Manufacturers
CONSTELLATION BRANDS SLAMS 'VEXATIOUS' LITIGATION OVER UNTENABLE CLAIMS

Angry US beer drinkers allege AB InBev ‘puppet’ Constellation misled court on price hikes

03-Dec-2013 - By Ben Bouckley+
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Constellation Brands misled a Federal court by arguing that it would not co-ordinate beer prices rises to follow AB InBev after the Grupo Modelo takeover and then doing so, nine US beer drinkers claim.

But Constellation, alongside co-defendant ABI, hit back on November 19 at a “spurious motion” that it said was a desperate attempt to revive an untenable class action ongoing since March 2013, denied any misrepresentation had occurred and insisted that price rises were normal market practice.

AB InBev (ABI) completed its tie-up with Grupo Modelo on June 4 in a massive $20.1bn deal, which also saw Constellation take over Grupo Modelo’s US distributor Crown Imports, doubling its existing 50% stake.

Edstrom et al. initially filed a class action on March 22 to try and halt the proposed transaction, arguing it would end aggressive competition between Modelo and ABI that had led to lower US beer prices and greater market innovation.

ABI’s market power would increase and facilitate co-ordinated pricing with the next largest brewer Miller Coors, they added, who would together control 80-85% of the US beer market; in an amended compliant they also alleged that Constellation was effectively under the control of ABI.

‘Eating Budweiser’s Lunch’

But the US District Court, Northern District of California, San Francisco did not accept Edstrom et al.’s argument that the transactions governing the takeover were fraudulent, or that they permitted ABI to exert control over Constellation, dismissing the amended action on September 13.

Despite the dismissal of their action, Edstrom et al. submitted a memo on Sunday in support of their November 11 motion for relief from the October judgement in the defendants’ favour.

They cite an internal AB InBev document stating that Grupo Modelo’s ‘Momentum Plan’ on price – which involved allowing ABI to close the pricing gap with more expensive Modelo beer and encouraged consumers to ‘trade up’ – was “eating [Budweiser’s] lunch”.

Edstrom et al. said this meant ABI was unable to raise prices to the ceiling both it and Miller Coors desired (since the nation’s top two brewers find it more profitable to compete on advertising alone and not price) and thus had to (1) lower prices (2) grant discounts or (3) improve beer quality.

The crux of the issue is what the plaintiffs’ claim is ABI’s relationship with what they call its “puppet” Constellation Brands, which they feared would raise prices for the Modelo portfolio of Mexican beers if they assumed full control of Crown Imports, in which Modelo used to hold a 50% stake.

Constellation and ABI strike back

Contrary to Modelo’s competitive program – that stopped US beer price increases – Constellation had “consistently urged” Crown to follow ABI’s price increases via its stake in the (then) JV, they argued.

The plaintiffs’ allege it is indisputable that such price increases were a threat given Constellation’s full takeover of Crown and that Modelo’s Momentum Plan would be ditched as an “intended anticompetitive consequence of this transaction,”

On August 19, B2B publication Beer Marketer’s Insights reported that Crown planned to raise prices in California, Edstrom et al. said, even as Constellation argued in court 10 days earlier that it was “illogical to believe that Crown’s prices will be co-ordinated with ABI’s in the future”.

“If defendants had been truthful on the record about the price increases, rather than misleading the court and plaintiffs, plaintiffs’ case should have and would have been permitted to proceed,” they added, while asking the court to grant relief from judgement and a one-day hearing on the matter.

Constellation and ABI struck back in a November 19 reply, dismissing the misrepresentation allegation as irrelevant and denying it had even occurred, adding that the former had never said it would not raise prices, and that “raising prices, by itself, is not inconsistent with vigorous competition”.

Related topics: Manufacturers, AB InBev, Crown Holdings, Beer, Wine, Spirits, Cider