Big Beer Makes a Big Move

Each year, General Distribution's Jim Fick closely tracks the sales of Oregon beer in Oregon, and he very graciously forwards me the spreadsheet with the numbers. Frustratingly, the OLCC, which tracks these numbers, has gotten fairly lax and the figures aren't terribly reliable. One obvious example is that they somehow don't capture CBA's sales (Widmer/Redhook/Kona)--one of the two largest breweries in the state. Some of their other numbers are suspect as well. Given these troubles, I figured 2015 would be the last year I commented on these, but there are a couple things that leap out so profoundly I can't help but comment on them. Actually, commenting may not even be necessary--just look at these two graphs.

and

To put precise numbers to these--excluding GoodLife, for which the OLCC had no numbers in 2015--the two beer companies owned by multinational corporations grew 18,161 barrels in 2016, and the other top ten breweries grew 10,851. Combined. And even that sort of understates matters. Have a look at the top gainers in 2016:

ABI and MillerCoors account for 40% of all gains among the ten breweries growing the fastest. There is probably a lot of context one could provide to explain why these two brands grew so much (discounting, distribution, etc), but the fact is they did. Oregon has one of the most parochial markets in the country, and they still posted these remarkable increases. Two of the top five best-selling brands in the state are owned by companies in Wisconsin Chicago and Leuven, Belgium.

Things change. Who knows if this is a stable trend and whether 10 Barrel and Hop Valley will continue to grow--or even keep their share (look what happened to BridgePort). But for the moment they're selling like hotcakes, and I doubt there's a brewer in the state who's not unsettled by this development.

How Should Oregon Regulate Alcohol?

The Oregonian kicked off an excellent three-part series yesterday on the thicket of regulations that govern the distribution, taxation, and sale of liquor in Oregon.  Every state has its own strange thicket of regulations, all built on certain goals and assumptions, and until very recently, Oregon's seemed to be untouchable.  But then a funny thing happened: the people of Washington state decided to modernize their laws, bringing them more in line with California, and Oregon is now the West Coast's odd man of booze.

The whole series is going to be worth a read, but today I want to tackle some of the issues raised (and not raised) in part one.  Political writer Harry Esteve penned the series, and he used three main informants about how the system works--A to Z Winery in Dundee, Galaxy wine distributor, and the Oregon Liquor Control Commission.  (Esteve has written about the OLCC before, and it's worth noting that A to Z has long been an OLCC foe.)  Esteve does a fantastic job of illuminating why a bottle of wine costs as much as it does.  It's not because the winery (or brewery) is getting rich.  It's because so many people get a piece of the action along the way:

Each time it's handled, the price of a bottle goes up. The storage warehouse gets its cut. The state gets its cut. Distributors tack on anywhere from 15 percent to as much as 40 percent or more. And retailers tack on their margin.  On a recent delivery trip, Galaxy applied its markup to a bottle of A to Z pinot gris and then sold it to Safeway for $8.99. Safeway put it on sale for $11.99, a 33 percent markup. 

This is a theme he address more fully in today's column (which I'll comment on tomorrow).  The paper also published a great infographic that breaks down the cost of a bottle of wine by percentage:

• 2% - Taxes
• 4% - Bottles, corks, and labels
• 5% - Winery profit
• 7% - Grapes
• 9% - Wine production
• 18% - Sales, marketing, administration, shipping
• 25% - Distributor markup
• 30% - Retailer markup

All of this is fantastic info, and info I'm pretty sure is completely lost on the average consumer when she sees a $30 bottle of Oregon pinot noir made just down the road.   Where Esteve falls down a bit on the job, though, is in buying the OLCC's gilded rationale for its own existence:

Yet it's also one of a dwindling number of states where the government exerts near dictatorial control over an alcohol system designed 80 years ago to prevent the likes of Al Capone from horning in on the trade....

"What's interesting is the OLCC has done such a good job of preventing the abuses that came up during Prohibition," [Cassandra SkinnerLopata, OLCC chair] says. Other countries, and even some other states, continue to see health problems from "adulterated" liquor, including blindness and paralysis. Counterfeit brand-name liquor continues to be a problem, she says. 

 Well, yes, in 1933, Oregon was worried about bootlegging.  But that's not what it was principally worried about.  Here's the full rationale from the 1934 Liquor Control Act that established our system of liquor laws:

(1) The Liquor Control Act shall be liberally construed so as:

(a) To prevent the recurrence of abuses associated with saloons or resorts for the consumption of alcoholic beverages.

(b) To eliminate the evils of unlicensed and unlawful manufacture, selling and disposing of such beverages and to promote temperance in the use and consumption of alcoholic beverages.

(c) To protect the safety, welfare, health, peace and morals of the people of the state.

(2) Consistent with subsection (1) of this section, it is the policy of this state to encourage the development of all Oregon industry.

I have bolded the relevant portions to illustrate the point: the state of Oregon may have been compelled by the 19th amendment to allow liquor sales, but they damn sure weren't going to make it easy.  The OLCC may now see their role as one entirely about law enforcement, but the very clear foundation of the statute is to gum up the production and sale of booze.  Oregon passed its own version of Prohibition in 1916--years before the country did it--and we were still in a mood for restricting alcohol.

This is relevant history, because the OLCC defends its existence on the dubious notion that they're preventing criminality.  But as citizens, we have a right to point out that that's not really why the laws were drafted in the first place.  They were drafted to stifle alcohol sales, and for 78 years they've been doing a bang-up job.

Unpacking the OLCC's History

Last week, Brian Boe, executive director of Oregonians for Sound Economic Policy, wrote a very nice piece on the Oregon Liquor Control Commission in the Oregonian. In my periodic imprecations against the agency, I often fail to give the context of my pique. Keying off Washington State's recent efforts to change liquor laws, Boe does a great job providing background about how and why the OLCC was (mis)conceived:

When I first sought to study why the current system was adopted back in 1933, I quickly discovered that OLCC had very limited historical information.... Gov. Julius Meier in his remarks to the special session of 1933 asked the Oregon Legislature to study the "Rockefeller Report" and adopt its findings on liquor regulation as the 18th Amendment was about to be repealed. Produced by and written at the direction of the Rockefeller Foundation, the book was titled "Toward Liquor Control," by Raymond Fosdick, personal counsel to John D. Rockefeller Jr.

Utilizing European systems of liquor regulation as study guides, Fosdick patched together two systems of liquor control for the states to consider in their post-Prohibition deliberations. The regulatory model of least intrusion was called the "license system." The second model, and the one that Oregon ultimately chose, is known as an "authority or control system," in which the state retails liquor directly to the public.

The problem, Boe describes, is that no one really knew what the hell they were doing:

Other holdovers from 1933 include the requirement that grocers and restaurants pay cash-on-delivery for liquor rather than the 15- or 30-day terms they enjoy for all their other supplies.

Additionally OLCC insists on literal interpretations of rules that prohibit retailers from taking delivery of beer or wine into a warehouse and then transporting it to their stores with their own trucks. Such inflexibility hurts the environment (prompting double delivery trips where one could suffice), but also provides no tangible public benefit or protection. It is, like so many of the OLCC statutes, outdated thinking attempting to anticipate problems that have never occurred.

It's absolutely amazing that Oregon has never revisited the question of how to regulate alcohol sale and distribution. When I do go on my rants, it's not because I don't think the state needs to regulate alcohol (it does), but because the OLCC seems to be doing such a terrible job at it. Boe's backgrounder was really useful in laying out why the agency has always been hamstrung. It was badly conceived, and as a consequence, it's bad at that regulatory role. Good stuff.

The OLCC's Latest Gambit

Harry Esteve, writing in today's Oregonian:

The Oregon Liquor Control Commission, which regulates all sales of distilled spirits in the state, is proposing two significant rule changes. One would allow far more liquor stores to become "non-exclusive," meaning they would be allowed to expand into beer and wine sales.

The other, which could have even broader consequences, would allow corporations to become liquor agents. The idea is to make it easier for big grocery chains, such as Safeway or Fred Meyer, to open "store within a store" liquor outlets. Buy the cantaloupe in the produce section, then head over to a separate area for the vodka or gin to make fruity martinis.

The OLCC is running scared because last year month Washington state voters passed a ballot measure allowing supermarkets to sell liquor. They're trying to get in front of things to protect their fiefdom--or as Merle Lindsey, OLCC Deputy Director says, "from the control model."

As I have said many times in the past, the OLCC is a terrible agency. It's innately conflicted, having been put in place out of a post-prohibition way to enact moral codes on a drinking public while being responsible for liquor laws. Their rules and rulings over the past few years have been legendarily bad. But, like any entity, they have a sense of self-preservation, and the Washington law has them scrambling. As always, I'll end with my usual plea: scrap the OLCC and join the 21st century.

OLCC: Opaque, Capricious ... and Corrupt

This is inexcusable:

Documents surfaced this week that show frequent communication between Paul Romain, who represents beer and wine distributors, and Steve Pharo, director of the Oregon Liquor Control Commission. In them, they discuss how to block a bill that would benefit Grocery Outlet while taking business away from the distributors.

The issue is actually pretty byzantine and difficult to understand, but the upshot is very clear: the director of a government agency is working directly with a lobbyist to change Oregon law. The effect was even more malign than secret collusion; Rep. Jason Atkinson said that Pharo and his employees at the OLCC of lying about the issue.

The whole thing is emblematic of what's wrong with the OLCC. It's an unnecessary agency that wields enormous power, often capriciously, and can pick winners and losers in the private sector. Add to that an element of corruption, and you have the trifecta of dysfunctional. I've argued before that we need to kill the OLCC and start over. This makes the case clearer than ever. Get rid of this malignant agency.

The OLCC's Strangely Convoluted Message

Via Jay Brooks, we have a couple of PSAx produced for the holiday season by your favorite government agency, the Oregon Liquor Control Commission. They're fine, I guess. The idea is that party hosts should help partiers get home safely. But once again, I am surprised at how starkly obvious the agency's inner conflict of interest is. Have a look:

On the one hand, you get the standard, don't-get-hammered-and-pile-into-the-Honda message. On the other, you get a sponsorship tag from a liquor company. It highlights the fact that the agency responsible for overseeing liquor sales (which fund it) also tries to limit or control sales.

Wouldn't it be better to just have an agency wholly devoted to regulation of liquor and out of the "control" business? In its current form, the OLCC is about as compromised as "your friends from Crown Royal" who are trying to get you to guzzle their product...but safely!

Kill the OLCC

In today's Oregonian, William Hatcher of A to Z Wineworks argues that it's time to mostly dismember the Oregon Liquor Control Commission. He makes a compelling argument that liquor law enforcement, licensing, and contract liquor stores are all superfluous functions that could be better managed by local government--or done away with altogether.

The one area necessarily remaining the provenance of the agency is statutory regulation of licensee qualifications, sales venues and community protections. That oversight should remain with the OLCC commission, a Senate-confirmed panel of five officials from different congressional districts.

For what it's worth, the OLCC is a vestige of the temperance movement. Some states were very much on-board with Prohibition, and when the 21st Amendment passed, tried to re-consolidate some authority over the sale and general availability of liquor. Like them, Oregon established the OLCC in 1933, convening a special session of the Legislature just nine days after Prohibition's repeal solely for this purpose. States like Oregon became known as "control" states, because they controlled the actual sale of liquor. Both Oregon and Washington are among the 18 remaining control states.

The upshot of all of this is that control agencies are far from critical in the regulation of alcohol, and in fact, only remain in a minority of states. So when Hatcher makes these points, he's effectively arguing for Oregon to modernize our regulatory agency and join the rest of the country.

If all of this fails to convince you that the OLCC is an agency past its expiration date, how about this article from Nick Budnick I missed last month in the Bend Bulletin:

Even as the agency has become a lightning rod for criticism in recent years, records show it has also been dogged by internal allegations of mismanagement, lackadaisical self-regulation and inadequate record-keeping.

Last year, an internal audit that was not released publicly found that OLCC’s licensing of alcoholic beverage retailers — one of the agency’s main functions — had been significantly mismanaged. Its title: “Oregon Liquor Control Commission’s licensing function lacks accountability and effective oversight.”

Budnick details the various problems, so go have a look at the gory details.

OLCC Blowback Escalates

A couple days ago, I passed along news that the OLCC and Oregon DOJ had ruled that a long-standing law prevented judging home brew and homemade wine at the Oregon State Fair. Yesterday, folks in the homebrew community as well as Lisa Morrison suggest that not only will this end the State Fair competition, but all competitions. Here's Lisa:

It also appears that home brewers might not even be able to participate in other competitions outside the state; the OLCC is ruling that homebrew can’t be transported, because the law stipulates the beer must be consumed at the home where it is brewed. Heck, home brewers might not even be able to legally bring a corny keg of their latest IPA to friend’s summer barbecue the way the OLCC is currently interpreting the law...

Indeed, at least two Portland-based homebrew clubs are being impacted by this mess. PDX Brewers have already decided to ban homebrew from its meetings, and the Oregon Brew Crew, one of the oldest homebrew clubs in the country, is meeting later today (Tuesday) to discuss whether to ban members from bringing homebrew to meetings. In-house club competitions, which are held monthly to help brewers learn more about brewing specific styles, will probably also be discontinued, and several larger competitions, including the American Homebrewers Association-sanctioned Fall Classic, and the in-club Collaborator Project, in which winners get to brew their winning beer at Widmer Brothers Brewing, will no doubt become a thing of the past. (Rob Widmer tells me they are having a “regulations specialist” look into this mess as I type).

I may be swimming up a roaring torrent here, but I think all this panic is overblown. No one is going to start cracking down on homebrew competitions. No cop is going to pull over homebrewers like erstwhile rum-runners (though the imagery is enticing). There are several issues here. The mere existence of a law on the books does not make it enforceable. (We have several crazy laws on the books.) An example I'm quite familiar with: when I asked the state whether it would be illegal if a pub serving "pints" in 14-ounce glasses was legal, they admitted that it probably wasn't. But there was no way to enforce it.

Beyond a written law, you need: 1) a penalty for violating the law, and 2) funds to enforce it. The state can't keep schools open; it's damn sure not sending cops out after homebrewers. And even if a homebrewer was caught in violation; what would the state do with her?

This is a stupid law that may or may not be changed. I'm a bit of a radical, so my instinct is to overtly flout the law. The OLCC's interpretation is clearly not consonant with the intent of the law; enforcing it advances no discernible social good; and bothering to try to enforce it is an affront to the will of the people. I think a "Hey OLCC, Here We Are" Homebrew Contest is in order.

Oh, and one more thing. While it will be useful to contact your local rep and senator to let them know to change the law, this isn't a quick fix. The legislature won't be in session again until January.

Of course, there's a Facebook page to protest the law; go and join if you wish to publicly register your displeasure. Meanwhile, I'm going to load the Toyota fulla homebrew and drive around town until a cop pulls me over.

OLCC Cancels Homebrew Contest at State Fair

The OLCC, apparently believing its approval rating was edging toward double digits, made sure it was still the number one most hated agency today, canceling competitions at the State Fair for homebrew and home-vinted wine. The wine competition has been going on for 30 years, the homebrew version for 22.

"The issue has to do with the judging," Bradley said Monday. "Judges are considered the public, and we cannot have the public tasting amateur wine or beer."

Earlier this year, we're told a county fair official asked the Oregon Liquor Control Commission about whether the 30-some-year-old Oregon law indeed made it illegal for members of the public to taste home-brewed beer. Over the past month, officials with the Oregon Parks and Recreation Department then worked with the OLCC and the Department of Justice to find a way to hold the event and still comply with state law, but were unable to so.... The irony is the Oregon State Fair has been holding this home brew competition for years under the same law that is now being interpreted to make the competition illegal.

To be clear: this is merely a re-interpretation of settled law that appears to bother no one. On the other hand, that KATU article was posted two hours ago, and there are already 19 comments. On the Brew Crew homebrew listserv, where I found out about the law, there have already been 18 emails. Clearly a LOT of people are going to be mightily pissed off about this.

Remind me once again--why do we fund the OLCC?

OLCC's New Happy Hour Rules: Solomonic Stupidity

Laura Gunderson has an interesting piece in today's Oregonian (the print version only, of course--the O is in usual form about getting its content online) about a change to the OLCC's law prohibiting pubs from advertising happy hours:

"The commission will allow outdoor signs or web sites to advertise the time a deal is in place or the cost of drinks--not both. No matter how good it may sound, working such as '$4 ladies-night margaritas on Thursdays' won't fly."

This is like how one lie leads you into a thicket of convoluted, conflicting lies. In the OLCC's case, it's not lies, but stupid rationales. The commission has always been characterized by a strongly Puritan streak and one assumption seems to govern all decisions: the evil drink will corrupt men's souls, and we must do our part to make sure the twain meet only after navigating our Kafkaesque bureaucracy. We will tie up pubs with red tape.

Advertising for happy hours is bad, obviously, because it will, you know, encourage people to go to bars. But since the OLCC can't dictate what price bars sell a pint of beer for, the best they could do was prohibit them from advertising cheap pours. Now they say: well, you can advertise prices or times of discounts--but not both together. How on earth did they come to this divide-the-baby solution? Gunderson quotes an OLCC spokeswoman saying that it will "ensure against price wars." Good god. (I await the Beeronomist's take on that bit of wisdom.)

And how does this stop sites from listing this same information? It doesn't. Barfly does a great job cataloging this info, and others like Urban Drinks offer versions as well. So the info can appear on a website, just not a website operated by the pub offering the happy hour. A rule that makes sense only to the OLCC.
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OLCC and Happy Hours

Portland takes its happy hours seriously. We are a city that does sleep, so a post-work pint is ideal for our schedules--not to mention wallets. The Oregonian, sensing the seriousness of the topic, put a story about happy hour advertising on the front page of today's paper.

Happy hours are booming in Oregon restaurants and bars in tough economic times, but no one is very happy with the way the state regulates them -- including state officials.

That's why the Oregon Liquor Control Commission today will consider revamping or tossing a rule adopted 24 years ago that bans the advertising of discounted alcoholic drinks.

I'm all for it. I wasn't actually even aware that such a law existed and further, I'm so insensitive to advertisements that I would never have noticed this was illegal. I did learn about it a month or so ago, thanks to Twitter. A friend pointed out that certain establishments were tweeting happy hour deals there, and he wondered if this ran afoul of the OLCC's rule. Turns out the loopholes are pretty substantial. So long as you're not advertising the price of drinks, you can use the word "happy hour." You can also promote other events not called happy hour, too, like ladies nights.

But now the problem that that pre-brewpub law was supposed to address is suspect:

The law was adopted to prevent happy hours from promoting binge drinking, but Linda Ignowski, OLCC regulatory director, said in her 14 years, she has seen no connection between happy hours, which are usually earlier in the evening, and excessive drinking. Intoxication usually comes later at night, she said.

The OLCC has no particular info on this meeting, though it's possible that this is it (.pdf agenda). Needless to say, I'm all for scrapping this law. The OLCC should be regulating alcohol, not advertising. It's a stupid law and they're right to consider scrapping it.