Part II: Purser Speaks on Care Act

FILED JULY 16, 2010

Dear Client:

In Part II of our interview with NBWA's Craig Purser, he speaks on the odds of the Care Act passing, whether the bill gives distributors too much power, and the situation in Washington State. You, my friends, are a fly on the wall.

BBD: Do you think the CARE Act will pass?

CP: I do. I'm resolute that Congress will address this issue. The public does not want alcohol deregulation. I've got lots of faith in NBWA's members. The more folks that are behind the bill, the greater its chances of passage are. Because we are working for something that's important for our members, but more importantly something that is in the public's interest, I think this is something that can and will be done. We've been pleased with the progress that's been made so far. We're pleased with the level of support it's gotten in the House, and we're pleased that the National Alcohol Beverage Control Association and others have endorsed the bill. We're going to keep educating. We're going to keep talking to people in this industry. We're going to keep making folks aware that there are people out there who are financially interested in getting rid of alcohol beverage laws...people that want to fundamentally change the system for their own economic interest. We have many examples of this now.

BBD: Does this bill give too much power to wholesalers?

CP: Absolutely not. There are many regulations at the state level that I know distributors would rather do without. But that's what good regulation is all about. We may not like every law, but we support the state's right to make those laws. We believe that this system works the best, and it works the best, Harry, for everybody because it provides a good balance.

As it relates to suppliers, the system allows access to market through an independent distribution system for brewers large and small and it allows parity between the tiers. For retailers it provides a level playing field between giant national chains and independent operators. For consumers, the system provides unparalleled choice and variety at a fair price. And for the public, its interest in checks and controls on alcohol is preserved.

BBD: What's your view on what's happening in Washington State?

CP: Washington State is a big deal. It should greatly concern those interested in the beer industry. State question 1100 is ambitious in its scope and focus as it aims to do so much more than privatize distilled spirits distribution and retail sale. It guts nearly all of the existing regulatory structure and framework. It could bring slotting fees to the alcohol industry. It removes all price regulation including the quantity discount ban and increases the number of outlets for hard liquor from under 400 to over 3000. Getting a six pack of beer at 11:30 PM is one thing, but this bill replaces that option with the option of buying a case of value priced, elephant foot bottles of vodka, and that is another thing altogether.

When discussing privatization issues for alcohol, control is a key. Another key is the profit made by the state from the commercial enterprise. That profit under the current system is revenue for the state. Under 1100 there is tremendous risk to the state of losing the revenue generated. That revenue pays for schools, roads, police and fire protection. We don't have the time today to discuss how bad the states will be in budget problems next year when the federal support money runs out. All of this is against a backdrop of huge budget deficits. How will the state make up that $300 million lost? Raise beer taxes? S Corp tax increases?

The Costco's I have visited carry between 10 and 12 SKUs of beer. That puts the vast majority of breweries on the outside looking in. Another risk is that if Costco wins and is able to buy from and sell to whomever it wishes, this will present a huge challenge to the existing beer and wine retailer, especially the independent store without market power. While they will be able to retail spirits, they may be sourcing it from Costco. Without uniform price requirements and other regulations, the marketplace advantage will go to the larger retailer.

Once people start figuring this out, I don't think this privatization proposal will be as popular. Excise taxes wouldn't begin to make up the lost margin to the state. You'd have to start selling a lot more alcohol to make it up. How would public health policymakers, law enforcement and communities feel about that?

The Washington Beer & Wine Wholesalers Association is opposing both of the privatization initiatives and is doing a good job of preparing for this challenge. NBWA will be working hand in glove with them to ensure the facts are disseminated for Washington's citizens.

We were pleased to hear some brewers voice concerns about what's going on in Washington state. This issue greatly concerns NBWA and beer distributors will be working to defeat this. I am hopeful that brewers will do likewise. This should be an issue on which the industry can work together.

BBD: Any other comments, Craig?

CP: This interview has made me thirsty...I am going to go have a beer.

OFF-PREMISE BIG FOR WINE, SAYS MINTEL

Among those who consume alcohol, 90% are drinking more at home, compared to 77% who drink at the on-premise, according to new Mintel research. Those surveyed claim the consumer twice the amount of drinks at home in an average month than they do in restaurants or bars (10 vs. 5.7). Since 2004, the off-premise has grown 21%. Wow. And out of those drinking at home, 28% said they are trading down to less expensive brands more than they did last year to save money.

Beer has the biggest share (48%), but wine is the most popular alcoholic beverage consumer off-premise, with 67% of those who drink alcohol at home indulging in a glass. Spirits are consumed by 57% of respondents and regular beer by 53%.

Most people who drink at home say they learn about alcoholic beverage from magazines or TV (35%), while 31% use the internet. More than half of off-premise consumers say they are influenced by promotional or discounted prices.

BBD BRIEF:

REUTERS: GOVERNMENT MAKES BIG BUCKS OFF "SIN TAXES." This shouldn't surprise anyone in the alcohol beverage industry, but a new report reveals that the US government collected $20.6 billion in taxes on alcohol, tobacco, firearms and ammunition in fiscal year 2009, up 41 percent from the previous fiscal year, according to the annual report of the Alcohol and Tobacco Tax and Trade Bureau. Most of that money came from the tobacco industry, but there was also a tax increase on sales of guns and ammunition.


Until Monday, Harry

"It is not to be expected that human nature will change in a day."
-Frank Kellogg
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