‘Davids’ Sue Beer Goliath

Three Northern California microbreweries are brewing up a court battle against Anheuser-Busch Inc., alleging that the giant maker of Budweiser engages in anti-competitive practices.

In class-action suits filed last week in U.S. District Court in Sacramento, San Francisco and San Jose, the three makers of craft brews said Anheuser-Busch coerced independent wholesalers into no longer distributing their lines.

According to one of the suits, filed by St. Stan’s Brewing Co. of Modesto, Anheuser-Busch last year demanded “100% share of ‘mind’ ” from its distributors, many of whom promptly canceled contracts with boutique breweries. The big St. Louis brewer--whose world-leading Bud brand has been marketed as “the king of beers”--violated antitrust laws by using heavy-handed tactics and by offering cash and other incentives to induce wholesalers to drop the smaller brands, the suit said.

Anheuser-Busch, which is based in St. Louis and has a large brewing facility in Van Nuys, has denied wrongdoing.

“Our wholesaler incentive programs are legitimate and legal business practices,” company attorney Royce Estes said in a statement.

The suits mark the first challenges by small brewers to the industry leader, which accounts for more than 44% of beer sales nationally.

“It indicates how competitive the market is becoming,” said Peter V.K. Reid, editor of Modern Brewery Age, a weekly trade publication in Norwalk, Conn.

With overall beer consumption flat, Reid said, big guns such as Anheuser-Busch, Miller Brewing Co. and Coors Brewing Co. are warily eyeing upstarts that make high-priced boutique brews, the only sector experiencing significant growth.

High-priced craft brews have grown immensely in popularity, nabbing 2.5% of the $58-billion U.S. beer market last year. Some observers expect that share to rise to 6% by 2000. The share is much higher in the Western states, with craft brews claiming more than 17% of the San Francisco market, for example.

Without deep pockets to fund advertising, microbreweries (those that produce fewer than 15,000 barrels a year) and their larger counterparts, craft brewers, must depend on word of mouth and dependable presence in retail outlets. If distribution channels dry up, customers have no exposure to the brands.

St. Stan’s, for one, said in its suit that the decision by five wholesalers to cease carrying its products cut its business in half overnight in affected areas of Northern California.

“Many distributors pulled products off the shelves immediately,” said Roger Schrimp, a Modesto attorney for St. Stan’s. St. Stan’s got calls from customers trying to find the beer, he said.

“It’s a true David and Goliath story,” said Kenneth Allen, owner of Anderson Valley Brewing Co. in Boonville, which filed its suit against Anheuser-Busch in San Francisco. “If justice has anything to do with it, I think we stand a chance.”

Allen’s brewery is aiming for production of 10,000 barrels by year-end. Anheuser-Busch, by contrast, produces 87.5 million barrels annually.

Also filing suit was El Toro Brewing Co., based in Morgan Hill. Schrimp said he expects other microbreweries to follow suit.