The California Family Beer Distributors (CFBD), a trade group representing independent wholesalers in the Golden State, has pushed back against statements made earlier this week by Constellation Brands CEO Bill Newlands regarding the Mexican import giant’s proposed termination of two wholesalers.
“Constellation’s recent actions in California are an attack on the foundation of the three-tier system: the highly competitive middle tier of independent distributors,” CFBD executive director Kevin Luckey said in a statement. “Independent distributors create opportunity for suppliers and provide choice for consumers. Constellation, however, would replace that tier with a closed system that commoditizes beer, harms consumers and excludes new brewers.”
Last month, reports surfaced that Constellation – whose portfolio includes Modelo, Corona and Pacifico – informed Antioch-based Markstein Sales Company and Visalia-based Bueno Beverage Company that it would terminate their relationships. Both are family-owned wholesalers in the Anheuser-Busch InBev network. Combined, Markstein and Bueno sell about 4 million cases of Constellation products annually.
Asked about the terminations during trade publication Beer Business Daily’s Beer Industry Summit in San Diego, Newlands said the company is looking for “long-term partners.”
“As we’ve said many times, our team is very focused on aligning with groups that are going to invest behind our business, and are going to be long-term partners for us,” he said. “Certainly that’s that’s a bit of what drives some of those answers.”
Both Markstein and Bueno acquired the rights to the Constellation’s Mexican import portfolio shortly after the turn of the century, and Constellation makes up a significant portion of their businesses. In most California markets, Constellation is the largest beer supplier and Modelo is the best-selling beer brand. Losing the company’s portfolio can be an existential threat to wholesalers.
In recent years, Constellation has terminated several wholesalers in California, including San Diego-based Markstein (a separate entity from Markstein in Antioch), Santa Fe Springs-based Triangle Beverage and Compton-based Beauchamp Distributing, and Los Angeles-based Ace Beverage.
These terminations have been concurrent with heightened acquisitive behavior by the Reyes Beer Division, the country’s largest beer wholesaler. Reyes has not yet been named as a successor wholesaler for the Constellation portfolio from Markstein and Bueno, and the terminations have not been finalized.
“With this latest forced consolidation, Constellation threatens the long-term viability of one of America’s only woman-owned and operated distributors as well as one of the nation’s few minority-owned and operated distributors,” Luckey wrote of Markstein and Beuno. “Contrary to Mr. Newlands’ recent remarks, Constellation has long recognized Markstein Sales Company and Bueno Beverage Company as excellent partners and brand stewards that have consistently invested behind their brands over their decades-long partnerships.
“Regrettably, Constellation has chosen to abandon these long-time partners at the behest of the largest participant in the middle tier,” he continued. “Unchecked, Constellation will continue its anticompetitive approach beyond California.”
Aside from Constellation, other brewers have also terminated smaller wholesalers in California in favor of moving to Reyes’ subsidiaries, including New Belgium and Diageo.
Last year, after the Biden Administration issued an executive order calling for increased competition across all segments of the economy, Luckey filed a letter on behalf of the CFBD that claimed Reyes holds a 55% share of all the beer sold in California, double the share it held in 2018, before it began acquiring both distributors and brand portfolios throughout the state.
Reyes CEO Tom Day submitted his own letter in response, claiming that “the movement of distribution rights by brewers is a reflection of inefficient or ineffective distributors and is evidence that competition is working, not the opposite.”
Constellation provided the following comment via a spokesperson: “The beer industry continues to experience both consolidation and an influx of new capital disrupting the distributor marketplace. As industry dynamics, service models, and route-to-market capabilities evolve, we must make decisions that are in the best long-term interests of our ability to be most competitive and efficient as we work to meet the needs of retailers and consumers.”
This story was updated at 6:07 p.m. ET on Friday, February 4 to include the above comment from Constellation Brands.