Wednesday, June 17, 2009

End the Beer Monoploy!

For over twenty years the major brewers and their wholesaler lackeys have acted in concert to create and maintain a beer monopoly in New York State. This consolidation of market power has not only been a death blow to competition and to small business; but it has also been the beer consumers' worst enemy-as beer prices have skyrocketed in tandem with the disappearance of true competition. There has been, however, a legislative effort to alter this sad state of affairs.

As Crain's Insider reports (subscr): "While most of Albany remains focused on the state Senate circus, a drama unfolded in the Assembly this week in a battle over beer. The fight concerned the brewer’s sales practice. Big beer makers have a contracted distributor for each region of the state, which non contracted distributors say is anti-competitive. Unable to buy beer at the same price or in the same quantities, independents are steadily disappearing."

The slow consolidation of beer distribution was initiated in the 1980s when Anheuser-Busch promulgated its so-called equity contracts that carved out exclusive marketing areas for its anointed contracted wholesalers. This practice, soon replicated by the other brewers, slowly but surely closed off any hope that the New York beer market would remain price competitive.

But the consolidation and monopolization process had dire consequences for the state's independent beer wholesalers. These small distributors, holding the very same "C" license as the contracted wholesalers, had historically provided true competition and lower prices for New Yorkers through their ability to purchase beer-at the cheapest price-from all over the state.

This price competitiveness ended with the equity contracts; with disastrous results for the non-contracted independents: "About 130 have stopped operating in the past decade, but another 360 independents are struggling along. If they had equal access to brewers’ products, they say, beer would be less expensive for consumers. When Bob Abrams was attorney general two decades ago, he went to court trying to end territorial control. He failed, and the Legislature has remained more receptive to the beer lobby than to reform."

And let's not forget that the independents are truly representative of the healthy ethnic diversity of New York. Unlike the contracted wholesalers, who look like a gathering at the Augusta Country Club, independents are woman and minority-owned; and they reflect the low income neighborhoods of NYC where they have historically flourished. In effect, the equity agreement-led process of monopolization has been an ethnic cleansing operation; since over half of the independents who have been forced out in the city are minority owned businesses.

This assault on minority business has developed in spite of efforts, started over two decades ago, to pressure Anheuser-Busch to award at least one of its NYC franchises to a Hispanic operator; especially since a huge percentage of the Budweiser that is consumed in NY is purchased by Hispanics-often from Hispanic run grocery stores.

The NY Times highlighted this fight over a decade ago; when Carlos Nazario led the attack on the budding monopoly: "The local economy may be a mess, crime a constant threat and living costs still ruinous, but one of New York City's consolations has been some of the nation's kinder prices for beer. Now, the nation's largest beer producer is pitted against the city's independent beer distributors in a battle whose outcome, the distributors and city officials say, could create a wholesaling monopoly and raise prices by a dollar or more a case."

And the handwriting was on the wall back then: "Carlos D. Nazario, owner of Metro Beer and Soda Distributors in the South Bronx, sees a more sinister plan, to kill off entrepreneurs who built Budweiser's popularity. Mr. Nazario, president of the 325-member Empire State Beer Distributors Association, said businesses like his ventured into neighborhoods where major brewers had scant distribution. When his father, a Puerto Rican immigrant, founded Metro Beer 22 years ago, Budweiser was a minor presence, Mr. Nazario said. Now, it is so popular in the city's Hispanic neighborhoods that it accounts for 58 percent of his business, he said. From the warehouse and store he bought just last year, his view now includes the Major Deegan Expressway and a dark future. "I don't think I can survive," he said."

And Carlos didn't; he and the other 130 independents went by the wayside as the contracted wholesalers, aided and abetted by their brewer puppet masters, embarked on a discriminatory pricing scheme that eroded the ability of the independent wholesalers to service the retailers that they had been servicing since the end of prohibition.

And New York officials knew what was happening then: "The independent distributors do what anyone trying to keep down the costs of a beer blast would do: they comparison shop. Often, they buy beer from upstate wholesalers willing to undercut the wholesalers closer to the city.
Leslie Gersing, a spokeswoman for Robert Abrams, the state Attorney General, said Mr. Abrams has long fought Anheuser-Busch's practices in court. "It's just another example of their anti-competitive behavior," she said. Mark Green, the city's Consumer Affairs Commissioner, said he would urge the Justice Department to start an antitrust investigation of Anheuser-Busch. "It's a case of monopoly muscle," he said."

Making the situation worse in NYC is the fact that 80% of all the Budweiser distributed isn't even being sold by an independent wholesaler-not since the brewer itself bough three of the five local wholesalers and made them wholly owned subsidiaries of the parent-a parent that is now not even an American company; and, in fact, there isn't a major US brewer left-with Miller and Coors owned by South African Brewing. So we have a situation, where foreign beer monopolists are using their muscle to put local distributors out of business.

Which is why, as Crain's highlights, we have tried to introduce the kind of legislation that would maintain a degree of competitiveness in an other wise non competitive environment: "The independents made another bid this year. Assemblyman Vito Lopez, D-Brooklyn, introduced a bill, and a matching one had bipartisan support in the Senate. But Assemblyman Robin Schimminger, chair of the Committee on Economic Development, Job Creation, Commerce and Industry, objected. Assembly Speaker Shelly Silver’s staff watered down the bill substantially. With no other options, supporters of the original bill accepted the changes, and Schimminger voted for the revised measure."

So, what happened? "But his committee rejected it—a rare occurrence in Albany, especially when a measure is drafted by central staff and backed by the chairman. “That’s a first for me,” says Richard Lipsky, a lobbyist on the losing side. “It was thwarted by the concerted power of brewers and franchise wholesalers. They were burning up the phone lines. They were out in force.” The message, he concludes, is, “There can be no threat to territorial monopoly."

But the folks at the Empire Beer Distributors Association aren't going away so soon. With the number of brewers shrinking, and the number of their contracted wholesalers down to 24 from a high of around 85 less than 15 years ago, the beer market is rapidly becoming a threat to the health of not only independent wholesalers, but to the beer drinkers of New York.

Let's not forget the the recently passed bottle law, the one that took away the hundreds of millions of unclaimed deposits that these contracted wholesalers have been swigging for over the passed two decades, prompted these chazas to protest and threaten huge price increases: "Here's the franchised beer position: "But D. Bertoline & Sons in Peekskill, the distributor of Budweiser beer products in Westchester and Putnam, uses unredeemed deposits to pay the costs of shipping recycled products to Connecticut, Vice President of Administration John Bertoline said. That lost revenue, plus higher handling fees and a higher beer excise tax imposed by the law, will lead to price increases that get passed along to consumers, he said. That would depress sales, which in turn could reduce employment, he added."

Oh, really? But, as we have pointed out: "We were right there when the bottle bill first passed and went into effect in 1981; and the beer wholesalers wasted no time in raising the price of beer by at least $3.00 a case-all for the increased costs associated with implementing the collection and redemption of the empty containers. So now what?Well, now these very same wholesalers-insulated from real competition by territorial monopolies-want to once again meet the cost of redemption by jacking up the price of a case of beer by another $2! What about the millions of unredeemed deposits that these folks squirreled away over the past twenty seven years? If beer prices are raised, there should be an intervention and investigation by the AG's office into the anti-trust implications of the wholesalers' actions. Additional costs indeed!"

So, once the deposit law is finally implemented, and the nickels revert to the state, watch as the monopolists do what they can do because of the uncompetitive distribution system that NYS has allowed to grow and fester for far too long. The independent distributors need relief; but so too do the state's beleaguered beer consumers-victimized by a system run by folks, drunk with their own power, who have grown wealthy because they have been insulated from true market forces.