Beer battle brewing
Lake Tahoe Brewing Company was in the beverage game for only three years when a monolithic beer giant allegedly started a campaign to muscle out smaller competitors.
Sales dropped, contracts were terminated and the Tahoe-based brewery was left without an answer.
Armed with claims of anti-competitive practices and monopolizing a major part of the market, LTCB has joined some of its industry little-guy peers in a class-action lawsuit against Anheuser-Busch.
“They’re bigger than Goliath and frankly, we’re smaller than David,” cracked LTBC’s chief financial officer Eric Bledsoe, one of the company’s founders.
Several microbreweries, including the Tahoe manufacturer, have filed separate lawsuits in Bay Area district courts accusing the “king of beers” of pressuring independent distributors from marketing their craft brews. Lake Tahoe Brewing filed its claim Aug. 4 in Oakland. The other breweries include El Toro Brewing Co. of Morgan Hill; Anderson Valley Brewing of Boonville; and St. Stan’s Brewing Co. of Modesto.
According to the lawsuit, wholesalers with an allegiance to Anheuser-Busch were told at a national convention to exclusively promote the Budweiser line. In return, Busch representatives would take care of expense accounts, vehicles and new territories. The purported result was a focused, aggressive drive by distributors to sell Bud products while the lesser-known, hard-to-find microbrews were left out in the cold.
“We have no problem with competing with Anheuser-Busch,” Bledsoe said. “But let the consumer make the choice about what brand they want to buy instead of trying to eliminate the competition.”
In a prepared statement, Royce Estes, Anheuser-Busch’s vice president of corporate law, said the allegations won’t stand up in court.
“These claims have no merit,” Estes said. “Our wholesaler incentive programs are legitimate and legal business practices. Participation in these programs by our wholesalers is voluntary.”
Anheuser-Busch officials wouldn’t comment further on the specifics of the lawsuit.
Making a name
When three ambitious men schemed to start their own business – not to mention their favorite hobby, beer making – in 1991, they had no idea how popular dark ales and lagers would become. Bledsoe, along with Rob Curtis and the mastermind, Everett Charles, opened shop in 1993 and, much to their delight, were overwhelmed by the local response. Bars, restaurants and stores around the Tahoe Basin were ordering the brews by the barrel.
That’s when the trio decided to branch out.
They were beckoned by Bay Area visitors who indicated Tahoe’s beer could make it in a competitive market. With their brewing facility in Emeryville, the company needed distributors that were well-connected and covered vast geographical areas.
“Bud ‘houses,’ as they are called, had the best resources available,” said Curtis, who added that Miller and Coors are also active in the market. Lake Tahoe Brewing entered into two-year agreements with five Bay Area distributors in 1995. “Once people knew about how good our brand was, the distributors just dominoed.”
Lake Tahoe Brewing posted the best numbers in the first quarter of 1996, turning $70,000 in February. Meanwhile, Anheuser-Busch launched the “Share of Mind” campaign, which according to LTBC’s attorney James Hennefer, was aimed at eliminating wholesalers who weren’t loyal to the Budweiser line.
The lawsuit alleges that Anheuser-Busch coerced distributors to terminate their agreements with Lake Tahoe Brewing in an attempt to keep its large share of store shelves and bar taps. By the end of 1996, LTBC had lost all of its Bay Area Anheuser-Busch distributors.
“They don’t want a number of brands competing out there,” Hennefer said. “They are worried about the quality of microbrews like my clients.”
King of the hill
Anheuser-Busch has dominated the beer industry in recent years, accounting for nearly half of all sales nationally in 1995. Combined with Miller and Coors, approximately 80 percent of the market is horded by the “Big Three.”
Busch has 900 distributors in the United States, 127 of which are in the western region.
The producer of Bud and Michelob has also bought shares of Red Hook, Corona and Widmer, increasing the size of the Busch kingdom. The corporation even introduced its own line of speciality beers, American Originals, to satiate consumers’ taste buds.
“They are telling distributors that you don’t need that brand because we have one of our own,” Bledsoe said. “They are moving to exclusivity and shutting down fair competition.”
Charles Head, president of Eagle Distributing Co. in Santa Rosa, was one of the distributors that cut Lake Tahoe Brewing loose. He contends that the Tahoe brew never sold well among his clientele, and labels that do not generate volume get axed from his list. Eagle did drop other crafts but kept Red Hook.
“We’ve taken on many brands but we let a lot go because there isn’t any profitability,” Head remarked. “We tried with Lake Tahoe Brewing. It didn’t work out.”
Head added that Anheuser-Busch never induced his company to solely promote their products. However, a rating system initiated by Busch gives special treatment to loyal wholesalers.
“These were all business decisions,” he said. “I was never pressured by Anheuser to let go craft brews. We looked at the incentives offered versus what we made on other brands.
“I don’t have sympathy for the craft brews because there are other distributors out there. It’s sour milk on their part. If I get a real good microbrew that sells, I’ll take it.”
Ready for a backroom brawl
Since there isn’t a comparable alternative to Bud distributorship, Lake Tahoe Brewing has felt the alienating sting from its bigger rival. Tahoe’s brand name can still be found in the Bay Area, but its growth has been stunted.
Bledsoe can’t estimate how much the business has lost but hopes to recoup some of the costs through the lawsuit.
It hasn’t been decided which of the four attorneys will take the lead against Anheuser-Busch. But according to Hennefer, who won a $71 million judgment from Eastman Kodak Co., any time you threaten the king, you better be prepared for a war.
“People are realizing there are a lot of beers with a good taste,” said Hennefer. “Anheuser-Busch is worried about consumers who want to switch. The less competition, the better it is for them.”
(sidebar) if ya want it
Is it the color, the taste or the name?
No one can explain the explosion of microbreweries, but statistics show that craft beers are making its mark.
According to the Institute for Brewery Studies in Colorado, microbrews accounted for 2.6 of the market share last year. It is projected that by 2005, the craft brews could reach 19 percent.
The craze has reached every corner of the United States. Speciality magazines have appeared on store shelves. Beer festivals are almost as common as the county fair. Even do-it-yourself brew pubs have enticed elbow benders.
There are approximately 100 microbreweries in California. Craft beers make up almost 17 percent of all beer sales in the Bay Area and there are a variety of breweries scattered about in San Francisco, Berkeley and the South Bay.
In response to the tide of craft beers, major companies like Anheuser-Busch have created special labels. One of California’s most consumed microbrews, Sierra Nevada, now must compete with Pacific Ridge, Anheuser-Busch’s amber alternative.
“This is one of the easier markets,” said Bill Fekerrs, sales manager for Mussetter Co., a distributor in South Lake Tahoe. “The craft beers do exceptionally well. I don’t think people mind spending an extra buck or two for a good beer.”
Support Local Journalism
Support Local Journalism
Readers around the Lake Tahoe Basin and beyond make the Tahoe Tribune's work possible. Your financial contribution supports our efforts to deliver quality, locally relevant journalism.
Now more than ever, your support is critical to help us keep our community informed about the evolving coronavirus pandemic and the impact it is having locally. Every contribution, however large or small, will make a difference.
Your donation will help us continue to cover COVID-19 and our other vital local news.
SOUTH LAKE TAHOE, Calif. — Tickets are available for the Kiwanis Club of Tahoe Sierra’s 20th anniversary celebration raffle this week.