Toward Better Liquor Control in an Age of Wholesaler Dominance

With the recently announced merger of wine and spirits distributor Young’s Market with Republic National Distributing, we now have three companies that control more than 60% of wine and spirits distribution market in the United States: Southern Glazers, the new Republic-National-Youngs, and Breathru Beverage.

It has long been a near unbreakable tenet and motivation of state alcohol regulation that no single company be allowed to control too great a portion of the market.

Back in 2017, for example, when state wholesalers were strenuously opposing a North Carolina bill that would have expanded the amount of beer the state’s breweries could self distribute, the executive director of the N.C. Beer and Wine Wholesalers Association had this to say:

If you didn’t have limits on self-distribution, you’d have big brewers being their own distributors. And when you have big brewers being their own distributors, that limits the pathway for other brands. Having a limit on self-distribution is the best situation possible for craft brewers. They may not understand it, but it’s true.”

I wonder if it’s time to consider what “the best situation possible” is for wine and spirit wholesalers?

If, as wholesalers have long argued, it’s bad when pathways for brands are hindered, isn’t it then equally bad for wholesalers when their pathways are blocked by big wholesalers. And boy do we have large wholesalers today.

The way wine and spirit wholesalers have generally argued for the equilibrium of the marketplace is by supporting various sorts of “caps”. Consider the caps that exist all over the country:

Caps on the number of retail outlets in a city

Caps on the number of retail establishments owned by one person

Caps on the amount that wineries and retailers may ship to an individual buyer in a state over a particular time period

Caps on the amount of alcohol a producer can self distribute before having to give up their distribution rights to a wholesaler

Caps on the amount of beer that a manufacturer may sell out of their own taproom.

Given the domination of just three wholesalers, isn’t time for caps on the amount of alcohol wholesalers may distribute? By capping the amount a single wholesaler may distribute in a given state, we assure that no wholesaler becomes so large that they can surreptitiously make demands of both the accounts they service and the brands they represent.

There is good, historical reasons for creating caps for wholesaler distribution. Consider the views of the “Fathers” of alcohol regulation: Raymond Fosdick and Albert Scott, authors of the highly influential 1933 publication “Toward Liquor Control”. In guiding future regulators as to the purpose of liquor regulation, Fosdick and Scott wrote the following:

“‘Tied houses’ should, therefore, be prohibited, and every opportunity for the evasion of this system should if possible foreseen and blocked.”

As you’ll recall, the “Tied House” refers to a tavern or retail establishment that, prior to Prohibition, was “tied” to and sold the products of, a single manufacturer. As a result of the demands placed on the tavern, unethical and improper methods of sales promotion were undertaken, leading in part to the problem of drunkenness that preceded Prohibition in far too many big cities.

Fosdick and Scott did not anticipate the rise of state and national alcohol marketplaces so thoroughly dominated and monopolized by two or three wholesalers. They were focused on the danger of there being over-powerful manufacturers and producers. And while the authors of “Toward Liquor Control” did anticipate and predict that lobbying and politics would inevitably control the format of any future alcohol regulatory system, they never anticipated that it would be wholesalers who would be able to put such a stranglehold on the system through their lobbying efforts. Fosdick and Scott, writing about the prospects of a licensing system for alcohol warned:

“Every licensee, as well as every manufacturer who sells to a licensee or has any interest in the business, begins to marshal his own political strength to serve his own ends. A multitude of private traders means a multitude of opportunities for political favoritism.”

It’s fascinating that here the authors anticipate primarily producers and vendors as being the source of political intrigue and those who demand favoritism. Today, wholesalers and their associations outspend wine, beer and spirit suppliers and retailers in political contributions by 2-1.

So, to return to the premise, if it’s good for the marketplace, for the consumer, for the manufacturer and for the retailer to have to contend with and be limited by caps on what they can sell and how much they can sell, isn’t it equally good for the marketplace, the consumer and the wholesaler for the 2nd tier to contend with caps of some sort?

Perhaps the kind of caps wholesalers would be better off with would be:

  1. Caps on the number of producers a single wholesaler may represent in a marketplace
  2. Caps on the amount (gallonage) a single wholesaler may distribute in a state
  3. Caps on the number of vendors they may service in a state

More than any other sector of the alcohol industry it is wholesalers who have consistently and continually argued in favor of caps of one sort or another…for others. Given the domination of so few wholesale companies now, isn’t int time that wholesalers too are restricted by caps?

This week I’m attending the National Conference of State Liquor Administrators annual conference in Louisville, Kentucky. I’m surrounded by alcohol regulators, alcohol administrators, alcohol attorneys, alcohol educators and advocates of one sort of another.

Over the course of the first two days, we’ve heard a great deal from speakers on what producers and retailers may do, what they should not do, what they should be prevented from doing and what they should be encouraged to do. But as yet, there has been no discussion of what wholesalers ought to be doing, what they should not be doing, and certainly, there has been no talk of the dangers of duopoly and triopoly within the wholesale tier. Nor has anyone asked WWFSS, “What would Fosdick and Scott Say?” Finally, there has been no talk of the various caps that are placed on wholesaler actions…because there are none.

Maybe it’s time for caps on wholesaler actions. I’m certain Fosdick and Scott would approve.

2 Responses

  1. VVP - June 19, 2019

    Why won’t you file a complaint to FTC? They might do it again, as they did in April.

  2. tom merle - June 19, 2019

    If the FTC pushed back on the previous attempt to consolidate how the hell would they approve this quest for domination?

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