A Talk with NBWA's Craig Purser

FILED SEPTEMBER 16, 2012

Dear Client:

Ahead of the NBWA convention in a few weeks, BBD sat down with NBWA chief Craig Purser to talk about a variety of issues including "inside baseball" in DC politics, recent court decisions, the Modelo deal, private equity in beer wholesalers, and more. You, my friends, are a fly on the wall:

Harry Schuhmacher : So the political season is upon us. And while we aren't seeing much presidential advertising in Texas, I was in Colorado and you'd think the election was next week. What's your take on the elections and what's going on on out there?

Craig Purser: Harry, it is crazy out there. I was in Tampa with the Republicans and in Charlotte with the Dems and I haven't seen an election that is so close and an electorate that is so divided in I don't know how long. Both sides and both presidential campaigns are beating the hell out of each other, and I don't think anyone knows what will happen when the music stops in November. What we do know, however, is that we have a fiscal cliff that is in front of us, and Congress has the huge challenge of looking for new ways to deal with government spending and find new revenue.

I was at a dinner at the US Chamber of Commerce the other night with several other association CEOs, and the country's fiscal situation was our primary topic of discussion. There is significant concern about the upcoming debate over the expiration of tax cuts and the funding the federal government needs to meet its ongoing obligations. The implications for this related to the investment market, the credit rating of the U.S. and the economy in general could be cataclysmic. Many folks here in DC are calling this the "perfect storm" because if Congress doesn't act before the end of the year, we'll see a wide range of automatic spending cuts kick in, impacting defense funding and domestic programs, and several tax cuts will expire. We need Congress to pick up this issue after Election Day in the lame duck session.

HS: So what are y'all doing to address this "fiscal cliff" scenario?

CAP: NBWA has been working behind the scenes for a while now - long before all of this became front page news -- advocating for tax policies that support job growth and independent businesses like beer distributors.

Knowing that Congress would be tackling many issues related to tax reform, NBWA surveyed our distributor members so we can most effectively advocate for them on tax policy. Many of the current tax policies related to closely held businesses need to be maintained. We don't want to see a corporate rate reduction paid for on the backs of small, closely held businesses. We've been clear about our opposition to LIFO repeal and any effort to increase taxes on S corps. We support proposals to reduce corporate and individual tax rates. And we are continuing to work with key members of Congress to make permanent the current estate tax rate and exemptions.

We will be discussing this and the results from the tax survey in the Distributor Member Meeting at NBWA's Convention in San Diego next month.

HS: I think everyone is aware of the fact that over the past several years NBWA has gone back to its roots of "distributors first." It seems to me that you guys have softened your tone with the brewers as of late. Is that a fair characterization?

CAP: Putting distributors first is why folks belong to NBWA. And putting distributors first does not mean we take any specific tone with the brewers or any other trading partner. It is well established that some of those partners (including big retail) have sought to change the environment in recent years - as we have seen through litigation against the states, efforts in the state legislatures, through ballot initiatives and other means. We are seeing new challenges to the system, and they are coming in new forms. That's exactly why NBWA has an obligation to use every means necessary to stand up for independent distributors.

HS: When you say every means necessary, that would include federal legislation I assume?

CAP: Sure, and all the other policy advocacy tools in the drawer. In the aftermath of the Granholm decision several years ago, we were terribly concerned as state after state was facing new litigation as various interests sought to expand that ruling for their economic benefit. NBWA worked to pursue a federal solution to address these significant state challenges. Today, the litigation has subsided - at least for now. One case nearly made a return trip to the Supreme Court in 2011, but since then, we have seen a decline in the volume of litigation in that vein. I also think that our brewer partners now have a better understanding of distributors' concern about the problems and the future of the system.

HS: I get that. I recently reported on the decision of a trial court in the Missouri lawsuit where, ironically, the country's biggest liquor distributor -- Southern Wine & Spirits -- is seeking to invalidate Missouri's residency requirement. It seems they are trying to expand the Granholm decision to apply to distribution...

CAP: That is seems to be what they are attempting to do, Harry. Southern wants to strike down Missouri's law that requires liquor distributors reside in that state. The trial court upheld the Missouri law, and it also did a terrific job of applying Granholm and containing its application appropriately. (Granholm dealt specifically with the narrow issue of discrimination related to products and producers.) The Missouri court called the three-tier system "unquestionably legitimate" - echoing language the Supreme Court used in its Granholm decision. The Missouri court also said, "[t]he Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system."

I feel a little better that Southern appears to concede that states can require all wholesaler operations to be physically located in a state. While the district court's language is favorable to the three-tier system, make no mistake about it, this case is being appealed, and that could set up a conflict with other court rulings. As you know, conflicting decisions can set the stage for another visit to the Supreme Court. We may not have heard the end of this one yet.

HS: Big industry news that BBD covered extensively this summer. ABI's pending acquisition of Modelo. Where does NBWA stand on that?

CAP: As you have covered, the DOJ is taking a look at this proposed deal due to antitrust implications. We know that the DOJ has contacted many distributors and others looking to learn more about the system and what the deal would do for the balance in the marketplace. DOJ's inquiry is significant because this is a very influential arm of the federal government that is closely examining the entire beer industry including local sales and distribution. Different distributors may have different opinions on the proposed deal. NBWA is fully committed to ensuring that the independence of beer distributors is maintained. And, NBWA is always ready to serve as a resource to any distributor member who is seeking insight.

HS: Big news out of the Northwest recently...do you think we will see more private equity or what some call 'family office equity' among your membership?

CAP: Possibly. Someone once told me they were worried about having a buyer for their distributorship if they ever wanted to sell. I think this deal only further shows that many people or entities would like to enter the beer distribution business. The announcement is a validation of the value distributors bring day in and day out. This deal validates the independent distributor business model, the system, the state based regulatory structure, and the fact that it works so well for so many different trading partners.. This also confirms what a couple of financial folks have told me about many new investors wanting in to the distribution industry. We have a great industry, with family owned businesses serving communities every single day. I am proud NBWA has worked diligently to help independent distributors grow and thrive and that is attracting a wide variety of interest. And besides, it is a great business and if beer distributors want to stay in this great business they have every right to do so.

HS: So you guys are getting ready for a convention in a few weeks...

CAP: Yes, we are really excited to be celebrating NBWA's 75th Annual Convention in San Diego. I know that's one of your favorite cities, Harry. Plus we have a terrific line-up of speakers including General Stanley McChrystal, the four star general who led the effort in Afghanistan. He's a dynamic and inspirational speaker who will be sharing stories from his amazing career on leadership, teamwork and strategic thinking. We'll be just three weeks away from Election Day, so we'll hear from a leading pollster, Peter Hart, who you may have seen recently on the Today Show. For the first time ever, the leaders of five suppliers will be on stage together, at the same time, to talk about their relationships with distributors and future of the American beer industry. On Monday afternoon, the Product Demonstration Showcase is back by popular demand. There are more than 100 companies signed-up that will be showing off their products and services. There are more than 20 educational seminars. So clearly something for everyone.

HS: And again, your editor will be waxing poetic in a seminar. There's an awful lot to talk about this year.

CAP: Yeah, yeah, I'm sure everybody is waiting to hear your brilliance. And everyone will want to be a part of NBWA's 75th anniversary celebration on the USS Midway on Tuesday, October 16. The USS Midway has quite a special place in American history - it was in service for nearly 50 years, making it the longest-serving aircraft carrier of the 20th century. I hope everyone sticks around to raise a beer in honor of NBWA's 75th anniversary -- Definitely reason to celebrate!


BEER EXECS ON THE MOVE

Heineken USA announced Friday the appointment of Matthew Kahn as Vice President of Marketing for Portfolio Brands effective September 19, 2012. In his new role, Kahn will be responsible for leading the development and execution of brand strategy, media and public relations for Dos Equis, Newcastle Brown Ale, Amstel and the recently acquired Strongbow Cider brand. Formerly he was SVP of Marketing, at Energy Brands, Inc./glacŤau.

Columbia Distributing announced that Mike Gorman will fill the new roll of Vice President of Craft and Imports. Mike will officially join the organization on October 1, 2012. Mike will work alongside their sales leadership in Oregon and Washington to further develop their craft and import business in the Pacific Northwest. Mike joins Columbia after 17 years in Division and Region manager roles for the Boston Beer company.

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HOUSEKEEPING NOTES:

BEER SUMMIT. We will have more news on speakers in the coming weeks for the Beer Summit, January 28-29 in San Antonio. Seats are going fast (we only have about 50 left) so get your reservations early here: http://beernet.com/beer_summit.php

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Until tomorrow, Harry

"There comes a time in every man's life, and I've had plenty of them."
-Casey Stengel

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Or call Kim at 210-805-8006 ext 1. Also, don't forget to book your hotel at the Westin Riverwalk at 210-224-6500.

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