The Bubbling Concern Over Two Beer Giants’ Blockbuster Merger

A $107 billion bid by the world’s biggest beer company, Anheuser-Busch InBev, to buy the world’s second-biggest beer company, SABMiller, received the federal government’s blessing last week. The question now is whether American beer lovers ought to be concerned. And the answer is unsatisfying: nobody’s sure yet.

While a can of Bud will likely cost about the same next summer as it does today, beer insiders say the real impact of this acquisition—nicknamed the Megabrew deal on Wall Street—on the robust American industry could come in the form of fewer locally-owned breweries, and therefore fewer consumer choices: fewer craft brews, fewer imports, and less innovation on tasty new products.

Whether the industry goes in that direction won’t be clear for at least a couple years. That’s because the U.S. Justice Department’s approval of the deal, on July 22, looks good on paper, according to several representatives of small and independent brewers. It imposes a series of conditions designed to prevent the soon-to-be-massive Belgium-based ABI from using its extraordinary, global clout to distort the U.S. market or thwart competition from smaller beer makers.

But it all depends on whether federal bureaucrats adequately police, and enforce, those squirrelly rules—a task they have not excelled at in the past. In a 2014 book that looked at dozens of past mergers and acquisitions, Northeastern University economics professor John Kwoka found that agency enforcement actions are “not demonstrably effective” and “do not preserve or restore competition.”

“There is little systematic follow-up,” he told TIME, “since the agencies are not designed or intended for this regulatory role.”

Independent distributors, craft brewers, and imported beer makers are therefore cautious about what comes next. “In theory, these remedies should provide a little more of a barrier at the distribution level,” Paul Gatza, the director of the Brewers Association, told TIME. “But we’ll see.”

The National Beer Wholesalers Association, which represents more than 3,000 licensed, independent beer distributor across the country, also welcomed the Justice Department’s conditions, provided they’re enforced. “The Department of Justice has imposed conditions to this merger—one of the largest deals in history and the largest ever in the beer industry—with the goal of maintaining competition in the beer industry and ensuring the continuation of the robust and competitive independent distribution system,” said NBWA President and CEO Craig Purser.

In order for the deal to go through, the Justice Department has required that ABI sell its U.S. stake in one, giant U.S.-based beer conglomerate, MillerCoors, to another company that meets the same description: Molson Coors. (By the end of 2016, Molson Coors is expected to control Coors Light and Millers Light, two of the top-four best-selling beers in America.)

In the wake of that corporate shuffle, ABI’s total U.S. market share, post-merger, will remain at roughly 44%—more or less where it is now. But market share is only part of the problem facing small brewers. How beer makers actually get their product to market—to bars and restaurants, and onto store shelves—is the real the challenge behind the scenes, several brewers told TIME.

According to most state alcohol laws, brewers are required to sell their product to a middle man, an independent distributor. Those distributors then act as liaisons to consumer-facing sellers—bars, restaurants and stores—which then sell the products to consumers.

This unique, three-tier system has been remarkably effective at preventing any single brewery from gaining total control of the market. (By contrast, just two companies, Coca-Cola and Pepsi, have cornered the vast majority of the soft drink market.) As a result, there’s been explosion of small-breweries, micro-breweries, and locally-owned restaurants selling their own beer.

But this distribution tier is also vulnerable to exploitation. In recent years, the ever-more-giant brewers, including ABI, SABMiller, and Molson Coors, have used access to an independent distribution network as a tool to keep competitors at bay. For example, most of the big companies use special “incentive programs” to extract favorable terms from an independent distributor or force it to drop competitors’ products. And they have used their own prices to ace-out any distributor who doesn’t play along. (After all, an independent distributor that loses a contract with a giant like ABI has very little chance of surviving without half the market share.)

At the same time, a handful of the biggest beer makers have also begun to blur the once-bright lines in that three-tier system, quietly becoming small, wholly-owned distributors themselves in about ten states. ABI, for instance, which is both the biggest brewer and the biggest distributor by volume in the U.S., now owns roughly 9% of its own distribution network. Most craft brewers, meanwhile, can’t begin afford the refrigerated trucks, warehouses, drivers, and regional expenses necessary to distribute their own product.

State regulators have allowed those big brewers to wade into distribution with certain restrictions. In most states, the big breweries’ wholly-owned distributor arms are limited to distributing less than 10%—usually 7 to 8%–of their own product, forcing them to rely on traditional, independent distributors for the rest.

While the big brewers’ direct control of distribution networks is still a relatively small factor, the role of this distribution network has weighed heavily on smaller brewers’ minds since ABI announced its intention to buy SABMiller in November 2015.

For them, two specters loom: If an even-more-giant ABI is allowed to expand its wholly-owned distribution network and carry more of its own product, smaller beer-makers could be easily aced out of the market. And if ABI is allowed to use special incentive programs to make distribution through independent wholesalers more expensive for the little guys, it would have the same effect.

The Justice Department’s conditions on the ABI-SABMiller deal were designed to address this concern. Under the rules of the deal, ABI is not allowed to carry more than 10% of its own product on its wholly-owned distributors. It’s not allowed to use incentive deals to extract special treatment from independent distributors, or to encourage them to drop competitors’ products. It’s also required to get government approval to buy up smaller breweries.

The Justice Department, which has appointed a monitor to follow-up on the terms of the deal, says those rules are robust and will be effective. “The remedy we secured will help preserve and promote competition in the multi-billion dollar U.S. beer industry,” said Deputy Assistant Attorney General Sonia Pfaffenroth of the Justice Department’s Antitrust Division in a statement.

But smaller brewers say its a gamble. Whether, and how, the federal government actually enforces those rules remains to be seen. If they don’t, craft brewers face a tough political fight. After all, most American beer drinkers don’t necessarily notice if nearly half of all the seemingly innumerable options on tap at their local bar or restaurant, or stocked on beer aisle at the grocery store, are all owned and controlled by ABI.

“We’re already seeing in some places that the variety is more of a façade of choice,” said Gatza, who represents craft brewers. “There are a lot of different beers available, but they’re all controlled by the large brewers that just look like they’re independent craft breweries when in fact they’re not.”

In the meantime, ABI CEO Carlos Brito has declared victory. “With today’s agreement, we have taken a significant step forward on the transaction,” he announced in a statement July 22, “which will create the world’s first truly global brewer.”