Wisconsin Proposal Hurts Craft Beer, Protects Big Brewers

by Michelle Minton on June 6, 2011 · 6 comments

in Deregulate to Stimulate, Economy, Employment

In the battle between international brewing giants SABMiller and ABInBev, Wisconsin craft brewers could bear the heaviest burden. On May 31, the state legislature’s Joint Finance Committee approved a measure to be added to the state’s budget proposal which would prevent brewers from owning distributorships and retail licenses in Wisconsin. This means that if you’re a brewer, you can’t also sell alcoholic beverages to customers or retail shops.

The biggest backer of the bill is SABMiller, or as it is known in the US, MillerCoors. They have been pushing the measure, they say, in order to protect the vitality of Wisconsin beer in the face of a hostile invasion from their main national competitor, AB InBev, aka Anheuser-Busch. InBev has reportedly begun a nationwide campaign to purchase distributors in many states, something that MillerCoors says threatens all other brewers’ ability to get their beers in bars and on shelves. That’s the line that MillerCoors is peddling, but craft brewers in Wisconsin say they, and their ever increasing presence in the beer market, is the true target of the proposal.

While the text of the measure has not been made available to the public yet, the proposal would reportedly remove brewers’ current right to own wholesaler and retail licenses. Brewers of less than 300,000 barrels annually will still be able to self-distribute, but current brewers and new wholesalers would be required to have 25 independent retail customers prior to being granted the right to distribute. According to a MillerCoors spokesperson, these new rules would also prevent small brewers from banding together to form their own distributorship. In addition to all of that, the measure would prevent brewers from owning retail licenses, meaning that they could have a brewpub, but they would only be allowed to sell their own product. Breweries that already own retailing outlets would be allowed to retain one.

Craft brewers say that MillerCoors is pulling a fast-one on the states legislature by selling this as a bill that would protect small beer from the brewing behemoth InBev’s plan to monopolize the Wisconsin wholesale market. Craft brewers say that this is clearly not InBev’s intent, as they have passed up opportunities to purchase wholesalers in the state no less than 16 times since 2008. They say the real competition that MillerCoors is trying to protect itself against is the growing craft beer market. The restrictions the measure places on any wholesaler wishing to start-up in Wisconsin seem to support the craft brewers’ claims.

If this measure passes, life will become much more difficult for small brewers getting started in the state and will likely stifle current brewers’ plans to expand. While brewers who already hold retail licenses will be allowed to keep one, new brewers will not be able to acquire the retail license required to own a bar or restaurant. For some, this is the only way their breweries could survive.

Wisconsin brewer Don Zamzow of Bull Falls Brewery said that they would have struggled to get started without their retail license. Zamzow said that in the beginning almost all of its money came from the taps at its Wassau-based bar until they found other places willing to stock Bull Falls beer. The brewery still makes 80 percent of its sales at that bar.

This is a job- and business-killing measure. If MillerCoors is truly worried about InBev monopolizing the market, then they ought to be supporting legislation that makes it easier to form distribution channels, not more difficult.

Monopolies are rarely sustained in a market without regulatory restrictions to protect them from competition. This is exactly what the MillerCoors-backed measure would do: it would protect the established MillerCoors distribution channels already in place in Wisconsin and make it impossible for new wholesalers to come into the market. A voluntary three-tier system where any brewer could become a distributor would ensure that no beer maker could ever be “locked out” of the market by Miller, Busch, or any other large company because, as a last resort, they could always distribute on their own.

If Wisconsin lawmakers want more businesses, more jobs, and more beer, they ought to create a system that makes it easier, not tougher, for brewers to become distributors and retailers.

Ben of Houston June 12, 2011 at 9:28 pm

I fail to see how anyone could support this measure. It appears to be a corporate shake-down to stifle competition with neither well intentioned madness gone amuck nor are there good talking points to look good for the public. Reminiscent of Tammany Hall, really.

Edward June 13, 2011 at 12:36 pm

http://www.change.org/petitions/support-wisconsin-craft-brewers

Sign the petition to support Wisconsin Brewers

Joey June 13, 2011 at 7:12 pm

This article is so wrong in so many ways. Read the text of the proposal: http://www.scribd.com/doc/56847716/Motion-414

Yes, it eliminates Breweries from obtaining retail licenses, BUT it moves the privileges of the retail license INTO the brewery license. Therefore this whole example Bull Falls Brewery is false. They would STILL be able to sell beer at their bar. In fact they could have 2 bars or retail outlets owned by the brewery under this proposal. This bill does nothing to limit self-distribution. In fact it increases the limits under which a brewery may self-distribute from 50,000 barrels to 300,000 barrels (New Glarus currently only produces 100,000 per year).

This is about Bud vs Miller. If Bud can own distributorships, thus true vertical integration, it would give them tremendous monopolistic pricing power to the detriment of microbrewers: http://www.milwaukeeworld.com/blog/2009/06/brewery-owned-distributorships-seen-on.html

Michelle Minton June 17, 2011 at 3:23 pm

Joey: here’s a link to the most recent motion http://www.scribd.com/doc/57954581/Brewers-Budget-Bill

First, this is not about just Bud versus Miller. The motion effects small brewers and start-up wholesalers as well (neither of which will be able to get in the game). And if Wisconsin is really worried about small brewers in the face of a “monopolistic” InBev then they ought to liberalize wholesaling rather than locking it up even further. Allowing breweries to distribute or join forces to distribute (which this motion will ban) would guarantee that no monopoly could exist.

Second, while you are correct that the motion says it allows brewers to have a retail operation, it only allows them to have 1 retail operation and limits them to serving beer brewed on their premises or beer from another brewer premised in the state.

Third, while the motion does allow brewers of less than 300k barrels a year to self-distribute, they may only do so *if* “if the brewer complies with the requirements in ss. 125.33 and 125.34, as applicable, to the same extent as if the brewer were a wholesaler” which, based on the text, seems virtually impossible. I’m not sure if the current motion retains that whole “must have 25 retail contracts” thing before a wholesalers license is granted, but if it is that’s even more of a problem. Here are a few of the other requirements for wholesalers that brewers of 300k or less will likely have to meet in order to self-distribute:

The motion states that wholesalers can’t distribute until “fermented malt beverages are first unloaded at, physically at rest at, and onlythen distributed from a wholesaler’s warehouse premises covered by both wholesaler’s license permit issued under s. 125.28 and an alcohol beverage warehouse permit issued under s. 125.19, which premises shall be in this state”

In the text I also do not see any indication that brewpubs would be allowed to sell any beer other than what they brew on their premises or beers brewed by another brewer in the state.

Other analysts have noted the same see http://www.madisonbeerreview.com/2011/06/motion-414-summary.html (note: this link refers to an earlier version of the motion)

This motion is complex, but that’s the big problem: all of this trouble to try and keep brewers, distributors, and retailers apart is causing a giant headache for everyone for NO REASON. Sure MillerCoors wants to keep AB/InBev out–but we ought to be stepping up for their right as a business as well as defending small craft brewers.

Monopolies only exist when the government protects one business’s interests over another.

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