A Talk with NBWA's Craig Purser

FILED JANUARY 15, 2018

Dear Client:

With the new year upon us, BBD caught up with NBWA chief Craig Purser for a comprehensive talk on Washington DC, tax reform, and challenges coming down the pike this year. You, my friends, are a fly on the wall.

BBD: Craig, we can't turn on the TV or read our phones these days without hearing about more drama, disruption and dysfunction in Washington, DC. You live in the middle of the swamp. What's going on - is anything happening? And by the way I am a "very stable genius…"

Craig: Yes you are. You are brilliant! And actually Harry, a hell of a lot is happening. While it wasn't pretty watching the process of tax reform, at the end of the day, it was a significant accomplishment. Beer distributors have been advocating for many years for changes in the tax code that will generate more investment and support more jobs. And many of our priorities were acted on: A reduction in the effective tax rate for pass-thrus like beer distributors together with ensuring the lower rate applies to trust shareholders…. doubling the exemption for the estate tax while maintaining minority share discounts… maintaining Last In, First Out, inventory accounting... as well as improvements to bonus depreciation and section 179 expensing allowances.

As you know, this tax reform process was done very differently than in years past. Many deductions and loopholes were adjusted or eliminated. The final legislation did not have any support from the minority party. And there were a lot of interest groups at the table, including NBWA. Our team worked with a wide range of groups and with Congress to ensure that the interests of independent beer distributors and pass-thrus were represented during the process. In the end, I think that distributors' voices were heard.

BBD: But the big corporations made out like bandits, didn't they?

Craig: They did very well. There are a lot of us who wanted more relief for Main Street businesses - but the quest for a lower corporate rate was important to Congress. There will still be tweaks coming to all of this in the months to come. And it remains to be seen if those companies will repatriate their profits and make more investments here in the U.S. I guess time will tell.

BBD: But what about the Craft Modernization bill? The BA and BI are excited about it. Do beer distributors benefit from this change to the law?

Craig: No, not directly, and it's temporary…. but the truth is that NBWA was very helpful to our supplier partners. Over three years ago, we told our friends at BA and BI that they needed to get on the same page if they were to be serious about excise tax relief. We were thrilled to work with leaders like Senator Ron Wyden, and Reps. Steve Womack, Erik Paulsen and Peter DeFazio to forge consensus. In the end, NBWA believed the Craft Beverage Modernization and Tax Reform Act was a step in the right direction because it reflected current industry structure; applied to all alcohol manufacturers and importers; and recognized distinctions between beer, wine and liquor.

To give you an idea what this means to our brewer partners, I got a text from a leading brewer late night in December that read, "Since 1865, excise taxes on products that provide our livelihood have never gone down, only gone up. We changed the course of history." That's an accomplishment that the entire beer industry can appreciate. And it was great to see MillerCoors share their tax dividend with their distributor partners...

BBD: OK so other than tax reform, it seems like there is a lot of instability in the political world. I can't even count the number of congressional folks who are "retiring." What does this mean for NBWA?

Craig: It means we've got to keep building relationships. Distributors are the best at relationships. These relationships and work at the Legislative Conference year in and year out are why our issues got attention in this tax bill. But it is also an opportunity to reintroduce ourselves to these policymakers. As chairs of key committees turn over, we have the chance to educate folks about what is important to us and about the value distributors add to the American economy.

This year's Leg Conference is April 22 - 25 in Washington, DC. All distributors should mark their calendars now for this - and plan to bring an employee who's never been to the nation's capital before. It's incredible how much they learn during this conference about the system and the policy behind what distributors do. But it's even more impressive the impact employees have in the meetings on Capitol Hill. After all, they are constituents in congressional districts back home.

And the relationship-building doesn't end when folks get on airplanes and head back home. We want distributors to keep getting those policymakers in their warehouses to see the brands they build and the quality jobs they support.

BBD: What are NBWA's legislative priorities going into the new year?

Craig: Well first and foremost, we are going to keep the hammer down on making certain that Congress understands the value that is added by the independent beer distribution system and that competition is protected by effective state alcohol regulation. As eCommerce is expanded, we want to make sure that laws and regulations that have given rise to so much consumer choice and market success aren't preempted. Congress is also expected to move on an infrastructure bill that we will work to advance with bipartisan support. And as states move to legalize marijuana, we want to ensure that the product is being regulated and taxed appropriately.

BBD: You mention eCommerce and marijuana. Do you see those as emerging threats to distributors?

Craig: I think they are threats and possible opportunities. eCommerce by retailers seeking to provide the consumer with more convenience can be positive. Beer is a market-basket multiplier at retail. But we must ensure that marketplace and regulatory integrity is maintained. Last year's Retail Digital litigation victory in the 9th Circuit, where NBWA and the California state association filed amicus briefs, was key to maintaining regulatory integrity by reinforcing California's tied house law. With marijuana, the opportunity is there too. States considering legalization for medical or adult use must ensure they have an effective regulatory framework and that taxes are collected. And regulatory principles that exist for alcohol such as license distinction, outlets, separation of the tiers, face to face transaction requirements, and credit and pricing regulations all are made relevant by the marijuana debate.

BBD: Back in the fall at NBWA's convention, category health was on everyone's mind. And it's safe to say that beer volume trends are still on all of our minds. Will we see the beer industry work together on this in the new year?

Craig: I sure hope so. We've been working on this with Beer Institute, and I am encouraged that BA is interested too. Identifying some areas of common interest is a necessary first step as we look at ways to promote the category and brands, provide more relevance to the consumer and focus on maintaining beer's marketplace advantages. Maybe brewers will spend some of their excise tax windfall on this effort!

BBD: What other challenges does NBWA see coming down the pike this year - for distributors in particular or for the beer industry in general?

Craig: Oh, where to begin, Harry? We've been talking about disruption in many different forms for a couple of years now. It's NBWA's job to prepare and respond to disruptions - but not to lose our minds or take our eye off the ball. There are plenty of challenges in the states to the independent three-tier system. Some brewers are trying to tap into the growth of craft by acquiring smaller brewers…all with retail privileges. Some importers are purchasing craft brands, while others are repositioning their imports and opening new retail establishments. Some brewers are trying to expand their ownership of distribution and retail opportunities, attempting to change laws that generate healthy marketplace competition and maintain a level playing field. As for large retailers, well I don't have to tell you that some of them are on offense, trying to change state laws in their favor.

BBD: Craig, as you say in Oklahoma and we say in Texas, that's a lot to say grace over. We know NBWA is a membership-drive organization. How does NBWA work for distributors on a daily basis?

Craig: Harry, every single day, NBWA works to add value to beer distribution businesses. There's a wide range of ways of how we do that... I'll give you three examples. First, we work to educate our members on legislative and regulatory policies. In November, NBWA worked with the TTB to host a webinar that helped educate hundreds of distributors about trade practices and compliance. This is so important since distributors are the only tier in the beer industry with a federal license. We don't want anyone losing their license. Second, we are constantly in communication with state association executives and our distributors in the states, so we can provide assistance, resources and counsel when needed to help defend this great system. At the convention, I talked about NBWA standing tall to address challenges. We are going to defend the system wherever threats may be - whether that is in the halls of Congress, in state houses, in courthouses or anywhere else. Third, we are helping our members prepare for the future. That takes shape in the legal and legislative arenas, but it also takes place with distributors in programs like the Next Generation Group. Can you believe the Next Gen group now has more than 450 members? There is so much energy and interest and pride in this industry. It's been incredible to see relationships build in that group and to watch sons, daughters and emerging leaders sink their teeth into this great industry…

BBD: It's NBWA's 80th year. That's quite impressive. I mean, NBWA has been working for distributors for longer than I've been alive. I've never known the beer industry without NBWA. How do you think NBWA has changed and evolved over those decades?

Craig: I think we've changed in many ways. I think the organization has certainly transitioned into being more distributor focused. And as the market has evolved, so has the organization. I said in 2008 that distributors were transforming from being brand dependent beer wholesalers to that of becoming independent, brand building, distribution companies. But beer, distributors and family businesses remain the focus. And those 130,000 hardworking men and women remain essential to everything we do. Cheers to 80 more and happy new year!

Until tomorrow,

Harry, Jenn, and Jordan

"You can't build a reputation on what you are going to do.
- Henry Ford


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