Re-post: The Road from Repeal: The Three Tier System

As a followup to last week’s post about the impending tax legislation and it’s effect on the brewing industry, I am re-posting a blog from December 2008. At that time, in honor of the seventy-fifth anniversary of the Repeal of Prohibition, I wrote a series of posts about  Repeal and it’s aftermath. This one was about the three-tier system. It is relevant to what I wrote last week because I discussed Cindy McCain and her family’s wholesale liquor business. I wrote about that in the context of John McCain’s run for president. As I mentioned last week, you can probably draw a straight line from Hensley & Company to McCain’s support of the tax legislation.

The Road from Reform: The Three Tier System.

Prior to Prohibition distribution and sales of beer took place in variety of ways. Many brewers owned saloons which functioned as retail operations. The brewers supplied their beer to the saloon keeper.  Shipping brewers who operated on a national level maintained distribution outlets at various railroad stops. Although there were different federal fees for wholesale and retail dealers as well as excise taxes on brewers there was a lot of blurring of the lines between these different areas of the beer industry. Brewer ownership of saloons was the most problematic example.

As the federal government contemplated the return of legal liquor in 1932 and early 1933, alcohol advocates argued for a very distinct separation of production, wholesale distribution and retail sale of alcoholic beverages. Thus they established the three-tier system. Under federal law a brewer can not be the wholesale distributor of their product or the retail seller. Some aspects of this 1933 legislation had to be altered to allow the opening of brew pubs.

One outcome of this legislation was the development of a large group of beer wholesalers. Since 1938 they have had a national organization, the National Beer Wholesalers Association (NBWA). There are 2,750 wholesalers. This year the focus of the organization has been celebrating the 75th anniversary of Repeal as well as continuing to pursue permanent repeal of the estate tax, a rollback of beer excise taxes, prevent alcoholic equivalency labeling and avoid paying for public service announcement against under-age drinking. In the past leaders of the NWBA have advocated a reduction in the minimum drinking age.

Cindy McCain, wife of recent presidential candidate John McCain, is heir to one of the largest beer distributors in the country. A New York Times article in August 2008 examined the role of her family business in Arizona politics. Hensley & Company is the third largest Budweiser distributorship in the country. The mega breweries, Anheuser-Busch, Miller and Coors, have all achieved their dominance partly through creating deep and wide-spread distribution networks. Budweiser’s are the deepest of course. It is this distribution capacity and its resulting shelf space that InBev desired to purchase. It will be interesting to see if they use it to continue to sell Bud or to attempt to place some of their other beers on the same shelves.

Cindy McCain is an absentee owner and does not directly run any aspect of Hensley and Company. All of her children hold shares in the company. Her stepson, Andy McCain is a top executive and also president of the Phoenix Chamber of Commerce. Hensley & Company makes significant contributions to local politicians and contributes money to fight any potential increases in state excise taxes. The last increase was in 1984, only the third increase since Prohibition and, at sixteen cents a gallon is below the national median of nineteen cents. Hensley & Company, of course, belongs to the NBWA and supports its federal legislative agenda. Thus some observers wondered if John McCain as president would be able to be neutral on issues that related to the beer industry. Luckily we will never have to find out. As a senator he has received more money from the beer lobby than almost any other politician.

On the state level Hensley & Company have been successful in preventing taxes increase even when they have been proposed to help finance early childhood education or pediatric hospitals. The company is now supporting legislation that would make any tax increase more difficult to enact because passage would require a majority  of all registered voters not just those who vote.*

The role that Hensley and Company plays in Arizona as well as the role the NBWA plays on the national scene illustrates the changed political landscape for the brewing industry in the past seventy-five years. As the brewing industry consolidated there were fewer and fewer brewers and the larger numbers of wholesalers began to play a larger role in politics. There are many more wholesalers than there are brewers, even counting craft brewers, so they are likely to be a larger political force.

* For more information on beer and Arizona politics see the Phoenix Business Journal.

 

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