Producers fighting for US law changes

31st July, 2013 by Ron Emler

Eighty years after the repeal of Prohibition in the US, vestiges of restrictive legislation remain. But the big spirits producers, led by Diageo, are fighting in the courts to have them deleted from state statute books.

american-flag-wallpaperIn what has become known as the “Missouri Liquor Wars”, Diageo has fired its distributor in the Mid-Western state and moved its business to what it claims is a more efficient rival. This might seem a normal business practice, but Missouri is what is known as “franchise” state, one in which the producer is effectively locked into a particular distributor, the owner of which must reside locally. In all but name, the individual state ensures the continuing relationship and protects the status of the local wholesaler.

There are a dozen US states still operating the “franchise” distribution system, which was designed to get wholesalers to help states collect sales taxes and stop alcohol distribution falling into monopoly (gangster) hands, a key consideration in the immediate post-Prohibition era.

But that was in 1933. Today groups such as Diageo, Pernod Ricard and Bacardi complain that the franchise laws are long outdated, that they prop up inefficient local wholesalers and drive up distribution costs to the detriment of the consumer. They want the right to streamline their US distributor networks, a process that has been underway in “free” states for a number of years.

Along with the Distilled Spirits Council of the US, which represents domestic producers, they have been lobbying Washington since before last Christmas. An army of lobbyists has also pitched camp in Missouri’s state capital, Jefferson City, to oppose new legislation designed to underwrite the “franchise” system.

Earlier this year Diageo effectively fired its Missouri distributor, Major Brands of St Louis, in what has become a test case. The owner had died, considerably clouding the residency requirement of the 21st Amendment, and his widow alleges that Diageo demanded she sell Major Brands to a competitor or at least join forces with one as part of Diageo’s drive to consolidate its wholesaler network. Diageo, which Major Brands says accounts for 42% of its business, rejected that version of events in court.

Major Brands of St Louis

Diageo’s deal with Major Brands of St Louis is now in the hands of US courts

Then within 24 hours in March, both Bacardi and Pernod Ricard announced they would move their distribution from Major Brands to Glazer Distributors, which operates in several states, and to which Diageo is transferring its Missouri business.

Writs and counter-suits have been flying, but both sides are claiming victory in the first court hearing. A St Louis district court upheld Missouri’s franchise law and found that Diageo had broken its contract with Major Brands. Importantly, however, the judge did not require Diageo to continue supplying the company.

The implication is that Diageo will be required to pay compensation to Major Brands but that it can switch to its preferred distributor.

But that was only the first round in what is set to be a long legal wrangle., It is also becoming the focus of a political battle, not only in Missouri but also in the other ”franchise” states such as Georgia and Arizona. If Missouri falls, conservatives believe, the others will be unable to resist change.

And big money is betting that the Missouri franchise system will be toppled. One of the world’s biggest investors, multi-billionaire Warren Buffett, is buying a small Missouri wholesaler to add to his nationwide trucking empire. A minute deal for him at this stage, but perhaps a precursor to bigger things.

Meanwhile, fine wine lovers in franchise states have hit the blogosphere to express fears that a consolidation of distributorships to represent the multi-national spirits brands would hit the availability of niche products and increase prices. The enlarged wholesalers, they fear, will not keep them in their portfolios, making them harder to source and more expensive as a result.

Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe to our newsletters

Job vacancies

European Brands Sales Manager, Field Sales Managers and Executives

Amathus Drinks PLC
London, Brighton, E Sussex/Kent, Cornwall & Devon, GB

Commercial/Sales Manager

Crush Wines Ltd
Bremhill/Home office, GB

Wine Buyer

Southwold, UK

Sales Manager - Scotland

Eurowines Ltd

Sales Manager - North-West England

Eurowines Ltd
North-West England, UK

Sales Manager - London

Eurowines Ltd
London, UK

Key Account Manager - Grocery

Australian Vintage Limited
London (Croydon), UK

Key Accounts Manager - Impulse

Australian Vintage Limited
London (Croydon), UK

Business Development Manager

Regency Wines Ltd
North Devon & Somerset, UK

Sales Manager - North East England

Eurowines Ltd
Within 15-20 mile radius of York, UK

National Account Manager

Ehrmanns Wines
London, UK

London Account Manager

The Drinks Club
London, UK

London Sales Executive

Gourvid Limited
London and Greater London, GB

Logistics Administrator

Speciality Drinks Ltd
Park Royal, London, UK

Head of Sales - Hush Heath Estate

Hush Heath Estate
Kent/ London, UK

The Global Merlot Masters 2017

Deadline : 2nd May 2017

db Awards 2017

Deadline : 3rd May 2017

The Global Organic Masters 2017

Deadline : 2nd May 2017

The Global Sparkling Masters 2017

Deadline : 12th May 2017

Click to view more

Global Chardonnay Masters 2016

Now in its fourth year, the competition will identify the best Chardonnay from all around the world in every price range.

Rioja Masters 2016

Now in its fifth year, the competition will recognise and reward the finest Riojas on the world stage.

Fortified Masters 2016

Now in its third year, The Fortified Masters will reward the best fortified wines on offer.

The Global Malbec Masters 2016

the drinks business is proud to announce the inaugural Global Malbec Masters 2016.

Click to view more