Channel Conflict: 3 Tier Battles Heat Up – Stinging Defeat in KY Raises Questions

The headlines and press statements around some of the latest beverage alcohol industry channel conflict are extraordinary and gaining attention across the country.

A new craft brewery is opening up every day, adding to the over 3,000 currently operating in the USA (Brewers Association).   There are 100s of new craft distilleries that have opened up over the past few years with many more in the works (American Distilling Institute). There are more than 7,000 wineries as well (Wines & Vines).

This buds for you

All this growth in new entrants is the result of renewed consumer interest in trying new things. The Millennials have driven much of the new growth and vibrancy. It’s an exciting time in the beverage industry. That said, every large-scale established consumer brand across multiple industries is trying to figure out what to do and how to keep their base, grow it and remain relevant.   Anheuser-Busch Inbev was roundly criticized for their “anti-craft” beer advertisement for Budweise

r during the Super Bowl. As I wrote about, this was them playing the hand they hold and making the best for a giant brand in decline.

These issues are a lot more complex than they appear and have interesting and changing industry alliances. I am constantly asked (last night included) why the laws are the way they are, by consumers and business people who are not from the industry. Here is a brief explanation:

The simple answer is the current legal and regulatory framework in the US is the result of two Constitutional Amendments. The first one was to ban all alcohol aka Prohibition (18th Amendment in 1919). The second one was to repeal Prohibition (21st Amendment 1933). To pass a Constitutional Amendment the Congress must pass it with a 2/3 majority vote in both houses and then it goes to the 50 states and must pass ¾ of the statehouses to become ratified.   A very high bar indeed. Prohibition was a national disaster of epic proportions. However, it was created in response to some significant excesses by the industry and public. A lot of the excesses were blamed on what is known as “Tied-Houses”, whereby the brewers owned the taverns. The drunken excess of many in the public was attributed to the brewers have a direct interest in selling as much beer as possible and controlling the point of consumption. The saying “There is no such thing as a free lunch” came from this era. The brewers would give away free sandwiches at the taverns they owned. Sounds good, but they would salt these sandwiches excessively so that the patrons would drink more beer.

Whether you agree or not that “tied houses” were the root of all evil, this was the majority view when in 1933 the nation’s failed experiment in Prohibition came to an end. Even though it was clear to most that this government intrusion into industry was a disaster, there were still large numbers of anti-alcohol constituents throughout the land. The compromise to get the 21st Amendment passed was to allow each state the absolute right to regulate the sale and distribution of alcohol within its boarders. The 21st Amendment does not have an opinion on tied houses or any other aspect of how the industry does business. The Federal Alcohol Administration Act did spell out specifics on regulations of the industry to insure the revenue and to protect consumers. It did not however, spell out any specifics regarding a “3 tier system”, but rather defers to the 21st Amendment that in turn defers to the states.

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Each state proceeded to set up its own set of laws and regulations.   There are 50 states and 50 sets of laws that while some may resemble each other, none are identical. Layered onto the specific statutes and regulations are the interpretations by alcohol boards or chairmen and the courts.  The most common way in which the states addressed the tied house issue was to legislate a middle tier (wholesaler) to be a buffer between the suppliers and the retailers. This is what is commonly referred to as the 3 tier system. There have always been some states that allowed brewers to own wholesalers, though this was the exception.

In the case of Kentucky’s new law, Anheuser-Busch Inbev has owned distributors there for more than 40 years and had attempted to buy a 3rd. That prompted the wholesalers to attempt to stop them and when other means failed, it ended with this new legislation not only not allowing them to buy the new distributor, but also forcing them to sell their existing businesses. I have no idea of how the courts will view this, but from the sound of it, ABI will not go quietly.

I can’t help but think the latest turn in the 3 tier beverage alcohol industry channel conflict is an example of overreaction that will do nothing but cause further escalation. When one considers all the new brands that have launched and keep launching in beer, spirits and wine and the need for each to find ways to market, it is clear that broad based full line distributors provide a viable route to market for many. All of the main distributors have giant books of brands now, and they serve some very large suppliers and many smaller ones well. In many cases they serve these needs of smaller brands by creating specialty sales divisions. They do not serve every brand well, nor can they. This has created market conditions in most states where a new crop of smaller start up distributors have emerged, primarily handling specialty or craft brands. Where specialty/craft distributors have emerged, they have become a necessary escape valve for small and new brands getting distribution to retail. In markets that allow it, and many states have provisions up to a certain size, craft breweries can self distribute. This is expensive but a necessary option in cases where there are no viable distributors to carry a new brand. Stone Brewery in San Diego and Sun King in Indiana seem to be examples of self-distribution that has been successful. I wonder if this will become more prevalent with spirits as the number of craft distilleries grows.

2015-01-21 11.18.45  IMG_6561The current approach, though ugly at times, has worked to provide a route to market for a thriving craft community.   The pressure to get new brands to market is only going to increase. It is unclear to me where the craft community will end up better off – with strict laws that don’t allow suppliers to own distribution (of any size) or with looser laws that give options. I tend to think most small/new brand will end up supporting a more flexible system, but the bigger brands, that are doing well in the traditional 3 tier system, will support the stricter system.

It may be that there are simply too many competing interests to work out viable solutions to everyone’s satisfaction on these issues. It would certainly be better for the industry if there were agreement as opposed to legal or legislative fights. ABI is a powerful entity as are all the major suppliers. Poking them in the eye with a local legislative win, may end up being a case of winning the battle but losing the war in some ways. It is unclear to me that the KY law actually helps craft brewers or simply hurts ABI or it it even does that. ABI can still control largely the activities of an independent distributor, as they have been able to do, in many other states. What is clear is that this KY battle is not the end to this fight.

It will be interesting to see how this continues to play out. Love to hear your comments or questions. Cheers! Smoke

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Smoke has worked in all 3 tiers of the industry, built beer wine and spirits distributors, owned a craft brewery, a winery, and multiple craft spirits brands.  He built the leading technology for pricing between suppliers, distributors and retailers. He also represented the WSWA as Chairman & President and the Brewers Association on the Government Affairs Committee.

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Send Your Letter to Support Olympic Wrestling To The International Olympic Committee

Thanks for all the reposts and kind comments… building on my last post, I liked John Irving’s opinion piece in the New York Times “How Wrestling Lost the Olympics”.

Also, looking at the bright side, what could possibly create a headline like this:

“Iran, US Find Common Ground…”

well, the Olympics found a way to cause it…

I also agree with wrestling great, Carl Sanderson, let’s flood the executive committee of the International Olympic Committee with POSITIVE letters showing the passion and great following of Olympic Wrestling.

Executive Committee Members:
(Address at bottom)

Mr Ching-Kuo WU – TPE (Chinese Taipei)

Mr Willi KALTSCHMITT LUJÁN – GUA (Guatemala)

Count Jacques ROGGE – BEL (Belgium)

Mr Thomas BACH – GER (Germany)

Sir Craig REEDIE – GBR (Great Britain)

Dr René FASEL – SUI (Switzerland)

Mr Sam RAMSAMY – RSA (South Africa)

Mr Patrick Joseph HICKEY – IRL (Ireland)

Mrs Gunilla LINDBERG – SWE (Sweden)

Ms Nawal EL MOUTAWAKEL – MAR (Morocco)

Mr Ser Miang NG – SIN (Singapore)

Mr John D. COATES, AC – AUS (Australia)

Mr Juan Antonio SAMARANCH JR – ESP (Spain)

Mr Sergey BUBKA – UKR (Ukraine)

Mrs Claudia BOKEL – GER (Germany)
————————————————————————-

I.O.C.
Château de Vidy
Case postale 356
1001 Lausanne
Switzerland
Phone +41 21 621 61 11
Fax +41 21 621 62 16

Pass this on…

A Former Wrestler’s Open Letter To The International Olympic Committee & Olympic Sponsors. Save Olympic Wrestling!

Dear International Olympic Committee & Olympic Sponsors

cc: Friends of Wrestling,

Your decision today clearly upset a large number of Olympic fans around the world.  While we who are not privy to all of the issues you must grapple with internally, cannot know exactly what led to your decision announced today to drop wrestling from the 2020 Olympic games, it is clear you have miscalculated on at least one front.  To wit, wrestling is one of the toughest sports ever invented and anyone who has wrestled at any level or has been close to wrestling can tell you… wrestlers are a tenacious lot.  In fact, we don’t give up.  The level of protest you can expect from this community will surely come as a surprise to all of you.

There three main reasons why the Olympics will be diminished without wrestling:

1. Wrestling, a truly international sport, has been around since pre-historic times and was an important part of Greek culture when the Olympics got its start –

According to WIKIPEDIA:

In the Ancient Near East, forms of belt wrestling were popular from earliest times.  A carving on a stone slabe showing three pairs of wrestlers was dated to around 3000 BC… A portrayal of figures wrestling was found in the tomb of Khnumhotep and Niankhkhnum in Saqqara dating to around 2400 BC.  Another early piece of evidence for wrestling in Egypt appeared circa 2300 BC, on the tomb of the Old Kingdom philosopher Ptahhotep…. Greek wrestling was a popular form of martial art in which points were awarded for touching a competitor’s back to the ground, forcing a competitor out of bounds (arena).  Three falls determined the winner. It was at least featured as a sport since the eighteenth Olympiad in 704 BC. Wrestling is described in the earliest celebrated works of Greek literature, the Iliad and the Odyssey.   Wrestlers were also depicted in action on many vases, sculptures, and coins, as well as in other literature. Other cultures featured wrestling at royal or religious celebrations, but the ancient Greeks structured their style of wrestling as part of a tournament where a single winner emerged from a pool of competitors.   Late Greek tradition also stated that Plato was known for wrestling in the Isthmian games.

When the Olympic games resurfaced at Athens in 1896, Greco-Roman wrestling was introduced. After not being featured in the 1900 Olympics, sport wrestling was seen again in 1904 in St. Louis; this time in freestyle competition. Since then, Greco-Roman and freestyle wrestling have both been featured, with women’s freestyle added in the Summer Olympics of 2004.

2. Wrestling has a tight knit passionate community of participants and followers globally, who greatly value and honor the Olympics.  Wrestling does not have a professional wrestling option as many other sports.  Unlike many other sports, the Olympics are the highest and most important venue for wrestling.  Many other sports have other higher levels (professional ).  All US (and international) wrestlers who got our start after him, grew up idolizing Dan Gable and his perfect performance (no point ever scored against him throughout the games) in the 1972 Olympic games.  I had the privilege of attending Dan Gable’s Iowa Intensive Training Camp back in 1983.

Smoke with Dan Gable in 1983

3.  Wrestlers and their friends have significant influence in today’s society.  It is ironic that the day the IOC chose to drop wrestling happens to be wrestler and greatest US President, Abraham Lincoln’s birthday.  We will use that influence to do anything in our power to change this short sighted decision.  Whether the wrestling greats like Dan Gable or the many others who have gone on to excel in their professional pursuits, we will work together to fix this.  Here are but a few of the well known Americans who wrestled (from the National Wrestling Coaches Association):

U.S. PRESIDENTS

Chester Arthur Calvin Coolidge Dwight Eisenhower

Ulysses S Grant Andrew Jackson Abraham Lincoln Teddy Roosevelt William Howard Taft

John Tyler

 

 

U.S. SENATE

The late John Chafee (former senator RI)

Lincoln Chafee (former senator RI)

Chuck Hagel ( Nebraska )

John McCain ( Arizona )

The Late Paul Wellstone ( Minnesota )

 

U.S. HOUSE OF REPRESENTATIVES

Brad Glass

Greg Ganske (Iowa )

Jim Jordon (Ohio)

Jim Leach ( Iowa )

Jim Nussle ( Iowa )

The Late Carl Albert (Former Speaker of the House)

Dennis Hastert ( Illinois ) (Former Speaker of the House)

 

SECRETARY OF DEFENSE

Donald Rumsfeld

Frank Carlucci

 

WHITE HOUSE STAFF

Ari Fleischer

George Stephanopoulos

 

ACADEMY AWARD WINNER

John Irving

 

ACTORS

Nate Parker

Mario Lopez

Ashton Kutcher

Tom Cruise

Billy Baldwin

 

BUSINESS LEADERS

Rocky Aoki, Benihana

Scott Beck, Boston Market

James Bigger, Nestlé

Dan Cathy, Chic-Fil-a

Stephen Friedman, Goldman Sachs and Cornell

Ron McGruder, Olive Garden

Edward Rust, State Farm

Arthur Rutzen, Wells Fargo

MILITARY LEADERS

Military leaders

Denny Benchoff

Greg “Pappy” Boyington

Charles C Krulak

George Patton

Al Rushotz

Norman Schwartzkopf

ATHLETES

NFL

Stephen Neal – New England Patriots

Antonio Garay – San Diego Chargers

Davin Joseph – Tampa Bay

Ronde Barber – Tampa Bay

Joe Condo – Oakland

Chris Colley – Washington

Ray Lewis – Baltimore

Lorenzo Neal – San Diego

Donnie Edwards

Kelly Gregg – Baltimore

Bryant McKinnie – Minnesota

David Patten – New England

Adam Vinatieri – Indianapolis

Ricky Williams – Miami

Coy Wire – Atlanta

Roddy White – Atlanta

Ronnie Brown – Miami

Matt Roth – Cleveland

Mike Patterson – Philadelphia

Luis Castillo – San Diego

Jim Nance – New England

Brand Benson – NY Giants

Mike Reid – Bengals

Jeff Richardson – NY Jets

Tiki Barber – NY Giants

Tedy Bruschi – New England

Larry Czonka – Miami

Bob Golic – Cleveland

Mike Golic – Philadelphia

Carlton Haselrig – Pittsburgh

Bo Jackson – Oakland

Matt Millen – Oakland

Warren Sapp – Tampa Bay

Mark Schlereth – Denver

Chuck Noll – Pittsburgh

Curley Culp – Kansas City Chiefs

At the Olympic Wrestling Trials in Indianapolis in 2004

US Olympic Wrestling Trials - 2004 Former Cornell Wrestlers at Olympic Trials 2004

And if I could list all the non-American’s I would.  Wrestling is truly an international sport like few others.

Here is a NPR clip on the Turkish Wrestling response… an example of reaction around the world

IOC, I believe you will listen to reason so long as it is delivered by your sponsors.  These sponsors are global companies most of which are based in wrestling countries as are their customer.  The global partners of the Olympics include (along with their twitter handle):

Coca-Cola   https://twitter.com/cocacolaco

P&G  https://twitter.com/ProcterGamble

General Electric  https://twitter.com/generalelectric

DOW   https://twitter.com/DowChemical

McDonalds  https://twitter.com/McDonalds

Panasonic  https://jp.twitter.com/panasonic

Samsung  https://twitter.com/Samsungtweets

Omega  https://twitter.com/omegawatches

Visa  https://twitter.com/Visa

#saveolympicwrestling

For the Friends of Wrestling:

Here is the petition to re-instate wrestling into the Olympics.. please sign it.

Sign the Petition

If you are really motivated, tweet about it, mention the sponsors on twitter and worst case if we do not get support, take your business to other companies who are not supporting the IOC and this short sighted move.

Thanks and Kind Regards,

J. Smoke Wallin

former Cornell Wrestler, Bayshore HS Wrestler

Freshman Year Wrestling at Bayshore High School

Cornell Wrestling Team 1985

Serving The Greatest Generation

I came across this opinion piece I published in 2003 in Beverage Media’s Beverage Journals nationally. This was as my role as Chairman of the Wine & Spirits Wholesalers of America WSWA and was meant to spur debate.

 

” Americans living in assisted living today typically are the only group outside of under 21 year olds who have to “sneak a drink” in a “brown bag”.  These great citizens who have contributed immensely to society and who are used to living a “good life” are underserved.”

 

Thought I’d re-post. Let me know if you have thoughts.

Serving the Greatest Generations by JSW v

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