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Bluegrass Beacon: Ky. beer distributor’s sale brews a keg of controversy

By JIM WATERS
Bluegrass Institute for Public Policy Solutions

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Friday, Nov. 7, 2014, 11:57 p.m. – Anheuser-Busch LLC wants to purchase Budweiser of Owensboro, an independent distributorship owned by the Hand family. The Hand family wants to sell.

However, opponents claim that allowing the transfer of the distributorship license would violate the three-tiered system – a special set of rules established following the repeal of Prohibition in 1933 to regulate the alcohol industry.

As a result of this opposition, the sale, which already had the approval of local ABC officials, has been put on hold; opponents will try to use a Nov. 21 hearing in Frankfort to stop it.

While the three-tiered system is intended to guard against monopolies and insure a level playing field for smaller producers, these shenanigans offer an example of how the policy is misused by those who live in a constant state of populistic frenzy about larger, successful companies – whether they brew beer or sell groceries – who simply want to produce, promote and protect their products without arbitrary government interference.

Among Anheuser-Busch’s opponents are, unsurprisingly, competitors and their lobbyists who serve up a keg full of misinformation and magnify misperceptions that allowing this voluntary exchange would be a slippery slope – at the bottom of which sits smaller producers crying tears in their craft beers because they’re unable to get their products on to Owensboro’s store shelves.

Among those opponents is lobbyist Karen Thomas Lentz, executive director of the Kentucky Association of Beverage Retailers, who claims that granting the license transfer “might” – “might” – mean that some retailers are denied access to smaller brands.

“If I’m a craft brewer, I may not be able to get my product to retailers and they may not have access to my beer – if Anheuser-Busch, the distributor, doesn’t carry it,” Lentz told me. “And so, these craft beers are small – so your market really gets cut if distributors don’t include them.”

But if a small craft-beer maker lacks the wherewithal to get his product to market, he must do what every other small business does: find innovative ways to meet the challenge, not deny legitimate private transactions on the part of a subsidiary of one of America’s most recognizable companies.

Actually, the small craft-beer makers should be pushing to eliminate their forced participation in the outmoded tier system. It drives up costs by requiring them to use separate distributors to get their products to the retailer – even if it’s a restaurant next door.

Wouldn’t allowing a small brewery to deliver directly to a retailer offer a much-more viable competitive advantage to craft beer makers than trying to deny Anheuser-Busch a license to deliver its own Budweiser?

Another part of this brewing controversy involves the misperception that granting Anheuser-Busch a license transfer as part of this mutually agreeable transaction will somehow cause the lines drawn by the three-tiered system to be crossed.

However, the courts have already ruled that such arrangements are allowed as long as the transfer is followed by adherence to the rules regulating distributorships. In fact, Anheuser-Busch successfully turned around a fledgling distributorship in Louisville in 1978, where it employs 175 people and is a good local corporate partner.

Opponents of the Owensboro transaction fail to acknowledge that the craft-beer industry in Louisville – where Anheuser-Busch has operated for decades as a distributor – is “red hot,” according to Mayor Greg Fischer.

To address another of Lentz’s misperceptions, just because Anheuser-Busch won’t commit to carrying smaller craft beers cannot reasonably be translated into: “there will be no way for small craft-beer makers to get their product to retailers’ shelves without violating the three-tiered requirements.”

In fact, out of the 1 million cases the Hand operation has delivered this year, only 6,000 were filled with craft beer.

Lentz also tried to convince me that geographical restrictions would somehow hinder smaller producers. But there are other distributors with a solid presence in Owensboro – including Clark Distributing, which delivers Coors and Miller beers and other less well-known brands.

If small distributors and their retailers can’t figure out how to get a miniscule 6,000 cases of beer delivered and stocked during an entire year without forcing the king of beer distributors to do it, maybe they, too, should go the way of Prohibition.

Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com. Read previously published columns at www.bipps.org.

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