Massachusetts Takes Aim at Budweiser Over Pay-to-Play Allegations

A battle is brewing in Massachusetts between state regulators and Anheuser-Busch InBev NV, over allegations the beer giant has doled out nearly $1 million in unlawful giveaways to entice retailers and bars to push Budweiser over rivals.

The state's Alcoholic Beverages Control Commission has issued a report detailing investigators findings and set a June hearing in Boston on the matter. The report alleges a subsidiary of Anheuser-Busch gave out bar equipment as incentives to hundreds of Massachusetts businesses in violation of a state law meant to keep beer companies from squeezing out competitors.

Sales representatives "offered the refrigeration equipment to the retailers at no cost, provided the equipment was only utilized for Budweiser products," investigators said in the report.

While financial arrangements for visibility are common in some industries, like the grocery business, they are forbidden in the alcohol sector in most states. That ban harkens to Prohibition-era laws aimed at preventing any one large beverage-maker from controlling the chain of manufacturing and sales.

Anheuser-Busch said in a statement that it has been working with the alcohol commission since Massachusetts first raised questions. "We believe that we lawfully provided branded point-of-sale items to retailers and plan to contest these allegations," the company said.

The scrutiny comes at the same time that mainstream beer manufacturers and the exploding craft-beer segment are increasingly jostling for customers, creating unprecedented tension in the industry nationwide, said beer consultant Bump Williams.

"Shelf space is limited; display space is limited; cooler space is limited," said Mr. Williams. "Getting that share of mind and getting that share of wallets is intense as I've ever seen it."

U.S. shipments of craft beer have soared in the last decade, hitting 23.4 million barrels in 2016 from more than 7.7 million barrels shipped in 2006, according to industry tracker Beer Marketer's Insights. During the same period, domestic shipments of mainstream beer -- including brands like Budweiser -- fell nearly 13% to 151 million barrels from 173 million barrels.

California leveled similar charges against Anheuser-Busch, alleging that the company fully or partly paid for refrigeration units, televisions and draft systems at Southern California retailers. In March, the state announced Anheuser-Busch agreed to pay $200,000 and further train staff to settle the case.

"We have fully cooperated with the California Department of Alcohol and Beverage Control and have addressed issues in a timely manner," Anheuser-Busch said in a statement, adding that its increased training goes beyond what is required in the agreement with the state.

According to Massachusetts investigators, Anheuser-Busch's exclusive distribution subsidiary in the state handed out free Budweiser-branded equipment ranging from coolers worth up to $5,700 each to "Budweiser signature draft towers" -- flashy red and chrome stand-alone brew dispensers -- valued at up to $3,500 each to 441 retail outlets in 2014 and 2015.

Massachusetts law prohibits alcohol companies from providing stores with "money or any other thing of substantial value" to induce retailers to buy certain alcoholic beverages.

Nonetheless, the practice "definitely still affects a lot of people" and hurts access to the market, said Rob Burns, the co-founder of Night Shift Brewing in Everett, Mass., and president of the Massachusetts Brewers Guild, an industry advocacy group.

For example, if a bar only has 10 draft lines, and a distributor buys half of those, a brewer selling to that retailer has a smaller chance of getting its beer to customers, he said. "Right away your ability to sell into that account is gone because someone bought lines," he said.

In Massachusetts, such concerns caught the public's attention in 2014 after a local brewer took to Twitter to denounce Boston as a pay-to-play city where distributors paid retailers to push certain beers.

After an investigation spurred on by that complaint, the state in 2016 slapped a $2.6 million fine on Craft Brewers Guild, the largest distributor of craft-beer brands in the state, for "kickbacks" to certain Boston-area retailers.

Craft Brewers Guild is contesting that fine in state court and didn't respond to a request for comment.

Write to Jennifer Levitz at jennifer.levitz@wsj.com

(END) Dow Jones Newswires

May 16, 2017 10:28 ET (14:28 GMT)