MillerCoors Releases Three-Tier Doctrine

FILED JUNE 7, 2011

Dear Client:

In an unusual move, MillerCoors -- along with its Distributor Council -- has released a document which lends support to the value of the three-tier system. Though not a "legal document nor a legislative proposal", it outlines their "shared beliefs, principles and commitments regarding the structure and value of the three-tier system." The stated purpose of the document, according to a note to distributors this morning obtained by BBD, is to renew "distributor confidence in the integrity and investment potential of the three-tier system, and believe it provides strong support for the generational longevity and long-term value of independent distributor businesses" and, according to the doctrine itself, to "rekindle the cooperative, collaborative relationships that have long been a hallmark of the three-tier system and to encourage increased focus on brewing, marketing and selling beer."

The doctrine seems to be at least tangentially in response to the Care Act, when read between the lines. While the doctrine asks the undersigned to "aggressively defend, as well as not take actions or positions inconsistent with, these beliefs and principles", it also asks the undersigned to "commit to cooperatively advocate for consistent and stable alcohol policies that ensure orderly and responsible markets for the production, distribution and sale of beer."

But MillerCoors chief Tom Long told BBD that the doctrine is "really independent of the Care Act. Of course it's related. The Care Act is out there, it is what it is; our opposition is out there, and it is what it is. But the point is we've had distributor partners for 75 years and will continue to, and they have said they have concerns. It's right for partners to say, 'what do we believe and what are the principles to take us forward, and how can we make those principles clear so that distributors can invest in their businesses with conviction. It seemed simply like a right-headed response for our partners."

The doctrine also seems to seek to differentiate MillerCoors from A-B -- with its dozen or so branches -- as its first stated principle is, "Clear separation of ownership and/or majority control between brewers, distributors and retailers, as provided by state law." When I asked Tom if this document differentiated MillerCoors from A-B, he said, "Harry, that's for A-B to decide. We simply have a position on what we wanted to convey, but I can't speak for A-B."

I also asked Tom how the idea for this doctrine came about. "A handful of our distributors came to us and said, 'Jiminy Cricket, we focus on what we disagree on instead of what we agree on. Let's focus on what we agree on for a change.' That's what's made the beer business great. And so we decided to craft a document of expressed will for where we think the three-tier system is going and our support of it." A draft of the document was then presented to their Distributor Council yesterday and they supported it unanimously.

The document, of course, is not a legal document nor binding in any way. When I asked Tom about detractors that would point this out, he said, "Step back from the ledge. When you look out over the precipice, it hasn't been looking good for years, and so I would say let's step back and let's move on with our business. Our economic interests are deeply tethered and have been for decades, and we believe it's important to be clear about our shared principles in the MillerCoors system."

Distributor John Antonucci told BBD that he thinks it's a good step forward. "I think you have to give kudos to Tom and his leadership. This was an exercise in making us all feel comfortable and have a renewed vigor in our significant investments in our businesses and with each other. It was essentially trying to shine light on the subjects that we agree on rather than let the subjects that we disagree on control the dialogue."

But enough postulating by me. Here it is in its entirety. Read it for yourself and let me know what you think at hs@beernet.com or anon at http://www.beernet.com/hotline.php

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Three-tier System Doctrine

Purpose

The purpose of this doctrine is to define a clear and enduring set of shared beliefs, principles and commitments related to the existing structure and value of the three-tier system. By highlighting areas of mutual agreement and understanding, it is intended to set a firm foundation for renewed distributor confidence in the long-term integrity and investment potential of this enduring business system. While it is neither a legal document nor a legislative proposal, this doctrine serves as a useful guide and reference point for commercial and public policy discussions going forward. It is intended to rekindle the cooperative, collaborative relationships that have long been a hallmark of the three-tier system and to encourage increased focus on brewing, marketing and selling beer.

Beliefs

As partners in the U.S. beer business, MillerCoors and its independent network of local distributors believe that the three-tier system of brewing, distribution and retail sale continues to be the most powerful route-to-market for beer and offers significant commercial and societal value. By defining separate and distinct roles for each tier, this time-tested system delivers high levels of product quality, customer service and consumer choice as well as clear accountability for efficient tax collection and compliance with local, state and federal laws and regulations. As such, MillerCoors and its licensed distributors firmly believe that a vibrant three-tier system is critical to their mutual future success.

Principles

States lawfully exercise their express core powers under the 21st Amendment to the U.S. Constitution when establishing and overseeing the three-tier system. Due to the unquestioned legitimacy of state alcohol regulation as provided by the 21st Amendment and confirmed in the U.S. Supreme Court's Granholm decision, the specific features that define the three-tier system vary widely on a state-by-state basis. MillerCoors and its licensed distributors agree that the following principles are critical to maintaining the future value and viability of the three-tier system:

1) Clear separation of ownership and/or majority control between brewers, distributors and retailers, as provided by state law;
2) Exclusive distribution rights granted to licensed distributors operating and located within defined territories;
3) Written agreements that, together with governing state laws, describe key aspects of the brewer-distributor relationship, such as performance expectations, terminations and brand assignments;
4) Appropriate federal and state authority to protect the interests of both national and local businesses to effectively operate across their respective territories;
5) Restrictions on direct shipping to retailers;
6) Restrictions on central warehousing by retailers;
7) Restrictions on retailer-to-retailer sales;
8) Restrictions on distributor sales across defined geographies;
9) Policies that recognize beer as the alcohol beverage of moderation and promote public safety.

Commitments

MillerCoors and the undersigned distributors will both aggressively defend, as well as not take actions or positions inconsistent with, these beliefs and principles. We also accordingly commit to cooperatively advocate for consistent and stable alcohol policies that ensure orderly and responsible markets for the production, distribution and sale of beer. Specifically, MillerCoors and its distributors commit to promote, protect and defend the integrity of the three-tier system by:

1) Supporting federal, state and local laws and regulations consistent with the above principles;
2) Defending such laws and regulations in litigation as necessary;
3) Providing financial support for such activities as are agreed necessary to achieve these ends.



BEER BRIEFS:

A NATIONAL TASK FORCE on Community Preventive Services, an independent, volunteer body of public health experts created in 1996 by the U.S. Department of Health and Human Services, issued a statement recommending against "further privatization of retail alcohol sales based on evidence that privatization would increase excessive alcohol consumption and associated health and social problems, the Keystone Research Center reports in a new policy brief." "The Task Force statement is the most definitive statement on retail alcohol privatization issued to date by U.S. public health researchers," said Stephen Herzenberg, PhD, Economist and Executive Director of the Keystone Research Center. "It is based on the best available evidence, drawn from research on 'natural experiments' with actual privatizations. The Task Force statement deserves close examination as Pennsylvania lawmakers consider a proposal to privatize state wine and spirits stores."

THE NBWA'S CENTER FOR ALCOHOL POLICY IS re-publishing Raymond B. Fosdick and Albert L. Scott's Toward Liquor Control, which has been out of circulation for more than 50 years. The book is now available for purchase online at www.centerforalcoholpolicy.org. It is also available as an iBook through Apple's iBookstore, as a Nook book from Barnes and Noble and will be available soon in other e-book formats.

A-B's SHOCK TOP Belgian White is now rolling out in 12 pack cans. Cans are getting big in the craft aisle of supermarkets these days.

SEVERAL Massachusetts wholesale beverage distributors announced today they have created the Massachusetts Beverage Alliance, LLC. to attract craft and specialty beer suppliers to distribute products in Massachusetts. This Alliance "will provide opportunity for them to become more competitive in the craft and specialty beer marketplace", says a release. They are also looking for a Director of Sales & Marketing. Send your confidential letter of interest and resume to Karen Slein at karen@sleincompany.com

Until tomorrow, Harry

"I believe in only one thing: liberty, but I do not believe in liberty enough to want to force it upon anyone."
- H. L. Mencken

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