Anheuser Busch Gets Taste of Wholesaler Protection System

A decision in Illinois today by the Illinois Liquor Control Commission delivered proof of what so many of us have come to understand as the truth: the Three tier system has evolved into the "Wholesaler Protection System" while the various alcohol beverage and liquor control commissions in the different states have become the enforcers of that corrupt system.

Today the Illinois Liquor Control Commission ruled against Anheuser-Busch's bid to buy out its Chicago-area distributor so that it might distribute its beer on its own. The Commission cited the need to preserve the "Three Tier System" as the primary reason to deny A-B the ability to buy the remaining 70% of City Beverage-Illinois and self distribute its beer rather than use a wholesaler.

According to Gary Rutledge, A-B's VP and General Counsel, "This challenge to our license was very last-minute — we made nearly 20
contacts with this agency and they never mentioned an issue until the
eve of the deal closing."

Mr Rutledge knows what happened and so does everyone else: Southern Wine & Spirits and Wirtz Distributors, Illinois' biggest wholesalers, called up their pals at the Illinois Liquor Control Commission and demanded the Commission protect their businesses from competition. 

In order to protect their friends the wholesalers, the Illinois Liquor Control Commission made their ruling based on the thin ground that allowing A-B to distribute their own product would damage the Three Tier System, which, they claim, is the raison d'etre of Illinois' entire set of alcohol laws.

According to news reports, A-B plans to sue the commission and the state on Commerce Clause grounds. I say more power to them.

The 70+ year old three tier system, whereby producers sell to wholesalers and wholesalers sell to retailers and restaurants, has become the wall of protection that wholesalers, who occupy a privileged and unearned and often unnecessary place within that system, hide behind whenever their cushy, government subsidized world is interrupted by the 21st century marketplace. Through this antiquated protection racket, wholesalers have near complete control over what products come into the market. And whenever it becomes clear that their services are not needed or that others can do their job without them or when consumers complain that the current system is broken, wholesalers go running to mommy-government crying that their wall of unfair protection is being threatened.

Luckily for the wholesalers, politicians (who take enormous amounts of cash from wholesalers) and alcohol regulators have both happily crawled up inside the wholesalers Honey Pot and will work their hardest to protect a small collection of HUGE business that looks more and more like the Mafia Commission every day.

Wine producers and retailers have known for decades that wholesalers are not their friends. Small Brewers have known this. Now it appears that Big Beer is learning just how out of control the complete control of the wholesalers has become.

Consider that in Indiana there is a law about to be passed that will allow wine and beer wholesalers to get paid if one of their producers leaves and goes with another wholesaler. The bill says the new wholesaler must pay the former wholesaler "fair market value" of the right to distribute the brand in question

In Michigan, after a federal court ruled that the state's discrimination against out-of-state retailer who were not allowed to ship direct to consumers was unconstitutional, the head of the Michigan Liquor Control agency worked with the Wholesalers to write a law, get it introduced into a committee and have it passed out of committee without giving anyone warning. That regulator then quit and took a job as a lobbyist with the lobbying firm that represented the Michigan wholesalers.

• And of course it has been wholesalers across the country, a group of people who never deal with consumers and know little or nothing about selling wine to the public or the challenges it presents, have been in the forefront of stopping any all means of direct shipping to consumers by both wineries and retailers.

• Finally, consider that this "three tier system" of mandated use of wholesalers by producers who must sell to them and retailers that must buy from them, was set up in the 1930s when there was no wine industry, when their was no overnight shipping, when there was no way to distribute information instantly and when consumers had little or no interest in wine, yet it is supposed to be the framework by which alcohol sales are governed today.

My guess is that if an enterprising member of the journalistic community wanted to dig a little, they'd likely find very inappropriate pressure put on the Illinois Liquor Control Commission right before it stopped A-B from acquiring the Illinois distributorship and in advance of finally denying it from having controlling interest in the distributorship.

A-B is certainly going to have to sue. They'll get no help from Illinois politicians who are so far in the pockets of Illinois wholesalers they could all get jobs as tailors.

10 Responses

  1. tom merle - March 11, 2010

    Bear in mind that a decade ago the King Kong of beers as distributor used its weight to intimidate craft brewers. Augie baby informed his hundreds of retail accounts in various regions that if they carry the small fry they can forget about carrying his magnificent beverage. When there are so few distributors in a region this anti competitive behavior has an effect and it could be argued that it justifies the separation of functions in certain situations.

  2. Nancy - March 11, 2010

    It gets better. A local winery/restaurant here in the south suburbs that makes its own wine has to pay a wholesale distributor to ship its wine to itself.

  3. LewBryson - March 11, 2010

    That happens a lot with beer, Nancy: all depends on the state law. Sometimes they have to sell the beer to a wholesaler and buy it back to pour in their own tasting room.

  4. Mark's Wine Club - March 12, 2010

    Pretty amazing that a company the size of A-Bush can’t even work the system to their advantage as it is currently set up. Makes you wonder, how long this fight is really going to take with most of the political establishment working against free trade.

  5. Richard - March 12, 2010

    Who wants to take a guess that several of the members of the Illinois Liquor Control Commission have professional ties to the wholesalers in their state? I’d bet a bottle of Dom on it. Wholesalers and direct-shipping can co-exist. Both are filling different markets. Trust me, I’m not going to bother ordering a $10 bottle of wine when I can go to my local store and purchase it there. It’s the rare and hard-to-find that I’m going to order direct from the winery.
    That issue of having to sell your own wine to a wholesaler so you can by it back sounds a lot like “protection” to me. Al Capone just died too early to be able to do it legally.

  6. eaglesnestwinery - March 13, 2010

    Boo to 3-Tier and shipping restrictions. Free the Grapes! Free interstate commerce!

  7. Chris Wickham - March 13, 2010

    Free the craft brew beer while we’re at. Up with the free market and down with political corruption.

  8. Pat - March 16, 2010

    If A-B were to win this battle wouldn’t that open the doors for craft breweries to distribute their own products?

  9. Pat - March 16, 2010

    Furthermore, the three tier system has worked in favor of the big three brewing companies for so long that it is somewhat refreshing to see it work against them for once.

  10. Winstrol - October 6, 2010

    very good that you’ve touched this problem

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