October 24, 2020

Beer Bully

Cynthia Barnett | 2/1/2001
Ten years ago, Humberto Perez and his family conducted market research indicating that Florida, the country's third-largest beer-consuming state, was ideally suited for its own home-grown brewery -- one they wanted to build.

Perez grew up in the business: His grandfather founded Cervecer?a Regional, the second-largest brewery in Venezuela, in 1929, and his father worked there for 50 years. By 1994, with microbrews sprouting successfully all over the U.S., Perez's and another family from Venezuela felt good enough about their prospects to open the Ybor City Brewing Co. in a 100-year-old renovated cigar factory in Tampa.

Based on its research, the company made its signature product a lager called Ybor Gold -- brewed to appeal to Floridians' taste for lighter beers. The label features the brick cigar factory surrounded by palm trees and flanked by two snowy egrets, with the slogan "Florida's Own Handcrafted Beer."

To sell his brew to bars and stores, Perez turned, as federal and state laws require, to independent distributors. He hooked up with two carriers, Pepin in Tampa and Great Bay in Largo, that carried primarily Anheuser-Busch products. And for years, they helped Ybor Gold make inroads in the Tampa Bay area.

But Perez soon discovered the power of Anheuser-Busch and the lengths to which it goes to discourage competition -- from even small brewers.

Distributors like Pepin and Great Bay are supposed to operate independently of beer makers and retailers, according to post-Prohibition laws meant to block control of retail outlets by big brewers. But in 1997, Anheuser-Busch induced Pepin, Great Bay and many of its distributors around the nation to peddle Busch products exclusively, effectively pushing out Perez. He then hitched up with J.J. Taylor, the area's Miller distributor, but says he still hasn't made up for all the business he lost when Busch cut him off.

The fact that Perez couldn't do as well with a Miller distributor is a testament to the power of Anheuser-Busch in Florida, where it enjoys nearly 56% of the market, compared to its national market share of about 48%. It's also a window into how the $13-billion beer behemoth aggressively forges close, often controlling relationships with its "independent'' distributors, 31 of them in the Sunshine State. Exclusivity agreements are just part of the picture: Busch also has forced out longtime distributors to replace them with allies it views as more loyal.

The tough-love strategy has helped the 149-year-old company rebound to record profitability after a downturn in beer sales in the early 1990s. But critics, including non-Busch distributors and small brewers, say Busch's relationships with its distributors, while not illegal, stretch the spirit of the Prohibition-era distribution laws. "The system was designed to draw clear lines between the producer, distributor and retailer, but here in Florida, the lines are blurred," says Bernard Dempsey, an Orlando lawyer representing the Roger Maris family, whose north-central Florida distributorship deal was terminated by the company in 1996. The law also was designed to protect small businesses, says David Edgar, director of the Institute for Brewing Studies in Boulder, Colo., which represents the craft brew industry. But that's not happening. "No company should be able to control any brewer's right to adequate distribution," Edgar says.

Long history
Busch, the world's largest brewer, has a long history in the Sunshine State -- both business and personal. August Busch Jr. wintered on Pass-A-Grille Beach in Pinellas County, where he also docked his 51-foot Rybovitch sport-fishing boat, the Miss Budweiser. Busch family members have had a longtime presence in Palm Beach County, where they trailer horses for winter polo matches. August III, the current chairman, owns several homes in Lakeland, where he vacations at Scott Lake.

The company operates a brewery in Jacksonville and until 1995 had one in Tampa at Busch Gardens, which it owns along with SeaWorld in Orlando. Real estate subsidiary Busch Properties Inc. owns close to 900 acres in central Florida, including 200 adjacent to SeaWorld that it may develop for hotel and entertainment ventures. It also has an agricultural subsidiary that uses byproducts from the Jacksonville plant to grow turf grass. And Anheuser-Busch pumps millions into Florida sports franchises and Florida philanthropy.

Despite its huge ad budgets and theme park exposure, Busch's beer sales began slipping nationwide in the 1990s as young people turned away from their dad's Budweiser to imports and microbrews. In one response, the company launched hipper ad campaigns with characters like the "Bud-Weis-Er" frogs.

Busch also began paying more attention to its distributors -- crucial cogs in the beer business, which relies on aggressive sales, frequent deliveries of fresh beer and jockeying for shelf space and bar taps. In the 1990s, according to distributors and others, the company began pushing heavily for exclusive contracts and moving more aggressively against distributors that it considered too independent. In Florida:

When the owner of Orlando-area distributor Wayne Densch Inc. died in 1994, Busch tried to take over the company, which it had once hailed as its largest franchiser in the U.S. A 1997 settlement split the lucrative central Florida territory in two; Busch kept the rights to distribution in Osceola County, parts of Lake County and south Orange County, which it sold to one of the eager buyers the company says are lined up to own distributorships.

In 1994, the company tried to oust longtime Jacksonville distributor Bob Reed, who had an exclusive contract, considered himself loyal to Busch and even named his business A-B Distributors. In a legal battle with the company, Reed alleged Busch didn't like his resistance to heavy-handed edicts from St. Louis. Busch paid Reed an undisclosed settlement in 1996 and sold the Jacksonville distributorship to Pinky Pelham, its Tallahassee-based distributor.

In 1996, after the death of home-run king Roger Maris, who owned a Gainesville Anheuser-Busch franchise, the company tried to buy out the business for $20 million, a price the Maris family said was ridiculously low. The company terminated its contract instead and sold the distributorship to close allies of Anheuser-Busch. Maris had been awarded his distributorship by Busch Jr., then head of the company and the St. Louis Cardinals, for helping the team win the 1967 World Series. In November, the Maris family lost a federal antitrust suit against Busch, which maintained it had a right to sell the distributorship. A state breach-of-contract suit, which observers call the stronger case against Anheuser-Busch, is scheduled to go to trial in April.

Busch has put family, as well as close friends, into its Florida distributorships. Part of the Maris franchise was sold to the Bernie Little family, close friends of August III who own a house next to him at Scott Lake. Elsewhere in the state, August III's son, Peter Busch, owns Southern Eagle on the Treasure Coast. August III's daughter, Susie Busch Transou, and her husband, Tripp Transou, own Tri-Eagle Sales in Tallahassee, which they purchased after Busch sold Pelham the Jacksonville distributorship.

MBAs from Northwestern's Kellogg Business School who also did their time in ranking corporate positions with Busch in St. Louis, the Transous have become Tallahassee's premier young power couple since they bought Tri-Eagle Sales in 1996. Susie, 35, former CEO of Busch Creative Services Corp., has played the marketing and public relations game well: She's persuaded the Anheuser-Busch foundation to plunk down $1 million for a sculpture on the grounds of the state Capitol, for example, and landed the Clydesdales to trot in Tallahassee's annual spring parade.

Meanwhile Tripp, 38, has put his background in the company's "impact selling" program to good use: He has increased market share in the region from 64.5% when they bought the company 41¼2 years ago to 71% today.

The Transous and other distributors loyal to Anheuser-Busch make no apologies for how they operate in what they say is an extraordinarily competitive business. "We fight every day for every bottle and every can," says Susie Transou. Her company's constant goal is "share of mind" -- making Busch products the first beers consumers think of. That's why Tri-Eagle's Budweiser trucks are never dirty; why its computer programs can track any six-pack on any shelf in any store in the company's nine-county region; and why the Transous strongly believe in their exclusive contract with Anheuser-Busch. "The key point of success for both sides is the relationship between Anheuser-Busch and its family of wholesalers," she says.

In St. Louis, officials said they would not comment on the issues surrounding the company's relationship with its distributors because of the ongoing Maris litigation.

Political clout
Putting the Transous in Tallahassee was brilliant on the part of Anheuser-Busch, say industry-watchers, who describe Susie Transou as one of the sharpest members of her generation of Busches. She has become a powerful lobbying voice in Tallahassee. The function is crucial to the company, which 13 years ago muscled its Florida distributors into breaking off from the longtime distributors' lobbying group, the Beer Industry of Florida, to form the Florida Beer Wholesalers Association. The split originated in 1987, when August III grew enraged after the Beer Industry group supported a Florida franchise law that said manufacturers couldn't terminate contracts with distributors without just cause.

While the two associations agree on most issues, they continue to operate independently and don't always see glass-to-glass. They disagree, for example, on a proposed state law that would open Florida's beer market to imported and specialty brews that come in odd-sized bottles. The Beer Industry group supports the bill, but the Busch distributors have argued, in part, that allowing a diversity of bottle sizes in Florida would let beer makers use big bottles to market big consumption -- and irresponsible drinking. The argument is meant to sound high-minded, but the law already permits 32-ounce bottles, and Busch's point is inconsistent with its stand in another state: The brewer strongly opposed an effort in Seattle to ban bottles over 18 ounces to foil street alcoholics.

The real issues may have more to do with competition and cost. The law would allow a myriad of new beers into Florida's marketplace, creating more competition and forcing companies like Busch to offer their own new sizes of beers. But despite popular support for the bottle-size law, the Busch distributors have been able consistently to kill the measure. The source of their power? Distributors such as the Transous, the Bernie Little family, Tom Pepin in Tampa and Lewis Bear in Pensacola are among the most visible and philanthropic members of their communities. They work hard on responsible-drinking campaigns. They are well-liked and well-connected and have strong relationships with elected officials. "These are people you'd love to have a beer with, frankly," says Sen. Tom Lee, R-Brandon, the bottle bill's sponsor. "I think a lot of legislators felt torn between a regulation on the books that they knew was a bad idea and their relationships with their own distributors back home."

Getting interesting
Some see the fact that the bottle bill is expected to pass this year as a sign that the times are changing -- if only slightly -- for the King of Beers in Florida. Non-Busch distributors in the state, including Wm. Thies & Sons in south Florida, J.J. Taylor in central Florida and Doug Cone in north Florida, have consolidated aggressively in the past few years to achieve economies of scale that would allow them to compete more effectively with Busch. Anheuser-Busch is "still formidable," says Bob Blaikie, director of marketing for Thies, which handles Miller and other products. "But it's getting interesting."

Meanwhile, smaller brewers are finding new ways to work within the distribution system. In Melbourne, for example, a company called M2M -- or Marketing 2 Merchandising -- has been working for two years on a national distribution system for microbrews that will be based in Florida. President Kurt Krause, who has worked in beer distribution in Florida for 30 years, has created a system in which his company will buy bottles, caps and labels in bulk and even do bottling and distribution for microbrews, offering them economies of scale closer to those enjoyed by bigger brewers. The company, which says it is closing on a $10-million equity investment, will begin operations this month and expects to add up to 100 new beers to Florida's grocery store shelves by 2002.

Another new player in Florida: The D.G. Yuengling Brewery of Pennsylvania, which in 1999 bought an old Stroh's brewery in Tampa. Last fall, Yuengling began distributing its product -- a domestic brew in Budweiser's price range -- in the Sunshine State. "We know it's a dogfight in Florida," says Kevin Fitzpatrick, regional sales manager. "But the potential is so huge that we want to get into it." Fitzpatrick says his company's marketing budget won't ever come close to Busch's, so Yuengling is focusing on guerrilla marketing -- giving tours and hosting parties at its Tampa plant, for
example.

Other brew entrepreneurs in Florida are learning how to slowly build market share within a difficult system. Indeed, the explosion in microbreweries in the 1990s barely registered in Florida -- in part because of restrictive state laws, including the bottle-size law. Pat Kavanaugh, who worked for Busch in various distributorships for 25 years and is now part-owner of the Key West Brewery, says a slow-but-steady marketing approach to tourists has made his the No. 2 beer in the Keys. "Anheuser-Busch is worried about what every guy is drinking, and we can't worry about that -- so we just worry about what the Florida tourist is drinking," he says.

As Perez struggles to persuade bars in his own Ybor City to carry Ybor Gold, the soft-spoken brewer offers no criticism of his former distributors or of Anheuser-Busch. "The sheer size of the problem is too imposing -- there is a question of business and political relationships at stake," he explains. "Through patience and presence in the market, we will continue to grow every day.

"This is a bit-by-bit process," he says from his second-floor office in the old cigar factory. "That's the reason there are 500-year-old brewers in the world."


Top Distributor: This Miller's for You
While Anheuser-Busch is unquestionably the King of Beers in Florida, a Miller carrier -- Wm. Thies & Sons Co. -- is the largest beer distributor in the state. While its Fort Lauderdale unit ranks ninth in Florida, all the Wm. Thies distributors together make it No. 1, with combined sales of 31 million gallons in 1999-2000. The 50-year-old company has been acquiring new locations in an effort to better compete with Anheuser-Busch. It was launched by patriarch Bill Thies in 1951. His sons, Bill Sr. and Dennis, took over when he died in 1964. They are gradually turning the business over to a third generation, Bill Sr.'s sons, Bill Jr. and Jimmy, and Dennis' son, Dennis Jr. Last fall, the company opened corporate offices in Boca Raton to house consolidated accounting, human resources and information technology departments.

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