As Senate Bills 515, 516, 517 and 518 progress forward (we’ve added a handful of Senate Co-Authors, bringing the total up to 12 as of the writing of this blog), The Wholesale Beer Distributors of Texas have introduced their own legislation, which has been met by immediate backlash by other industry stakeholders, including some fellow distributors. Ronnie Crocker with The Houston Chronicle first reported these bills on his blog and followed up with a story in the business section today.
SB 639, filed Monday by Senator John Carona, has three primary components:
- Adds severability language to the code which could take self-distribution rights away from small brewers. Currently, there exists a potential commerce clause issue with the allowance of self-distribution for the state’s brewers, because it specifically excludes out-of-state brewers. Our bills (specifically SB 516 and 517), corrects this issue. The WBDT opposes fixing the issue by eliminating the discrimination, rather they prefer to leave the discrimination in place and then add language to the code that would take self-distribution away from in-state brewers should a court find that the discrimination was unconstitutional.
- Mandates Uniform FOB Pricing from the Manufacturer to the Distributor. If this bill passed, it would make illegal any kind of price differentials between different markets, including any price differential reflecting actual transportation costs. Note that this bill does not mandate a uniform price for which the beer must be sold from the distributor to the retailer.
- Makes illegal for a Brewer/Manufacturer to receive compensation a distribution agreement. Basically, the law would mandate that your distribution rights are worth nothing when signing up with a distributor. The proposed law doesn’t restrict a distributor from selling a brewer’s distribution rights to another distributor, but only from the brewer from receiving any value.
It has not gone without notice that the proponents of this bill don’t have an interest in restricting themselves from raising prices in different markets, or from selling brands rights, but that they are only concerned about what they have to pay. In essence, this bill is one step short of the Texas Alcoholic Beverage Code having Mandated Profits for the middle tier. This is self-serving protectionism at its most blatant.
Ronnie Crock reported the response from The Beer Alliance (The larger of the state’s two wholesaler groups, who have been in favor of positive statutory reform for the state’s craft brewers):
“It’s probably the most anti-competitive piece of legislation I’ve ever seen,” Donley said. Change the topic from beer to hydrocarbons or other consumer goods, he said, and the proponents would “be laughed out of the Capitol.”
Pretty strong words, but I agree with him 100%.
The Texas Craft Brewers Guild support legislation that embody free-market principles. As Senator Eltife said, “Government shouldn’t be involved in picking winners and losers in private industry.”
This Legislation amounts to nothing more than a blatant money-grab by the Wholesale Beer Distributors. It distorts the free market by protecting wholesalers from paying the cost of doing business. Ironically, no one has ever forced any distributor to pay for the distribution rights of a brewer. These are voluntary private-party transactions that occur because craft beer distribution rights are actually valuable and distributors are eager to out-bid their rivals for those rights. If you don’t want to pay, then don’t.
Luckily, this proposal is likely to go nowhere at the Capitol. My contacts up there have told me the Legislature is highly unlikely to move on Legislation that most of the industry hates, benefits only certain players, and goes against free-market principles.
Lastly, I’m thankful to Chairman Carona for filing this legislation. The WBDT was trying to amend Senator Eltife’s craft beer bills with this anti-competetive, self-serving language, and were promptly told no. But I suppose everyone deserves a chance, and I’m looking forward to hearing the WBDT try to explain any shred of public interest that might exist for this money grab.
Now to focus on one of the initial charge of Senator Van de Putte’s Alcohol Working Group from last summer: stimulating economic growth in the Texas Craft Brewing Industry.