The Ever EvolvingAlcohol Industry

UTAH ALCOHOL POLICY CONFERENCE

SALT LAKE CITY, UTAH SEPTEMBER 18, 2014

America’s Long History of Alcohol•Pilgrims

•Whiskey Rebellion

•Taxation

•State Rights vs. Federal Courts

•The Original “Single Issue” Political Fight

Utah’s History

•Deciding State for Repeal of Prohibition

•Liquor by the Drink

•Mini Bottles

•Clubs

•Bars v. Dining Establishments

BALANCE

Jobs Control

Pre Prohibition: Public Enemy #1Tied House

Pre 1933 Trademark on Retail Account

The Soft Drink “Variety”

Beer Variety and Choice

On Premise – Non Alcoholic

On Premise - Beer

Temperance Movement – 18th

Amendment

Prohibition

Last Call

Post Prohibition- PUBLIC ENEMY #1Illegal Black Markets with Bootlegging

REGIONAL BLACK MARKET SOURCES

Crime in A Chicago Speakeasy

Agents Destroy Illegal Liquor

Drinking Continued Despite Prohibition

Corruption with Federal Agents

Utah Deciding Vote for 21st Amendment

1933 --21st Amendment

State Rights and State Control Are Legacy

The Only Constant In the Industry Is Change … And Griping About Regulation

Alcohol Is NOT the Most Regulated Industry

Or Try Opening One of These

No Entry Exams For Participants

Don’t Be A Criminal

Federal: Over 50,000 Businesses 24,080 Alcohol Wholesaler Permits12,599 Importer Permits8,964 Winery Permits1,078 Distilled Spirits Plants988 Puerto Rico Permits2,400 Brewery Notices

◦Plus over 550,000 retail locations across the USA

Alcohol Industry Is Huge Economic PlayerBrewers

Wineries

Distilleries

Wholesalers

Retail stores and bars and restaurants

For example, The brewing industry is an important part of the U.S.economy with $246.5 billion in economic output or 1.6% of US GDP

FOUR BREWERIES 2,396 BREWERIES

2,400 Breweries in the U.S.

Structure of the Beer Industry1960 to 2013

Year BreweriesPer

Capita

ImportBeer Share

CraftBeer Share

Draft Share

1960 175 15 0.5% 18%

1970 83 19 0.8% 14%

1980 48 24 3.0% 14%

1990 298 24 5.0% < 1.0% 11%

2000 1,493 22 10.0% 2.6% 9%

2010 2,131 21 13.0% 5.0% 10%

2013 3,000+ 20 13.4% 7.5% 10%

Source: Brewers Almanac, Brewers Association, NBWA, 2014

U.S. Permitted Breweries1995 to 2014 YTD June

Source: TTB, YTD 2014.

Utah Permitted Breweries1995 to YTD 2014

Source: TTB, YTD 2014.

Count of US Breweries 2012 vs. 2013 by Reported Production Volume

Production VolumeBarrels (31 gallons)

2012Breweries

2013Breweries

2013Share

1-1,000 1,671 1,985 71%

1,001-7,500 487 552 20%

7,500-15,000 77 79 3%

15,001 - 60,000 92 101 4%

60,001-100,000 21 25 1%

100,001-1,999,999 51 48 2%

2,000,000 plus 20 21 1%

Total 2,419 2,811 100%

Source: TTB, 2012 and 2013 Brewery Production Returns.

90% of brewers produce less than 7,500 barrel and 96% of all new breweries

Share\Gallons Ethanol Per Capita(2013: 4.6% beer, 12.5% wine, 38% liquor)

Beer, Wine, Liquor in Gallup PollYoung Males 18-29* years old

Source: Gallup Poll, 2013; * US legal drinking age is 21.

U.S. Beer ConsumptionPer Capita 1994 to 2013

Utah Beer ConsumptionPer Capita 1994 to 2013

U.S. Wine ConsumptionPer Capita 1994 to 2013

Utah Wine ConsumptionPer Capita 1994 to 2013

U.S. Spirits ConsumptionPer Capita 1994 to 2013

Utah Spirits ConsumptionPer Capita 1994 to 2013

America Has Always Regulated the Alcohol Industry

The alcohol industry is based on INDUSTRY REGULATION, not Self-Regulation.

DUI, underage drinking issues are complements, not replacement to industry regulation

Alcohol Industry RegulationToward Liquor Control by Fosdick and Scott was leading treatise.

Goals to separate those businesses making alcohol from those

selling it.

Control State System (e.g. Utah) was preferred.

License system concerns noted,

for example, industry lobbying influence

Three Tier Systems

Supplier makes the alcohol

Sells it to in-state distributor who

sells to

State Licensed Alcohol Retailers

Some Common Laws- Tied HouseSeparate Retailers from Producers/ Wholesalers:

“The ‘tied house’ system had all the vices of absentee ownership. The manufacturer knew nothing and cared nothing about the community. All he wanted was increased sales. He saw none of the abuses, and as a non-resident he was beyond local social influence…There are many devices used by brewers and distillers to achieve this same end, such as the furnishing of bars, electric signs, refrigerating equipment, the extension of credit, the payment of rebates, the furnishing of warranty bonds when required to guarantee the fulfillment of license conditions and of bail bonds when the dealer is haled into court. A license law should endeavor to prohibit all such relations between the manufacturer and the retailer, difficult as this may be.”

Toward Liquor Control

Common Laws -Franchise ProtectionSeparate Wholesalers from Producers

•Allow local businesses to support local breweries without being terminated.

•Allows new entrants to market. The American Consumer now has record consumer choice.

•Protect distributor investment and promote independence.

•Supports state regulator goals, no sales to suspended accounts, all taxes paid, no counterfeit.

Today’s headlines about more beer mergers trigger greater attention to these laws.

As state regulated entity, wholesaler should be more worried about the state alcohol regulator, than his/her supplier.

Has Regulation Worked? YesConsumers:

•Historic number of alcohol producers giving unparalleled levels of choice and variety of alcoholic products at any price point.

•Non adulterated, counterfeit product safe for intended consumption

Government:

•A quasi self regulatory set of permit holders that collect 100% of the tax due

•Improved public health measurements and increased employment

Industry:

•Record breaking profits and growth for many players.

The Soft Drink Aisle

The Beer Aisle

Modern Challenge: Dangers of Defunding

Public Health

Counterfeit AlcoholGray/Black Markets/Illegal Bars

Tax Evasion

Loss of American Jobs

Global Headlines

Loss of Tax Revenue

Future Challenges

Future Challenges

Future Challenges

Global

Future Challenges

Public Health

Jobs

Future Challenges

Consumer Access/ Convenience

Technology

Lots of new entrants with no alcohol industry experience

Changing Moral/ World View

Defense of “Status Quo”

Ease

of

Acc

ess

Co

ntro

l

21st Amendment

The Constitution Has Not Changed•The subject, intoxicating liquor, got people drunk in 1933, as it does in 2014, and it will in 2054

•The solution to the most controversial political issue of its day was to let the states experiment.

•Sound regulation supported by the citizens, not the economic or idealistic wishes of any entity was to control the debate. The Utah Legislature not public health, not industry, not think tanks to make law. This Forum helps.

Additional Resources

Thank YouPaul Pisano

National Beer Wholesalers Association

1101 King Street

Suite 600

Alexandria, VA 22314

(703) 370-2256

ppisano@nbwa.org

#beerasonian