slams DOJ suit
Bill Baer, assistant attorney general in charge of the DOJ’s antitrust division said that the department had taken action to “prevent AB InBev from eliminating Modelo as an important competitive force in the beer industry”.
“If AB InBev fully owned and controlled Modelo, AB InBev would be able to increase beer prices to American consumers,” Baer added.
The DOJ bombshell led AB InBev to rush out a statement attacking the department for its suit, which the Belgian-based brewer said was, “inconsistent with the law, the facts and the reality of the marketplace”.
“We remain confident in our position, and we intend to vigorously contest the DOJ’s action in federal court,” AB InBev added, stating that it would comment further once it had reviewed the DOJ filing.
Premium wine player Constellation Brands said it was disappointed with the DOJ decision, and that it hoped for swift resolution, since the court action thwarts its plans to buy the Crown Imports stake for $1.85bn.
