Craft breweries vs. distributors: Battle lines are being drawn across America

Meet the middle-man of the American beer industry, the mighty wholesaler.

Just how important is wholesale distribution to the beer industry? For starters, it was a key in ending Prohibition. Most blamed the deplorable state of the alcohol industry pre-Prohibition to its vertical, monopolized integration. After it became clear that banning alcohol was not going to work, the 21st Amendment constructed a three-tier system aimed at keeping alcohol producers from selling directly to the public and abusing the system (while allowing the U.S government to collect orderly taxes).

The idea is to prevent single ownership of all three tiers (production, distribution and retail). It’s a system conceived via the 1930s, but is it the right system for today’s rapidly changing beer industry in America? A lot of craft brewers don’t think so, and a lot of multi-national beer conglomerates don’t think so either. Last week, we had the Center for Public Integrity drop us a line about an article it put together with Time on the battle lines being drawn in both the craft beer and Big Beer industries concerning wholesalers and distribution. If you didn’t know, the middle-man of the beer industry brings incredible clout to the political process (specifically at state levels), and the wholesalers appear to be winning some big battles across America when it comes to the brewer vs. the distribution process.

Alcohol distribution is a $135 billion industry in the U.S. that has made many rich, including Cindy McCain, head of her family’s beer distributing company and wife of Sen. John McCain, R-Ariz. To protect the post-Prohibition regulations that guarantee their business, wholesalers bankroll scores of lobbyists and give millions of dollars in contributions in election seasons. And because wholesalers are often local, family-run, American-owned businesses, they are popular with politicians.

“The beer wholesalers are a lot like the teachers unions,” said John Conlin, a Colorado management consultant who works with beverage companies. “The teachers unions have incredible clout, too, and the reason is there are teachers in every congressional district out there… And historically that was the same with beer wholesalers.”

It’s a kick-you-into-attention article from one of the country’s oldest and largest nonpartisan, nonprofit investigative news organizations. The article, Drunk on power: Booze distributors ply statehouses to keep profits flowing (written by the excellent Liz Essley Whyte), showcases how wholesalers around America are putting lobbyists on the ground and money in the contribution coffers when it comes to bills in at least 22 states seeking to allow alcohol makers to circumvent distributors and sell their products directly to customers.

They [alcohol makers] faced firm opposition this year because state alcohol wholesaler alliances had at least 315 registered lobbyists spread across every state and the District of Columbia, except Wyoming, according to a Center for Public Integrity analysis of state records.

And alcohol distributors are by far the most involved in state politics out of those in the booze business. They gave roughly $14.6 million to state candidates, parties and ballot issue groups in the 2014 elections, while alcohol manufacturers gave about $5.3 million and retailers gave roughly $2 million, according to data from the National Institute on Money in State Politics.

The story specifically cites an incident with Cincinnati’s new craft wunderkind Rhinegeist, who had vested ownership in a wholesaler in Kentucky, well, before Kentucky wholesalers pushed a bill through that prevented brewers from owning a license to distribute beer — a move to skull-crush a long-overlooked gap in Kentucky’s regulatory system, which forced both Anheuser-Busch InBev and Rhinegeist to auction off its distributorships in Kentucky.

Read the entire article over here. It’s A-grade reporting that will open your eyes to the serious money, power and politics battling for control of the beer distribution industry in America.