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Tuesday, October 21, 2008

Politics and Beer Distributorships

I stumbled across a nice article in the libertarian magazine Reason about beer distributorships. It frames the discussion in terms of Cindy McCain's family wealth, but my guess is that there are plenty of Democratic distributors as well. But the three-tiered system, which I've railed against for years, is a politically-protected racket that screws producers and consumers alike. And in this way it is political:
The wholesaling industry has thrived ever since. For decades wholesalers have quietly added 18-25 percent to every bottle of beer, glass of wine, and shot of liquor you pour down your gullet. And there's been little resistance to them, for a few reasons. First, wholesalers don’t interact with consumers. They take their markup between producer and retailer, out of the sight of the people whose money they’re ultimately taking. Second, they’re rather powerful. Alcohol wholesaling is a lucrative, concentrated industry that reaps enormous benefits from policies whose costs are spread out across the general public. Which brings up the third reason distribution laws aren’t frequently challenged: They haven’t had many obvious opponents. Until recently, the only people hurt by the three-tiered system were consumers, and again, the cost per consumer was too negligible, hidden, and entrenched for anyone to notice.

But it gets worse. Many states have placed further restrictions within this already artificial market. Some states, for example, give wholesalers exclusive rights to distribute alcohol in a particular region, effectively creating government-enforced monopolies. Other states (including Arizona) have enacted “franchise termination laws,” which make it more difficult for retailers and/or producers to switch distributors once they’ve started doing business with one. Producers and/or retailers get locked in. If they feel their existing distributor is taking too much of a markup, isn’t offering a wide enough variety, or is otherwise performing poorly, there's little they can do. The effect is to squeeze out the upstarts and the competitors. According to Whitman, the number of alcohol wholesalers nationwide has shrunk by 90 percent since the 1950s.
It's worth quoting one more paragraph by way of illustrating why the Widmers jumped on the A-B bandwagon. It was a way to navigate within a system that prevents competition:
The Hensley company provides a good example of how these laws can hurt consumers. Hensley is the fourth largest beer distributor in the country, one of the largest privately-held companies in Arizona, and holds a 60 percent market share in the parts of Arizona it serves. It also distributes Anheuser-Busch products exclusively. Beer-producing giant Busch began an incentive campaign in the late 1990s aimed at getting distributors to drop the products produced by its competitors. In those parts of the country where a given distributor has a huge, government-abetted market share, such arrangements put the squeeze on the variety of options available to consumers (Anheuser-Bush’s national market share rose five percent during the campaign, to 50 percent nationally).
Interesting and accurate article. Well worth a read.


Æsop said...

This is how we got Bell's in the mid-Atlantic in 2006. DC, Virginia, and Maryland got the whole range of Bell's offerings and Illinois (in a neighboring state) lost it.

Fantastic beer.

- Æ

Beer said...

Hi, this is dondon of a social network for beer lovers to chat and share knowledge about their favorite Beers.

Would you mind if we do link exchange?

Please shoot me an email if you are interested.

Thanks and hope to hear from you.

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