A news service for the people of Michigan from the Mackinac Center for Public Policy

In the June 2011 issue of the Michigan Beer and Wine Wholesalers Association (MBWWA) newsletter, President Michael Lashbrook reaffirmed his organization’s endorsement of the Community Alcohol Regulatory Effectiveness (CARE) Act of 2011, which would strip away the protections alcoholic products currently have under federal law against discriminatory state-based regulations. Lashbrook said the CARE Act simply “reaffirms that alcohol is different from other consumer products and should continue to be regulated by the states.” In reality, wholesalers in Michigan and around the nation are trying to protect their regional monopolies on alcohol distribution by preventing consumers from purchasing beer, wine, or spirits in a free and competitive market.

It’s time for consumers to push back. However, it won’t be easy, as the MBWWA, like alcohol wholesalers across the country, has long gone to great lengths to protect its monopoly. To see just how far, consider its reaction to the U.S. Supreme Court’s 2005 ruling, Granholm v. Heald, which declared Michigan’s alcohol laws “discriminatory,” and said that if state regulations allowed in-state retailers to ship directly to consumers, then it would have to allow out-of-state retailers and vineyards to do the same.

The wholesalers, rather than try to seek new growth opportunities in direct shipping, decided to squelch any new competition. In late 2008, Michigan lawmakers rushed through the Legislature a MBWWA-endorsed bill (House Bill 6644) banning direct-to-consumer shipping of wine within the state. Legislators in Michigan, who collectively received almost $600,000 in campaign donations from MBWWA in 2008, introduced, voted on and enrolled the measure in a mere five legislative days. Before the shipping ban, retail liquor shops in Michigan, all of whom purchased their inventory from MBWWA members, could legally sell and ship those products directly to consumers. Rather than lose their monopoly control over the beer and wine market in Michigan, the MBWWA worked to end direct sales for everyone.

MBWWA President Michael Lashbrook said his group supported the shipping ban out of a desire to “stop dangerous products from reaching consumers and alcohol from falling into the hands of minors.”

As an industry, wholesalers — that is, middlemen — are protected by regulation. Under the mandatory three-tier distribution system, alcoholic beverage producers — vineyards, brewers, and distillers — may not sell their products directly to retailers and consumers.

That arrangement, the result of political compromises related to the repeal of Prohibition, for years has given the wholesalers the power to determine which products were sold in stores or on tap in their area. It also made it nearly impossible for consumers to get their hands on the particular brands not carried by the wholesalers.

Today, Prohibition is long gone, and the mandatory three-tier system makes less sense than ever. Consumers can go online and order groceries from a store down the street or a pair of shoes from halfway around the world and have all of it delivered to their front door. Yet, in many states, consumers who wish to purchase a special bottle of wine have to physically walk into a store or onto a vineyard. Such restrictions exist not to protect consumers, but wholesalers who see direct shipping as a threat to their profits, and therefore lobby state legislators to ban on direct-to-consumer shipping.

In his commentary Lashbrook scoffed at those opposing the CARE Act, in particular suppliers whom he said, “have designs on shifting regulation back to the federal level where they believe they can have more influence and control.” This rationale is laughable from an organization that has a long history of influencing regulation.

Beer and wine wholesalers comprise one of the nation’s most powerful lobbies, giving huge amounts of money to political campaigns. Since 2000, the National Beer Wholesalers Association has given more than $5.6 million in federal campaign donations, while the Wine and Spirits Wholesalers of America has given almost $10 million during that same period.

Wholesalers are especially powerful at the state level. Take Texas as one example. In 2001, wholesalers in the state spent nearly $1 million in a successful effort to stop a bill that would have allowed residents to order wine online and have it shipped to their homes. And this year, the Wholesale Beer Distributors of Texas helped kill a bill that would have allowed craft breweries in the state to sell small amounts of beer to their visitors. The group also gave hundreds of thousands of dollars to Gov. Rick Perry’s reelection campaign, paying thousands of dollars for tickets to his invitation-only events, contributing to a political environment where any bill seeking to liberate distribution has an uphill battle. In 2007, the state’s Sunset Advisory Commission said the alcohol distribution system in Texas “no longer serves the public interest and protects the wholesale distributors.” 

Wholesalers’ lobbying investments have paid off. When the CARE Act was introduced in the previous Congress (H.R. 5034 ) it garnered more than 150 co-sponsors, including five current U.S. House members from Michigan: Democrats John Dingell, Dale Kildee and Gary Peters; plus Republicans Thad McCotter and Candice Miller. Though this version failed to pass, wholesalers are likely to up the ante on their lobbying to fend off threats to their privileged positions.

Since the Granholm decision, several states have legalized the direct shipping of wine to consumers from both in and out-of-state suppliers. Currently, only 13 completely prohibit direct shipping. If the CARE Act becomes law, many states likely will reverse the progress they have made since 2005. Worse, if wholesalers had their way, we would go back to the way things were prior to 2005, with states discriminating against out-of-state sellers, leaving consumers with only the options that state government and the Wholesalers allow.  

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Michelle Minton is director of insurance studies for the Competitive Enterprise Institute.

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