Wednesday, December 22, 2010

Want Some of That Tasty Beer Money?

Get into politics. We'll talk about the CARE Act in a second, for now, just let this wash over you.

In all 32 House members were given wholesaler contributions within a month
of signing on to the legislation [ed note: the CARE Act] - including at least 10
lawmakers who were given contributions within a day of co-sponsoring
the bill, according to a POLITICO analysis of data from the Center for
Responsive Politics and public records.

So what is the CARE Act? Well, if you ask the distributors you get one answer:
The CARE Act aims to clarify congressional intent that states have primary authority to regulate alcohol; prevent the additional erosion of state-based alcohol regulation through the expansion of the Granholm v. Heald decision, but not allow intentional or facial discrimination against out-of-state or out-of-territory producers unless the state or territory can demonstrate that the challenged law advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.
What does that mean? It means they want to make the three-tier system federal law. In 2005, the Supreme Court decided Granholm v. Heald. In Granholm the Court held that state laws that permitted in-state wineries, but not out-of-state wineries, to direct-ship to in-state customers are unconstitutional. The laws were meant to protect small wineries and allow them, but not large, corporate out-of-state wineries, to ship directly to customers - a service that greatly increases purchases at wineries by tourists. The Supreme Court said, basically, that if the state were going to allow in-state wineries to ship to in-state customers, the state also had to allow out-of-state wineries to ship to in-state customers.

The distributors CARE, because direct shipment to customers bypasses the distributors.

In a general sense, distributors are not super-concerned with small wineries shipping a few cases of wine to a few tourists. However, with these specific laws unconstitutional, states, if they want to grant their small wineries this right, must also allow big, corporate wineries (the bread and butter of the distributors) to also direct-ship to customers. So, if I want a magnum of Kendall Jackson reserve, I can just order it straight from the winery instead of walking into Woodman's. And that's what the distributors are afraid of.

So, the hard-working lawyers at the National Beer Wholesalers Association ("NBWA") came up with the Comprensive Alcohol Regulatory Effectiveness Act of 2010 ("CARE Act"). It would reverse Granholm and specifically allow states to discriminate between in-state producers and out-of-state producers.

Sounds like just the sort of thing that small breweries would like, right? Protectionist legislation that would allow them to ship to their in-state customers, even if they have to stop direct shipment at the border. However, the Brewers' Association, the craft beer lobbying group, roundly opposes the proposed legislation.
As currently drafted, H.R. 5034 would amount to an abandonment of Congressional authority over interstate commerce in alcohol beverages. It will undermine existing federal authority over taxation, product composition, labeling, advertising, and importation of goods from other nations. ... Congress should not provide states with a free hand to enact new and inequitable protection for wholesalers. Similarly, any serious discussion of an equitable distribution system must assure access to market for small brewers, allowing them to distribute beer in order to build a market for small brands.
Fair enough. The Brewer's Association thus argues that the system works pretty well right now. Enacting the law will only make it more confusing about who can ship where; some states will allow in-state but not out-of-state shipments, others will allow both, some will allow neither. Today, if anyone can direct-ship, everyone can direct-ship. Easy.

While many predicted that Granholm would re-define how the alcohol industry works, the reality is that in the five years since the Granholm decision, little has changed. The reason? It takes time and money to direct ship alcohol. And why go through the hassle when you can just walk down to Woodman's to buy it? Nonetheless, the NBWA feels it necessary to spend millions of dollars to buy your Congress-critter's support.

There is only one Representative from Wisconsin listed as supporting the CARE Act: LaCrosse-area representative Ron Kind, who won re-election in this past election. Oh look: Rep. Kind received a nice, fat $10,000 check from the National Beer Wholesalers Association, I'm shocked and amazed. Bet that money came in handy for his re-election that won by a mere 3 percentage points.


  1. In the case of Michigan, I think (but I'm not 100% certain) that Granholm flipped the court decision on its head and prohibited all direct shipments. A clever interpretation, yes, but bad for everyone. Bieeieaeatch!

  2. While I think that it might be slightly beneficial to local breweries to ship beer to customers around the country, remember that the "price per pound" of wine is far higher than that of beer, even craft beer. If you think about a moderately-priced bottle of wine, you're looking at $20-25/bottle. That's equal to a full case of craft beer, which is going to be FAR heavier and more expensive to ship. Wineries make up for this by shipping by the case (6 bottles, ~$120), but could you imagine placing an order for 6 full cases from your out-of-state brewery? The shipping costs would add another 50% on to your bill, at least.

    I have to say, I'm supportive of anything that curbs the wholesalers' iron grip on alcohol distribution in this country. It's why NG pulled out of the Chicago market, it's (probably) why Stone pulled out of the WI market, etc.

  3. I head from someone at Star that dogfish head is pulling out of Wisconsin also. His explanation was that they did really well in Madison but nothing in the rest of the state and it was too expensive to be in the state for one city. I am guessing that cost has to do with this?

  4. The cost is probably driven by the brewery's sales team, not distribution. Distributors react to market demand for a given brand, but they do very little to create it themselves (and why would they, when they can instead focus on distributing brands with more "pull"?). To help create demand and keep retailers interested in their brands, brewers send their own sales teams. Each salesperson covers a fairly wide geographic area, so having strong sales in a single small city probably isn't enough to justify the wages and expenses. That's my theory, at least.

  5. I'll have more on the Dogfish rumor when I get in touch with distributors, but for now, a quick poll of a few retailers reveals that nobody seems have heard anything. So, it does not appear to be true.

    And, Joe's comments are right on. They probably have better places to send their one or two "Midwest" reps than non-Madison locations in Wisconsin.


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