AB InBev sues Constellation Brands over move to sell new Mexican beers in US

Brief:

  • AB InBev filed a lawsuit in the U.S. District Court of the Southern District of New York Tuesday over Constellation’s launch of two Modelo Reserva beers, according to a copy of the court filing.
  • The beers include one aged on tequila barrels and a second on bourbon barrels. In the filing, AB InBev said the first breaches U.S. and Mexican laws that “strictly restrict” the use of the word tequila, and the second breaches Constellation’s sublicense agreement to sell “Mexican-style beer” because bourbon has nothing to do with Mexico.
  • The suit marks the second between the two companies this year. In February, AB InBev’s Mexican arm Grupo Modelo filed a lawsuit against Constellation Brands accusing the company of violating a brand licensing agreement when it launched Corona Hard Seltzer. The lawsuit said the agreement only allowed Constellation to use Corona in the U.S. when it came to beer.

Dive Insight:

As beer makers fight for market share in a competitive alcohol space, lawsuits are becoming a bigger tool in their fight to stay ahead. In the case of AB InBev and Constellation Brands, the fast-changing landscape has turned companies that seemed to be working in harmony for years into fierce competitors.

After AB InBev took full control of Grupo Modelo in 2013, AB InBev had to divest the company’s business in the U.S. to Constellation, following a deal with regulators who were concerned its market share would have been too high. Today, AB InBev owns the rights to beers like Modelo and Corona in Mexico and the rest of the world.

The U.S. beer sector as a whole has struggled in recent years, but one of the few bright spots has been Mexican imports. As the subsector has grown, Constellation has been among the biggest beneficiaries.

In its lawsuit, Grupo Modelo notified Constellation of its concern in June over the new beers but that the company refused to stop selling them. Constellation said in a statement to Food Dive the “claims are without merit. We have fully complied with the terms set forth in our sublicense agreement and will continue to vigorously defend our rights under the agreement and applicable law.”

Constellation discontinued the Modelo Reserva bourbon barrel aged offering last year.

It’s possible the two sides could reach an agreement over the remaining tequila-based beer where AB InBev gets a percentage of sales. For now though, it appears this disagreement is ticketed for the U.S. legal system. 

U.S. spirits had a strong year in 2020, according to the Distilled Spirits Council of the United States. Supplier sales of spirits rose 7.7% in 2020 to $31.2 billion. Spirits were able to gain 1.3 percentage points in market share over beer and wine in 2020, commanding 39.1% of total beverage alcohol sales.

The growth in spirits is a big reason why beer makers have tapped into this category for some of their recent product launches. AB InBev, for example, partnered with Beam Suntory to launch a beer in 2018 aged on Jim Beam bourbon barrel staves. 

The lawsuit involving Constellation and AB InBev marks the latest skirmish to infiltrate alcohol. Tequila trade body the Consejo Regulador del Tequila recently settled a multi-year lawsuit with Heineken over use of the word ‘Tequila’ on the Dutch company’s Desperados brand. A federal appeals court last year overturned a lower court’s ruling that backed Molson Coors in an ongoing battle about corn syrup against its bitter rival Anheuser-Busch. And Molson Coors recently settled a trademark case involving its popular Vizzy hard seltzer.

As alcohol makers attempt to latch on to the fast-growing niches, and the lines between different types of beverages in the category like beer and spirits further blurs, the litigious mood sweeping throughout the sector is unlikely to abate anytime soon.

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