There is trademark dispute that has been going on for some time between beverage giants AB In-Bev and Constellation Brands. If you’re not an insider of the beer, wine, and spirits industry, you may not know these companies by name but you likely know their products. 

AB In-Bev, with assets totaling more than $230 billion dollars, owns many popular beer brands like Budweiser, Corona, and Stella Artois. Meanwhile Constellation Brands, worth just over $45 billion dollars, distributes a seemingly broader portfolio of adult beverage products. While Constellation imports beer brands like Corona and Modelo for AB In-Bev in the US, they also own a portfolio of wines like Woodbridge and Mondavi, as well as spirits like High West and Svedka. 

If you are unfamiliar with this industry, you might wonder why AB In-Bev doesn’t just distribute Modelo and Corona on their own and be done with it. If you picked up on the fact that AB In-Bev also owns Budweiser, among many other popular US beer brands, you’re on the right track. AB In-Bev must rely on their relationship with Constellation for import into the US but as an importer, Constellation must also ensure they are representing the brand in the market the way AB In-Bev intends.  

The Problem

At issue with this trademark dispute is what happened during the COVID lockdown when the hard seltzer craze was on fire in the US. This category was growing and White Claw had emerged as the dominant brand in the US. For many top adult beverage producers, the hard seltzer category was one that could no longer be ignored. Many legacy beverage makers were eager to jump into the market and profit from this trend with their own hard seltzer concoctions. 

Boston Beer Company, maker of Sam Adams, created Truly Hard Seltzer. AB In-Bev decided to leverage their Budweiser brand and create Bud Light Seltzer. Even traditional non-alcoholic beverage makers like Coca-Cola got in the game by leveraging their newly acquired brand Topo Chico to create Topo Chico Hard Seltzer. 

While others developed, re-branded, or re-formulated a beverage based on branding and trademarks they owned, Constellation Brands took a different approach. Rather than use one of the beer brands they owned, they decided to release a hard seltzer option using Corona branding.

It is unclear why Constellation seemingly made this move without fully informing AB In-Bev. It is possible that they did and despite the feedback they may have received moved forward anyway. But why use Corona rather than one of their own brands when the category was clearly carving out new names? 

Maybe because they felt none of the other beer brands they owned were strong enough to compete in the market. Afterall, it would no doubt be easier to leverage something familiar then spend what it takes to market something new. It might also be that they felt they could use a classic business strategy known as,”ask forgiveness not permission”. However it played out behind the scenes, according to the suit filed by AB In-Bev, Constellation improperly leveraged the Corona brand and violated their trademark agreement. 

What Is Beer?

Both companies clearly have an interest in selling beer brands. But what is hard seltzer? Is it beer or something else? One would think the concept of beer is pretty basic. Even a non-beer drinker might cite key ingredients to include hops, barley, malt, or water. Despite this, Constellation seems to think differently. 

It may never be understood why Constellation made the move to brand a hard seltzer using a familiar beer brand but it seems they are now trying to rationalize their actions. Why? Because AB In-Bev was not pleased with the use of Corona being used to brand the beverage citing trademark infringement. 

Just as most seem to have a clear understanding of what beer is, so too do many understand what trademark infringement and disputes looks like. Well, everyone except for the senior leadership and legal teams at Constellation. They seem to be making the argument that even though Corona Hard Seltzer is not a beer, what is a beer really?

According to a recent article by Law 360, Constellation Brands has asked a New York federal judge to not find their actions as infringement. They argue that seltzer, which contains no hops and no malt, is a form of beer. They further go on to say that their beverage partner, AB In-Bev, has “cherry-picked” the definition of what they call “beer”.

Constellation argues that the term “beer” cannot be interpreted to imply that it contains malt and hops that might seem odd but they may have a point. There is an emerging category for those seeking gluten-free free beer alternatives and there are options available in the market. 

This seems like a great point to make, but then, according to the Law 360 article, Constellation continues by saying, “Just like an ophthalmologist would not consult a dictionary to diagnose blindness, beer industry participants do not consult dictionaries to figure out how to define their own unique terms, like beer and malt beverage”. What?

So what’s the deal? Is Constellation trying to take some creative liberties and redefine what is seemingly obvious? Why would Constellation be so adamant what they are doing is not a problem? Could this all be part of something bigger? Let’s first start with a little history.

Historical Context

Grupo Modelo created Corona back in 1925. Grupo Modelo grew the brand in Mexico and with time and strong marketing dethroned their rival Plaque. Due to their success, Constellation Brands entered into an agreement in 1978 to bring the brand to the US. Constellation grew brands from Modelo from 150,000 cases in 1978 to more than 70 million in 2005. In 2007, Grupo Modelo and Constellation Brands expanded their agreement to work with each other and entered into a joint venture for 10 years, starting in January 2007. 

In the meantime, as industries do, things were consolidating and changing. Interbrew, which itself was a mix of brands like Stella Artois, Piedboeuf, Becks, and Labatt formed in 1988. In 2004 Interbrew, at the time the third largest beer producer, merged with AmBev, the fifth largest producer, to create InBev and become a global leader in beer production. This strength helped enable InBev to purchase Anheuser-Busch in 2008 to form AB In-Bev and maintain their lead as the largest beer producer in the world. Not content with this title, AB In-Bev purchased Grupo Modelo in 2012 as well as SABMiller in 2015. The global beer brands owned by AB In-Bev are staggering, which brings us back to the issue at hand. 

Distribution Consolidation and Competition

For any consumer products company, distribution and ability to penetrate the market are key factors of success. AB In-Bev already controls a significant portion of beer production in the US with a strong distribution network in place. As is often the case across the US, producers typically have a one to one relationship with distributors; meaning, you will find most producers use only one distributor per state. 

While there are currently no distributors that cover all states in the US, there are several large distributors that operate in several if not all major markets in the US and have very strong relationships with the retailers and restaurants they distribute to. Even though at the retail level business owners are welcome to use as many distributors as they care to, often they will stick with a few major distributors for ease of business operations. 

Just as consolidation has occurred on the production side of things, it has also occurred on the distribution side as well. The result is that often AB In-Bev and Constellation may use the same distribution in many markets in the US. Even though there are overlaps as each product goes to market, there remain different controlling entities, which is beneficial for AB In-Bev so as not to be seen as have an even greater amount of control in the market. 

Earlier this year, the Treasury Department released a report explaining that AB In-Bev and Molson Coors account for 65% of the US beer market. Due to their size and desire to be efficient, both of these companies use only a handful of the roughly 3,000 distributors in the US. According to an industry insider cited in the report, this has resulted in at least one geography with an estimated 90% control by either of these two producers. 

The reason AB In-Bev does not just cut ties with Constellation Brands is most likely due to the fact that there is already a fair amount of scrutiny in the industry. Further efforts to consolidate will most likely bring added criticism and antitrust speeculation. So at least for the time being, AB In-bev must rely on Constellation. 

The Wrap Up

In the end, the resolution of this case between two beverage giants, AB In-Bev and Constellation Brands, illustrates a complex dynamic within the industry. While it might be challenging for smaller producers and distributors to empathize with these large corporations, the legal battle over the definition of ‘beer’ and the use of the Corona brand for hard seltzer highlights broader issues. The verdict, which favored Constellation Brands, allowing them to continue selling hard seltzer under the Corona brand, reflects the evolving nature of beverage categories and the importance of strategic brand management.

This outcome signals the intricate challenges and competitive strategies in the industry. It underscores the significant influence held by a few major players and the extent they will go to protect and expand their market share. This case also puts into perspective the hurdles that smaller producers may encounter while trying to carve out a space for themselves in a market dominated by such powerful entities. The case goes beyond a simple trademark dispute, touching upon market dynamics and the evolving definitions within the beverage industry.