Pride cometh before the fall. Let me warn you, Icarus. Chat shit, get banged. The modern lexicon is absolutely teeming with cautionary idioms about the compounding perils of ambition and overconfidence. But one look at the American beer aisle these days, and it’s clear that the industry’s biggest players aren’t in the listening mood.
For the past three-ish years, we’ve borne witness to all manner of overconfident and ambitious efforts to cross the Rubicon that has separated soft and hard drinks in this country since time immemorial, or at least Prohibition. Soda firms have sprinted into the flavored malt beverage space, while beer brands are trying to make their wares look and taste more like soda. Monster is Unleashing The Beast, Jarritos is rolling out Jard-ritos, and Bojangles is spiking its sweet tea. This exuberant, triumphal era for beverage-alcohol business in these United States was never going to last, not with how much attention key players have been calling unto themselves. Now, signs abound that the end is nigh.
In February, the Illinois Liquor Commission announced its support for a bill that would regulate how so-called “crossover” drinks like alcoholic Mountain Dew and Topo Chico can be merchandised at retail. In mid-March, the governor of Utah signed a law requiring the state’s controller to reject flavored malt beverage packaging that looks too much like an existing non-alcoholic brand. Just a few days later, the governor of Virginia signed a law very similar to the bill working its way through the Land of Lincoln’s legislature. The “total beverage” backlash is on, and even The New York Times is on it.
Don't Miss A DropGet the latest in beer, wine, and cocktail culture sent straight to your inbox.
Earlier this week, Beer Business Daily’s veteran editor Harry Schumacher published a column sounding the alarm to the publication’s trade audience. “To say we’ve been poking the sleeping bear is an understatement. In my 30 years covering the industry, I’ve never seen so much shitcannery going on,” he wrote. The column’s title: “We Are Headed for a Government Smackdown.”
Schumacher (who, I should disclose, is a paying subscriber to my independent newsletter) is often bombastic, but a) so am I, and b) on this, he’s right. I think there’s a regulatory suplex coming to rein in the envelope-pushing and line-stepping in which virtually every major beverage conglomerate — soft and hard — has indulged over the past few years. I’ve argued as much in the past. But while I’m certain that suppliers are poking the administrative bear with their soft-to-hard “innovations,” that’s not the only legal pile driver coming down the pike — and the drinks firms aren’t the only ones doing the poking.
I’m talking, as I too often do, about the U.S.’s three-tier system, and in particular, the middle tier, which has long served as the go-between for suppliers on one side and retailers on the other. The middle tier is the beverage-alcohol industry’s gateway, and wholesalers are its gatekeepers. When it comes to panic over alcopops, if drinks are getting to market that arouse the anxieties of Johnny Law it’s only because distributors dutifully trucked them there! The entire three-tier system is predicated on its supposed independence from the other tiers! We find ourselves with a basic contradiction in terms, dear reader: Either wholesalers are choosing to trade in all manner of line-stepping alcopops because they believe they’ll make money (thus making them complicit in the “shitcannery”), or they’re ineffectual gatekeepers whose veneer of autonomy conceals a vertically integrated market by another name (thus rendering them obsolete.) It can’t be both!
Yes, there’s endless nuance to this arrangement thanks to the post-Prohibition decision to cede the bulk of alcohol regulating to the states. And, yes, distributors are often big-leagued by multinational suppliers and deep-pocketed, big-box retailers squeezing them at either end of the route. It’s not an easy job.
On the other hand, that’s what the money is for! Distributors have built local fiefdoms and dynastic fortunes on the premise that they must broker alcohol sales in the bureaucratic badlands between supplier and retailer, lest society crumble into a pre-Prohibition hellscape of tied houses and toxic hooch. They enjoy favorable franchise laws and the advantages of incumbency (considerable, in such a capital-intensive line of work as refrigerated logistics.) They spend lavishly on lobbying at both the federal and state level to preserve that privilege, further corrupting our flailing governments as they launder economic capital into political power. If I sound unsympathetic to the notion that some middle tier players may suffer a bit in the coming magisterial chin-checking, it’s because I am!
That roar you hear is a hundred #NotAllDistributors emails hurtling towards my inbox. But the fact of the matter is that some distributors have long since morphed from sovereign agents to sinecured middlemen — or the type of oligopolistic heavyweights they were meant to preempt. Those firms’ self-serving behavior has an outsized impact on regulators’ overall perception of the middle tier, and there’s a lot of it to go around. Upstream and well prior to the arrival of the latest moral-panic-inducing FMB, entrenched distributors have run schemes aplenty to enrich themselves at the expense of the rule of law and the beer budget of the American drinking public. It’s not exactly confidence-inspiring stuff!
The preferred graft is “pay-to-play” — wholesalers making payments in-kind or (gasp!) in cash under the table to retailers in exchange for taplines, shelf space, and other preferential treatment over competitors. This payola gambit is an “open secret” in the beverage-alcohol industry the way Kim Kardashian’s sex tape is an “open secret” in her career — widely available, slightly salacious, and more of a feature than a bug. Retailers, comfortably beyond the purview of the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) and mostly unbothered by understaffed state enforcement bodies, are typically the recipients of this largesse. Sometimes they solicit it, sometimes they demand it, sometimes they’re just glad to accept it, all of which makes them bad in ways that exceed the scope of this column. So for now, let’s just focus on the beer distributors doing the paying. A very brief sample of very recent history:
- In 2021, Iowa and the TTB fined a beer distributor, Iowa Beverage Systems, $15,750 and $325,000, respectively, for paying off retailers to serve their brands at the state fair.
- In 2018, the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) fined a Miami beer distributor doing business as Eagle Brands $1.5 million for paying off retailers to carry its Anheuser-Busch InBev portfolio products, hiding those payoffs as bills for “banquet events” and other false line items, and providing refrigerators and draft systems in exchange for de facto exclusivity.
- In 2017, California fined Straub Distributing Company, an ABI wholesaler in the San Diego area, $10,000 for buying refrigerators, TVs, and draft systems for area bars and restaurants. ABI was fined $400,000 as part of the same action.
- In 2016, Massachusetts and the TTB fined a subsidiary of Sheehan Family Companies, one of the country’s largest beer distributors, $2.6 million and $750,000, respectively, for paying off five Boston-area bars to stock brands from its portfolio rather than those of competitors.
I realize this sounds like a lot of money in fines, but I assure you, it isn’t, not to companies that do billions in revenue each year. And remember, these are just some of the infractions that regulators have caught lately. There’s never just one cockroach. According to a 2020 TTB report, of the 39 cases the agency resolved over the previous two years, a majority involved distributors. Its February 2022 report on competitiveness in the U.S. beverage-alcohol industry dedicated sections to both pay-to-play schemes and the controversial practice of “category management,” another popular avenue for kickbacks. The agency also flagged concerns over consolidation in the middle tier, as big wholesalers like Southern Glazer’s and Reyes Beer Division (the country’s seventh-largest privately held company) buy up smaller, independent operations and use the added market power to undercut the rest.
But back to alcopops, and those soft-to-hard innovations that are stirring statehouses to take action. Big suppliers are ripe for the regulatory picking in this brave new world. As Coke marches towards its “total beverage” future, critics have voiced concern that the bajillions of dollars it pays retailers in slotting fees for its traditional wares — a legal, if unsavory aspect of non-alcoholic markets — will effectively become payments in kind for placements of its new alcoholic beverages, too. How could they not? The lines are getting blurry here, too. While Coke conversion products are routed through joint-venture partner Molson Coors’ distributors, and Monster’s via a $330 million wholesale network you might know as CANarchy, rival PepsiCo is building its own distribution network, Blue Cloud, from scratch. The company licenses its soft-drinks brands to breweries like Boston Beer Company (which produces Hard Mtn. Dew), then brings the resultant hard drinks to market on its own trucks. This has caused much rending of garments and gnashing of teeth in the business, because it circumvents existing distributors, which are getting a whole lot of mileage out of a few photos of Hard Mtn. Dew placed improperly close to children’s toys and non-alcoholic products. State officials and anti-alcohol advocates have pointed to these photos as evidence that the industry has gotten too big for its britches and needs a whupping. Now it’s headed for one.
Like I wrote up top, there’s plenty of blame to go around. I don’t for one second consider suppliers or retailers guiltless in this freewheeling circus of fermented cane sugar and greased palms. And I don’t think the middle tier, for all its warts, ought to be completely disbanded, either. Good beer distributors serve legitimate logistical and financial functions to both sides of a healthy market. But when state legislators and regulators look for someone to chokeslam — figuratively speaking, of course — over the beer industry’s “shitcannery,” I hope they don’t overlook the middle tier. People usually do.
🤯 Hop-ocalypse Now
In its never-ending quest to stay relevant to people other than Good Beer Hunting data daddy Bryan Roth, the antitrust exempt brain trust behind Major League Baseball is rolling out a new pitch clock this year in order to make games feel more like TikTok, or something. As someone who attends baseball games strictly to drink as many beers as possible before the seventh-inning stretch ends, your humble Hop Take columnist is concerned! Major-league advocates hope this new innovation — which has already been tested out in the minors with no measurable impact on concession sales — will get more of The Youths interested in America’s pastime, and net out positively against any lost beer revenue from shorter, faster-paced games. And nobody is asking how this will affect the MLB’s bizarre “official vodka,” either! We used to be a country, people. A proper country.
Constellation Brands, eyeing Bud Light’s throne for its gold-foiled golden goose Modelo, is dabbling with an agua fresca line extension… In an extremely “Philly” development, Philadelphia’s Evil Twin Brewing Co. partnered with White Castle on a stunt beer… Full Circle Brewing and Speakeasy Ales & Lagers are joining forces to become the biggest Black-owned brewery in the U.S….
📉 …and downs
Diageo is closing that slick Guinness plant it opened just five years ago near Baltimore, and ~100 workers will lose their jobs… Reyes Beer Division is off to a rocky start in Texas… Right-wing transphobes dumped a bunch of their own Bud Light this week in protest (?) of the brand’s partnership with a trans influencer… Tesla’s long-delayed “GigaBier,” which is dumb, is now available in Europe for around $100 per 3-pack (?)…
This story is a part of VP Pro, our free content platform and newsletter for the drinks industry, covering wine, beer, and liquor — and beyond. Sign up for VP Pro now!