The Missouri Miracle: Booze Wholesalers Lose

WellDoneThe governor of Missouri vetoed a "Franchise" bill last week.  Glory be!!

Anyone unfamiliar with Franchise Laws in the alcohol industry let me explain: It's a law that protects alcohol wholesalers from having any accountability to brand owners whose product they distribute. It's a law that makes it nearly impossible for a brand owner to switch wholesalers in a state when their current distributor isn't getting the job done.

Now, I'll grant that wholesalers are unlikely to see it this quite this way. In fact, the only folks that actually defend the utility and ethics of Franchise Laws are those folks the laws protect: Wholesalers. And they defend them this way:

"The Beer and Wine Franchise Acts protect distributors from intimidation, bullying and abuse by more powerful manufacturers. They serve the public’s legitimate interest by restraining overly-aggressive behavior in the marketing of alcoholic beverage products."

To read this explanation of Franchise laws from Virginia's beer and wine wholesalers, you'd think that the only thing standing between wholesalers and good beat down are the Franchise Laws.

The Federal Trade Commission sees it a bit differently. In a working paper from 2010, it was written that Franchise laws:

"make it extraordinarily difficult for suppliers to terminate their contractual relationships with wholesalers. These laws typically prohibit the termination of wholesaler except for  “just cause,” and set up elaborate administrative processes for proving “just cause.” Franchise protection laws may require that a demonstration of “good cause” include  revocation of a wholesaler’s license; bankruptcy or receivership of the wholesaler;  assignment for the benefit of creditors of the wholesaler’s assets; or failure of the  wholesaler “to substantially comply” with a “reasonable and material requirement imposed upon him in writing.”

Why am I writing about Franchise laws and the Missouri Governor's veto of the latest one? Simply because it is EXTRAORDINARILY rare that the wholesaler lobby doesn't get what it wants when it slithers up to the halls of government.

But here's the real irony of the franchise laws that exist in numerous states across the country. When Prohibition ended in the 1930s and states began to erect new alcohol regulations, the primary concern was to assure that producers of alcohol were not able to exert pressure on and control retailers the way they had prior to Prohibition. The concern was to assure the power of the producer of alcohol to control the marketplace was ended. Placing wholesalers between the producers and retailers and mandating their use was thought to be the way to assure this goal.

That laudable goal has now resulted in wholesalers completely controlling the broad marketplace for alcohol and controlling it in such a way that in numerous states laws exist that make it impossible for producers to move their brands from one wholesaler to another. Wholesalers have become so completely dominant in the marketplace due to their mandated position in the middle that they can demand and get passed laws that protect them from having to serve their clients, the producers.

But not in Missouri. Not today. Not for now. Well done, Governor Nixon.

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3 Responses

  1. tommyterroir - July 16, 2012

    I may be mistaken, but I think the pre-prohibition undue influence that producers had on retailers came from laws that were intended to promote temperance, but in fact did the opposite. Cities raised license fees to drive lower class saloons out of business whose cash strapped owners went to producers for help. In exchange for only selling their brand, producers supplied the lower class saloons with what they needed, then in attempt to maximize profits the same producers promoted their products in such a way it contributed to the excess consumption and social problems that brought on prohibition. The idea that an extra tier in distribution was a solution was just another example of misguided legislation creating unintended consequences.

  2. Bill McIver - July 17, 2012

    tommyterroir is correct. if state monopoly control actually promoted temperance, the 21st Amendment would be supportive. of course, everywhere there is a state-mandated monopoly, booze is plentiful, but you can only get it from state approved sources.
    Back in the dark ages when we were in the wine business, we were “owned” by Georgia Crown and couldn’t get out until another distributor traded us for a champagne line Georgia Crown wanted more than matanzas creek.

  3. Jeff V - July 17, 2012

    I think we should be asking; “What is different in Missouri, than in Georgia?”
    Could it be that a gigantic alcoholic beverage producer, Anheuser-Busch (aka InBev) has a bigger and more influential lobby than the Missouri distributors?
    If Georgia all of a sudden reversed its franchise laws, that would be something.
    Quick, someone call Coca-Cola and ask them to get in the alcohol biz.


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