USA: Lagunitas dragged into beer brouhaha
The St. Louis-based King of Beer companies, which makes Budweiser and Michelob, has slapped Magee with a subpoena ordering him to hand over detailed financial information on his Petaluma microbrewery, Lagunitas Brewing Co.
"If you want this information, you are going to have to picture it in my cold, dead hands," Magee replied to the brewing giant.
Despite his resistance, Magee now finds himself being dragged into a nasty fight between Anheuser-Busch and four Northern California microbreweries accusing the world's largest beermaker of trying to squeeze them out of business.
Magee, who sought to stay out of the fray, could become a reluctant witness for Anheuser-Busch in the antitrust case in U.S. District Court in San Jose.
The success of Magee's tiny brewery -- the largest in Sonoma County -- may be used to support Anheuser-Busch's claim that its marketing practices have not unfairly hurt boutique breweries.
"We make their case for them," Magee said. "They are asking me to give testimony against brother brewers."
The 3-year-old case is set to go to trial early next year, but will likely be postponed, attorneys said.
The fight began in 1997, when four microbreweries -- including Anderson Valley Brewing Co. in Boonville -- filed a class-action lawsuit accusing Anheuser-Busch of using its clout with distributors to quash competition.
The lawsuit alleged that Anheuser-Busch forced independent wholesalers to stop distributing smaller brands made by microbreweries. Anheuser-Busch has denied any wrongdoing.
The company declined to discuss the case Thursday, saying it does not comment on matters in litigation.
At the heart of the dispute are several programs launched by Anheuser-Busch to motivate its distributors.
In 1996, Anheuser-Busch asked its distributors to give it "100 percent share of mind," said Dario de Ghetaldi, a Millbrae attorney representing the microbreweries. As an incentive, Anheuser-Busch rated its distributors on a five-point scale, giving discounts and incentives to wholesalers who exclusively carried Anheuser-Busch brands. Distributors who also carried rival brands received nothing, de Ghetaldi said.
"The clear message was that distributors should sell nothing but Anheuser-Busch products," de Ghetaldi said.
Six Anheuser-Busch distributors in the Sierra foothills and Reno, Nev., area dropped Anderson Valley brands in 1996 after chief executive August Busch III launched the "100 percent share of mind" program, said Kenneth Allen, owner of the Boonville microbrewery.
"I don't believe a distributor had ever quit us before," Allen said. "It probably stalled us for a year or two."
Microbreweries believe the tactics violated antitrust laws because Anheuser-Busch already dominates the U.S. beer market, producing almost 48 percent of the beer sold in America last year, according to Beer Marketer's Insights, a trade publication based in Nanuet, N.Y. By comparison, microbreweries and specialty brewers have captured just 3 percent of the U.S. beer market, despite rapid growth in the 1990s.
"What makes this an antitrust violation is Anheuser-Busch's control of the market and use of its market power to put over these programs at the expense of its competitors," de Ghetaldi said.
To defend itself, Anheuser-Busch will apparently argue that its distributors have signed up other microbreweries, like Lagunitas Brewing Co., and helped the boutique beermakers boost their sales.
One Anheuser-Busch wholesaler, Matagrano Inc. in South San Francisco, took on Lagunitas brands in 1998 after it dropped several other microbreweries, Magee said. The distribution agreement with Matagrano helped to fuel Lagunitas Brewing's rapid growth, boosting its sales in San Francisco and San Mateo counties.
The Petaluma microbrewery has increased production almost twentyfold over the past five years, from 900 barrels in 1995 to 17,000 barrels this year, Magee said. Ninety percent of its annual production is sold in the Bay Area through Matagrano and four other wholesalers.
"They are a very important customer of ours. We have a great working relationship with them and share goals," Magee said.
Anheuser-Busch is seeking detailed financial information from Lagunitas Brewing, apparently to prove that some microbreweries have prospered with its wholesalers since the launch of Anheuser-Busch's exclusive distribution programs. The subpoena demands sales figures by county and distributor going back to 1995, Magee said.
"They want to use us as a poster boy," said Magee, who has refused to turn over the data.
Anheuser-Busch has already won several skirmishes against the microbreweries.
The U.S. Justice Department launched an investigation of Anheuser Busch's distribution practices in 1997, but ended the antitrust probe a year later without taking action.
Last year, U.S. District Judge Spencer Williams tossed out two of the three legal arguments submitted by the microbreweries. He postponed a ruling on a third argument by the microbreweries, requesting both sides to submit evidence on the issue. Until then, other breweries cannot join the four original plaintiffs in the class-action lawsuit.
Anderson Valley Brewing continues to pursue the legal challenge with three other microbreweries: El Toro Brewing Co. in Morgan Hill, St. Stan's Brewing Co. in Modesto, and Lake Tahoe Brewing Co.
Allen said he tried to drop out of the lawsuit last year after Anheuser-Busch demanded that he turn over sensitive financial data.
But Anheuser-Busch would not relent on its demand to see his business records, Allen said, renewing his resolve to continue pressing the case.
"They are one of the greatest companies in the world," Allen said, praising Anheuser-Busch's expertise in production and distribution. "But damn, they're bullies."
Sometimes, Allen wonders if he bit off too much by challenging Anheuser-Busch, which sold 103 million barrels of beer last year -- compared to 20,000 barrels sold by Anderson Valley.
"I hope I don't lose my head over it," Allen said. "David and Goliath is no comparison. They are so much bigger than Goliath, and I am so much smaller than David. It's like the ant and the elephant."
You can reach Press Democrat Staff Writer Ted Appel at 521-5288 or e-mail at firstname.lastname@example.org.
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