APB gives up exclusivity contracts; craft beer weighs in

The biggest news to hit the alcohol industry this week was a nondescript announcement by the Competition Commission of Singapore (CSS), which revealed its findings into its investigations of Asia Pacific Breweries (APB)’s practice of supplying draught beer to retail outlets solely on an exclusivity basis.

Under APB’s exclusivity practice, the beer company – which represents brands including Heineken, Tiger Beer, Anchor Beer, Guinness and craft beer brand Archipelago Beer – locked its retail partners into selling only APB beers on draught, restricting access to other beer brands not in its portfolio to draught taps in retail outlets such as bars and restaurants. Under Singapore’s competition law, any such exclusive business practices by a dominant company like APB (which is the country’s biggest player in the beer market) that restricts the choices of products – in this case, draught beer – available to retailers and consumers alike is strictly prohibited.

Upon CCS’s investigations, APB has voluntarily ceased its outlet-exclusivity practice. According to the CCS, the change will be applicable to all APB draught beer contracts entered into with retailers on and after 28 December 2015, including new and renewal contracts. APB will also be required to provide CCS with documents to show that these changes have taken effect.

“The removal of these exclusive business practices will allow beer suppliers to compete on merit in offering their draught beers to retail outlets,” says Toh Han Li, Chief Executive of CCS. “This will allow retailers to stock a greater variety of draught beers, leading to a more vibrant market with more choices for consumers, as well as opportunities for existing suppliers and new entrants including microbreweries and craft beer suppliers.”

Independent beer distributors SpiritedSingapore.com spoke to lauded the new development, although most question the impact on the market.

“Whilst details of the APB agreement are still scarce, it sounds like good news for the diversity of the draught beer market in Singapore in the long term,” says director of Eastern Craft Trading Jeremy Reynolds, whose company brings in a number of Japanese and British craft beer brands. “Simply put, it’s a big step in the right direction. However I’m somewhat skeptical that change on the ground will happen rapidly, and I’m sure the big players will use all their muscle to retain market share.”

Agreeing with Reynolds is Beerstyle Distribution director Winston Kwang. “We’ll definitely begin to see more variety of craft beers in the market, as there will be some accounts that will be happy to explore taking in more craft beer brands,” says Kwang, whose company represents a number of American craft beer brands in Singapore. “However I don’t believe it will be a game changer – the likes of APB offer rebates and volume discounts to retail outlets and that won’t go away. Those accounts that achieve a huge volume for APB beers will most likely continue with them instead of diluting sales turnover (by moving to craft beer), in order to keep receiving those rebates; that is not something that craft beer distributors, which don’t provide much in the way of A&P, can compete with,” he adds.

Mirroring their views is Roland Utama, a director from The Drinkery, another craft beer distributor. “APB and most other suppliers of commercial beers are giving out large cash incentives and freebies worth a huge sum of money to entice (retail outlets) to carry their beers, which most craft beer suppliers won’t be able to match. So overall, we think its good news and a step towards the right direction, but how much impact it has for the proliferation of craft beers remains to be seen,” says Utama.

While APB’s exclusivity practice has been well-known in the market, it is not the only one – other players are believed to employ such contracts, and it is unclear from CCS’s statement if they will also be investigating the market further. “And while APB is withdrawing exclusivity voluntarily, we’re not sure whether this also applies to all other big suppliers such as Carlsberg, Pacific Beverages or 6 Drunk Men which may still freely use such exclusivity contracts,” asks Utama.

One player that won’t be profiting from the new market development is Jungle Beer, which went defunct in early 2014. The independent microbrewery had found it extremely difficult to penetrate the local beer market riddled with exclusivity contracts, and was widely believed to have been responsible for lodging the initial complaint with the competition commission about the unfair practices soon after it got its brewing license in 2011. “The CCS launched a preliminary investigation to ascertain if the issue merited a full investigation, and after about a year of not hearing back from them, we were told that they had launched a full investigation. Nothing else happened before we closed Jungle Beer and I moved back to India,” says former Jungle Beer co-founder and head brewer Aditya Challa.

“I hope the CCS will be more efficient with dismantling the system than they were with investigating it,” Challa adds.

Other industry insiders say that the removal of the exclusivity contracts is only the first step towards a level playing field. “While the lifting of such practices will work toward levelling out the playing field between mass producers and niche suppliers, the winning theme here is the education of retailers and consumers,” insists Kasster Soh, co-founder of craft cider distributor The Mad Tapper. “With consumers being able to access a larger range of beers and ciders more easily, retailers will need to raise their knowledge standards in order to remain relevant and competitive,” says Soh.

Agreeing with Soh is Singapore Craft Beer Week organiser Charles Guerrier of Evolve Beverages. “(While) this represents a great opportunity for craft beers in the Singapore market, the onus now is on the restaurants, bars and pubs to seize this opportunity and revitalise their beer selection to offer a greater range of products to their customers”, he says.

But everybody in the craft beer industry believes it’s a step in the right direction. “As a craft beer distributor, though, we have to be ready for any new opportunities that may arise, and it’s great to see CCS Chief Executive Toh Han Li specifically mention craft beer suppliers. From very small beginnings we’re now on their radar,” concludes Eastern Craft Trading’s Reynolds.