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Day 6: Debunking the Chaos Myth

It’s been a few days since HB 660 was filed and it hasn’t been killed yet, so that a good sign.  With that said, don’t think for a second that the bill hasn’t popped up on the radar of those hell-bent to prevent it from becoming law.

The argument put forth by opponents is that any change in the state’s tightly regulated 3-tier system would be the apocalyptic “camels nose under the tent” that reveals the “slippery slope” leading us back to the area of pre-prohibition tied-houses.

Opponents usually take a more diplomatic stance with their objections, stating they aren’t necessarily opposed to new regulations – but that we must be careful what we wish for as “the ills that brought about Prohibition are the same kind of ills that would be re-created if the effective model of alcohol regulation was dismantled.” That quote belongs to Galveston based Budweiser distributor Larry Del Papa in an interview with the Houston Chronicle’s Ronnie Crocker, who later goes on to explain that those who seek to tweak the 3-tier system to make it better for not only the respective tiers, but for consumers alike, merely do so out of a “selfish profit motive.”

In some respects, I can see Mr. Del Papa’s point.  As a distributor whose overwhelming majority of volume (approximately 95%) is from one company (A-B InBev)–the very existence of his company is wholly dependent on the existence of the 3-tier system.  Without the mandated existence of the middle tier, A-B InBev would have no problem owning an operating their own distributorships, relegating family owned businesses like Del Papa’s to the forgotten annuls of history. 

I will be the first to acknowledge that to this degree, Mr. Del Papa is 100% correct that this would lead to pre-prohibition like conditions where tied-houses ruled the beer landscape, except that now the players are bigger and more powerful.  Not only would this be bad for those wholesalers whose business focuses on Big Beer’s products, but it would be bad for consumers who value the variety and choice they’ve come to expect; and for small brewers who rely on the distribution networks such as Del Papa’s to gain access to new markets.

Where I take objection, however, is that modifications to the existing system will necessarily lead to the dissolution of 3-tier altogether.  Exceptions like the one sought by HB 660 has been successful in a number of other states and hasn’t led to the collapse of the beer industry. 

But we don’t need to go beyond Texas borders for an example of how loosened restrictions has not only not harmed the industry, but helped it boom.  Texas wineries are allowed (link goes to Texas Alcoholic Beverage Code related to wineries) to sell their wine to distributors or to direct consumers.  It even allows them to directly ship wine to consumer’s homes!  These laws haven’t resulted in the death of the industry, but rather allowed it to bloom.  The State’ Agricultural Department reports that from 2001 (before regulations were loosened) to 2009, the number of Texas wineries has increase from 46 to 181, the number of Texas wine job has increased from 1,800 to over 9,000 and the industry has grown from $132 million to $1.35 billion in annual economic impact.  Find me a Texan who has a problem with that kind of success.

The bottom line is that HB 660 will not lead to the end of the 3-tier system.  It won’t lead to endless legal challenges from A-B InBev wanting to open a brewpub or bar on every street corner (it hasn’t in any of the other states that already allow the activity we seek).  And it definitely won’t lead to the disappearance of distributors.  Craft brewers need distributors.  I don’t want to own trucks, have a staff of drivers, etc.  I just want to make beer.  Distributors have built an amazing expertise at their craft, a wheel I have no interest in reinventing.  In fact, our beer safeguards the existence of the distribution tier by requiring us to sell our beer to those licensed distributors after we reach a certain size.  Almost everyone is a winner with the passage of HB 660.  Almost.

There are some potential losers in the bill’s passage.  Those who stand to lose are those distributors who choose not to carry Texas craft beer.  The fact is that if Texas brewpubs are allowed to distribute their beer, those are beverages that Texans are likely to want to drink over industrialized lagers owned by foreign conglomerates.   Bottom line: these distributors know the increased competition could be detrimental to their businesses, so they seek laws that protect them from said competition.  Anti-competitive laws have no place in our state or nation, and we should let our elected leaders know we will not tolerate their protection. Supporting anti-competitive measures to protect your own business–now that’s what I call a selfish profit motive.

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2 responses

  1. Keep up the good work Scott! I am certainly rooting for you, as this has major implications across our great state. While I make a trip to SA every year in February for a professional conference, I would LOVE to go down the street to Kroger and pick up a 6er of La Muerta. You’ve got DFW on your side!

    January 17, 2011 at 7:56 pm

  2. Chris Smith

    You got my support too.

    I would like to see more enforcement of the existing TABC regs against distributors gifting/installing equipment to the end consumer for extra placements as well, but not holding my breath.

    January 18, 2011 at 9:28 pm

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