Little Whiny Boys Inhabit The Wine and Beer Industry

Posted by Tom Wark on Sep 28, 2012

Another round of childish whining by beer wholesalers appears to be underway. This time in Florida.

The issue that brings the beer wholesalers to tears? The protectionist system of alcohol distribution from which they benefit and that allows them to coast along without answering to anyone or any competition is being challenged. Boo Hoo.

The primary reason for this new round of childish whining by beer wholesalers is a result of MillerCoors challenging Florida’s “Franchise Law”. You know what a franchise law is? It’s a state law that makes it nearly impossible for a winery, brewer or distiller (large or small) to move their business from one wholesaler to another. Under these laws “just cause” is necessary for a producer to take their business to another wholesaler. It doesn’t matter how incompetent the original wholesaler is. It doesn’t matter if the original wholesaler forgot about the producers brand and no longer markets the brand. It doesn’t matter if the original wholesaler is swallowed up in a sale to a huge wholesaler that the producer has no interest in working with. In order to take their brand and go to another wholesaler, the producer must practically show that the original wholesaler is using their products for target practice at the local shooting range.

Franchise laws protect no one…except wholesaler profits. In fact a working paper produced for the Federal Trade Commission demonstrates that Franchise laws like that being challenged in Florida “are associated with harming consumers in the form of higher prices and reduced out-put”.

Yet this isn’t how wholesalers see it. An association of beer wholesalers in Florida calling themselves “Beer Industry of Florida” (seems like a name that is a bit too inclusive for just a handful of middlemen shuffling kegs around in trucks) sees franchise laws this way:

“State-based beer franchise laws are a critical component of the three-tier system in dozens of states across the nation.  They are proving to be one of the few remaining protections for local, family-owned, beer distributors against the undue influence of foreign-owned, mega-brewers who control 80 percent of the world beer market… America’s communities deserve the protections provided by state franchise laws and the three-tier system.”

According to the beer wholesalers, “America’s communities” are protected when beer wholesalers are protected from having to put in a real effort on behalf of the alcohol producers they represent and are protected from having to compete in a free market. But there is also a dirty little lie inside the beer wholesaler’s claim that protection of their profits are good for “America’s communities”. It’s this:

“State-based beer franchise laws are a critical component of the three-tier system in dozens of states across the nation.”

The “Three tier system” referred to by the Florida beer wholesalers and held up by all wholesalers of beer, wine and spirits as the savior of America, mom, apple pie (and profits) has nothing to do with franchise laws. Protectionist franchise laws bare no relationship to what the so-called three tier system actually is at its core. Maintained in a number of states after being devised almost 80 years ago for an American alcohol marketplace of the 1930s, the “Three tier system” amounts to merely two things: 1) separation of ownership of producers, wholesalers and retailers and 2) the requirement that alcohol move through all three tiers before arriving in the consumer’s hand. That’s it. Even the Supreme Court as noted that these two simple rules is what defines a “Three tier system”. Franchise laws are not part of this system. They are simply ways by which wholesalers are given protection from competition and given a means of not having to perform, yet still get paid.

But whining about a challenge to their coveted Franchise law protections isn’t quite enough for the Florida beer wholesalers. In a recent press release decrying MillerCoors challenge to the state franchise laws, the wholesalers also choose to take on the direct shipment of wine to consumers:

“Recent investigations reveal cracks in the current system of alcohol regulation as a result of a steady stream of lawsuits by companies pushing Internet alcohol sales and the destruction of the three-tier system…Beer distributors are dedicated to keeping alcohol out of the hands of minors and we oppose alcohol sales on the Internet.  We encourage companies engaged in the production and sale of alcohol to stop the endless line of lawsuits designed to tear down the system of alcohol regulation that protects our children and our communities.”

What’s not said here is that there has never been a study that shows minors are using the internet to obtain alcohol in significant number. Furthermore, no member of law enforcement nor any member of the alcohol regulatory fraternity has ever announced they are dealing with a problem of minors obtaining alcohol via the Internet.