Manhattan Beer’s Windmill Acquisition has New York Bodegas, Beverage Centers Fearful

manhattan-beerTwo of the largest beer wholesalers in New York City are working to consolidate, creating one company that will control approximately half of the city’s beer market — but not everyone is happy about it.

In a note to suppliers, Manhattan Beer Distributors announced Tuesday that it has entered into a formal agreement with Windmill Distributing (PhoenixBeehive Beverage Distributors), to acquire the company’s beer brand distribution rights.

The agreement, which is still pending supplier and United States Department of Justice approvals, would give Manhattan Beer control of 13 million more cases of domestic, import and craft beer. Manhattan, which will already sell and deliver in excess of 35 million cases this year, has signed a letter of intent to acquire the Windmill business, according to Mike Mazzoni, an advisor on the deal, first reported by Brewbound in September.

Mazzoni said the deal should improve business for both Manhattan (the Windmill name will dissolve as a result of the deal) as well as its suppliers and retailers.

“They’ll be able to provide better market coverage for their suppliers,” Mazzoni said of the advantages of the deal. “It’ll be easier for retailers because instead of having a Phoenix truck, or a Windmill truck and a Manhattan truck, they’ll have just one truck. Everything should be more efficient from that standpoint and again, that’ll trickle down to the various suppliers that Manhattan represents.”

But there are concerns. Some of the city’s bodegas, and its independent beer distributors, worry that the merged companies will have a monopolistic stranglehold on the beer market, resulting in higher beer prices that ultimately get passed down to the consumer.

When finalized, Manhattan will control approximately half of a 100-million-case New York City market.

The Bodega Association of the United States, which represents more than 13,000 store owners in the city, and the Empire State Beer Association, which represents 100 independent home distributors — New York’s warehouse-style “beverage centers” that are allowed to sell to on-and-off-premise retailers as well as consumers — have released a 22-page report in response to the deal and are jointly calling on the USDOJ to block the merger.

According to Ramon Murphy, president of the Bodega Association, this type of consolidation has led to price gouging and favoritism to larger stores.

“We are concerned with discriminatory pricing,” he said through one of the association’s advisors. “We have found out that box stores are getting favored prices and our members are being forced to purchase beer illegally at other retailers because of the discriminatory prices we are being offered.”

However, in its note to suppliers, Manhattan claims that retailers not currently served by Windmill (many of the city’s bodegas) will benefit by having better access to an expanded portfolio of beers.

Manhattan, with a sales force that is roughly twice the size of Windmill’s, said the acquisition will enable the company to provide “even better and more efficient service” to its 26,000 accounts in Metropolitan New York.

On the surface, it appears that home distributors fear a consolidation will disrupt their existing business model — one where bodega owners are responsible for purchasing and transporting many of the beer products they sell in their shops. While the ultimate effect of squeezing out the warehouses remains to be determined with regard to pricing, Manhattan Beer argues that its vast sales force and daily deliveries would likely cut out the need for bodega owners to do their own heavy lifting.

Murphy disagrees, saying that, “the merger will only make that situation worse. We’re asking that the Justice Department scrutinize the merger to make sure that this consolidation does not make the tactics of discriminatory pricing even worse.”

Mazzoni contends that a fear of mergers creates misinformation and misunderstanding.

“Frankly I don’t understand [their concerns]. In my experience, the markets have been better served by a more efficient operation,” he said. “I saw something, for example, that said it would limit the retailer’s choice of brands. Frankly, in my view, that’s a ridiculous statement.”

Though a specific date for when the two companies will operate as one is a bit of a “moving target,” according to Mazzoni, the hope is to be up and running at some point during the first quarter of 2015.

Mazzoni would not disclose specific transaction figures pertaining to the deal, but said the Brayman family – which operated Windmill as a joint venture with Heineken and MillerCoors – will be minority shareholders of the new company run solely under the Manhattan moniker. The other principles would be Manhattan partners Simon Bergson and Jeff Honickman.

A call placed to a Manhattan executive for further comment was deferred to COO Bill Bessette. Bessette could not be reached for comment as of press time.

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