The Math Likely Behind The “Three-Tier System” Draft Proposal
In the movie “Philadelphia,” attorney Joe Miller, played by Denzel Washington, often asked witnesses to explain something to him “like I’m a five year old.” Without sounding the least bit patronizing, Mark Garthwaite, Executive Director of the Wisconsin Brewers Guild, takes that approach when explaining the controversial three-tier system of alcohol distribution in Wisconsin.
“Any product you buy, whether it’s beer or donuts, goes through a three-tier system: someone makes the product, someone delivers the product and someone sells the product. The difference between alcohol and donuts is that alcohol is highly regulated and there are restrictions to commerce in place that are not in place for other products.” And those restrictions could become far more onerous under a draft proposal obtained recently by Americans for Prosperity and first reported on by MacIver News Service.
According to the draft, the legislation would would create a slippery slope toward imposing strict limitations on the ability for craft brewers, wineries, and boutique distillers to directly sell their own products to anyone other than wholesalers. Garthwaite told Media Trackers that these restrictions would threaten what is a growing business in Wisconsin. AFP outlined its concerns in a memo to Joint Finance co-chairs, Representative John Nygren and State Senator Alberta Darling:
The draft motion, leaked to us by multiple interested parties, seeks to further strengthen the near monopoly of some interests pushing it while directly attacking the competitors of another. Unlike the proponents of the motion, we’ve reached out to the owners of several small wineries, distilleries, and breweries. They’re troubled by what they see happening in Madison.
Based on conversations with these small business owners, we fear that the two-pronged motion could preclude at least one common practice at dozens of small businesses in Wisconsin from continuing. We’re also told by these entrepreneurs that the motion could reduce revenues and limit growth and investment in these sectors in the future. Regardless of the impacts, Wisconsin’s craft breweries, wineries, and artisan distilleries deserve a seat at the table for a discussion on regulatory changes that may threaten their livelihoods and those of their employees.
Furthermore, the motion would create a new massive bureaucracy called the Office of Alcohol Beverages Enforcement. Although we can only guess at the intention behind this office because it is being proposed in secret, it appears that it would be charged with regulating and enforcing against wineries, craft breweries, artisan distilleries, and other businesses in Wisconsin.
The Capitol Times reported that The Wisconsin Tavern League, Wisconsin Beer Distributors Association and the Wisconsin Wine and Spirits Institute were behind the draft proposal. Media Trackers reached out to Tavern League of Wisconsin lobbyist Scott Stenger via email and received no response. But Stenger told WQOW television in Lacrosse that he knows nothing of a draft proposal and the Tavern League would never support anything that would damage local brewers. In addition to the Tavern League, Stenger also represents MillerCoors.
Garthwaite doesn’t know who is behind the proposal, but he does believe that the traditional tavern industry has misplaced concerns about the craft brew industry being involved in all three tiers. “From their perspective, the overall market share taken by craft beer is small: about 10% is taken by the small craft breweries and about 3% by out of state craft brew.” But he says the bulk of tavern league members rely on mass produced beer such Miller and Budweiser. “When 80% of what you deliver is dealing with even a one percent drop in sales, it is significant.”
While taverns are beginning to add more craft brew taps, Garthwaite says it takes a leap of faith to add more. “You don’t need to know much about (the mass produced beers) to sell them. You need to be more informed to sell craft beer and they may find that a little bit scary.” In other words, tapping Miller or Bud requires far less training than teaching bartenders the difference between a pale ale and an oatmeal stout.
Garthwaite also rejects the argument that taverns are at a competitive disadvantage because craft breweries don’t have to go through a pure three-tier system. He says the overhead involved in producing beer more than offsets any advantage and brewers, wholesalers, and retailers must still abide by Federal and State trade practice regulations.
And he says brewers were allowed to be involved in multiple tiers following the end of prohibition and it worked, until the law was changed in 2011. Garthwaite says the draft would continue to lay the groundwork for tighter restrictions on retail sales. “We embrace opportunities to give people what they want; protectionist regulations aren’t the way to do that.”
AFP told MacIver News Service that the proposal might be slipped into the budget ‘s “999” motion. The Joint Finance Committee’s traditional final action, 999 gained infamy in past budgets for being used to quietly slip in anonymous items without time for review. Lack of review is something Garthwaite complained about. ” We would like to be consulted before this drops because it effects our business in a very profound way.”
Garthwaite says there is nothing new about the beer business being highly competitive. But, in returning to his donuts analogy: “a bakery might make, deliver and sell donuts.” “That’s normal. It should be normal for us too.”