Beer Monopoly

 

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Posted June 2010

More regulation, please!

Beer distribution in the U.S. | You have to give it to him, in the fine art of psychological warfare AB-InBev’s CEO Carlos Brito is a pro. Last year, at an analyst meeting, his executives reportedly thought aloud that their U.S. unit Anheuser-Busch (A-B) could sell half of its volume directly to retailers. Hang on, how would that square with the Three Tier System? Wholesalers have been a crucial part of the beer-selling process in the U.S. since the end of Prohibition in 1933. After repeal, states generally required brewers to sell to distributors. Never mind if Mr Brito can really pull this one off. But the remark has had the desired effect: beer wholesalers have been up in arms, sensing their state-mandated monopoly is under attack. While Three Tier opponents are making antitrust challenges, calling the wholesaler tier a license to print money, wholesalers insist that they primarily serve the public good and have called upon legislators for greater protection. The protracted legal and political battles over beer distribution with their undercurrents of power, money and protectionism, only underline that what started out as a social model has turned into such a successful business model that it is rousing the jealousy of the first and third tier.      

I will never understand America’s attitude to alcohol. That’s not necessarily a criticism, just an observation. I was having Easter dinner with friends at a restaurant in Chattanooga, Tennessee, when a family of three walked in and asked the manager for a table. The manager took one look at their perhaps fifteen year old son and inquired whether he would order alcohol. “No”, the father replied, “he will have a Coke with his meal.” “But you will have some drinks?” the manager asked. “We might go for a beer”, the father said. “Then I cannot serve you at this restaurant”, the manager pointed out in a haughty schoolmasterly tone. “Your son might take a sip from your glass, sir. You know that minors must not drink alcohol.” With that he turned his back on the family and welcomed the next couple in line. The parents, thoroughly embarrassed by this incident, left the restaurant with their heads bent.

Being European, I ticked this incident off as “it’s a funny old world down in America’s Bible Belt”. A few days later I was in Chicago having lunch in a restaurant. Across my companion’s shoulder I observed the barwoman mix two Margaritas. Judging from the more-than-generous amount of tequila which she poured into the glasses I concluded that these drinks gave the concept of the “liquid lunch” a whole new meaning. Well, it was only one o’clock in the afternoon and the restaurant was full of office people, who probably had desks and jobs to return to. The barwoman eventually saw me studying her expertly mixing these drinks, so she came over to our table and confided in me: “Don’t worry”, she said, “these drinks are wholly organic!” I must have looked at her with my mouth open, utterly speechless, until I figured it out that having organic lime juice laced with organic tequila for lunch was alright. You live and learn.

I relate these purely accidental incidents to you by way of an introduction because they illustrate my continuing puzzlement over America’s attitude to alcohol. The long and short is: America does not have an attitude. Or rather, it does not have a general one. America is still deeply divided over alcohol. While it would seem that most Americans are a hard-drinking, freedom-loving lot, we should never forget that there is a powerful minority, and not just down in the Bible Belt, that considers alcohol pure evil, responsible for the moral decay that is destroying their country. “About a century ago”, wrote historian David Oshinsky in the International Herald Tribune (27 May 2010), “a group of determined activists mobilised to confront their public demon alcohol. Always a minority, the forces of Prohibition drove the political agenda by concentrating relentlessly on their goal, voting in lockstep on a single issue and threatening politicians who did not sufficiently back their demands. They triumphed because they faced no organised opposition.”

What anti-alcohol campaigners call a “triumph”, alcohol producers call “prohibition”. In 1920, America went dry. Although the experiment was a failure – millions of otherwise law-abiding citizens routinely flouted the law by smuggling alcohol, producing moonshine or consuming illegal alcohol - the repeal of Prohibition in 1933 was linked to the condition that alcohol became heavily regulated. The 21st Amendment to the Constitution gave the individual states the right to regulate alcohol. The shorthand for this highly complex set of rules is known as the “Three Tier System”. It has given rise to a powerful group of lobbyists and businessmen, who are called wholesalers and occupy the middle tier.  

To foreign observers, the Three Tier System, at best, is an ideological anachronism, at worst a government-condoned monopoly, whose continuing existence no free-marketer would be able to defend with reason and logic.  Read on    

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