2010 Legislature: Who pays the tab? 

By Katie Coffin

INDIANAPOLIS -- A battle raged between alcohol suppliers, wholesalers and retailers in Indiana House and Senate committees Wednesday over whether or not to change a supplier's process of switching wholesalers.

Alcohol marketing is a three-tiered system. The suppliers are the first tier, and they are companies like Jack Daniels. They sell wine, beer and liquor to the wholesalers, like Monarch Beverage Company. The wholesalers then sell it to the retailers, who sell it to the public. The system is in place due to laws dating back to Prohibition.

Senate Bill 244, introduced by Sen. James Merritt, R-Indianapolis, aims to allow a person to wholesale beer, wine and liquor, where the law currently only allows a person to wholesale wine and beer or wine and liquor. House Bill 1191 introduced by Rep. Scott Pelath, D-Michigan City, is virtually the same.

The provision in these bills that provoked hours of debate in two committees was the one dealing with the process for suppliers switching wholesalers. This bill would require that, when a supplier decides to switch wholesalers, the ousted wholesaler would have to negotiate with the new wholesaler on what "fair market value" is for the right to distribute that particular brand. If an agreement is not reached between the two, it would be settled by "binding arbitration." When a dollar figure is settled, the new wholesaler would have to pay the old wholesaler that settled amount to make up their loss in distribution rights.

The two companies who are the main supporters of this bill are National Wine and Spirits and Monarch Beverage Company. They worked together with legislators to craft the bill, which NWS says on their Web site will "level the playing field" in alcohol marketing. The legislation was designed to protect Indiana alcohol wholesalers against out-of-state companies with deep pockets who could turn the state into a profit center. Southern Wine and Spirits, which is a $9 billion operation working out of 29 states, was recently licensed in Indiana. The NWS Web site says that Southern's profits would not be invested in Indiana like theirs would.

Stephen Becker, executive vice president and treasurer of Southern, said there are a lot of "misconceptions" about his company. He said that they also pursue charitable enterprises and they pride themselves on their customer service.

"I think the fact that there is no franchise law ensures good customer service," Becker said. "If this legislation passes, there will never be another wholesaler in the state of Indiana. It doesn't make economic sense. Southern will certainly not come to Indiana."

Several citizens testified in favor of NWS on their charitable enterprises. Nicole Oprisu, president of the Broad Ripple Bar and Restaurant Association who also independently owns and operates restaurants in Broad Ripple, said that it's important to keep independent distributors in Indiana. She also said it was a pleasure to work with Jim LaCrosse, CEO of NWS, and his family.

"Even though I am not the biggest fish in the pond, it's nice to know that somebody like National Wine and Spirits is willing to treat me as if I were," Oprisu said. "I don't think that's necessarily something that you can find on a national level."

Paul Mannweiller, a representative of NWS, said this bill would not create monopolies or prevent wholesalers from entering Indiana. He said that suppliers would not be forced to change wholesalers and the bill only provides transfer and compensation language between wholesalers.

"We're just trying to help Indiana companies and keep Indiana jobs," Merritt said.

Opposition to this bill believes it will create monopolies for NWS and Monarch and discourage competition. Jim Calvert, vice president of product development for Olinger Distributing, said that Olinger is out-of-state owned but have been in Indiana since 1946. He said his company has also been involved in the community and charitable giving.

Calvert also said that, like NWS and Monarch, he is not happy that Southern is in the Indiana market. However, he said it shouldn't be a surprise that consolidation is happening. He said while Southern is painted as the "600-pound gorilla," Olinger is likewise painted as the "400-pound gorilla" because they are a part of a 12-state network with Glazer, one of the country's largest alcohol distributors. They possess about 37 percent of the spirit market share.

"I'm the 400-pound gorilla and they have 57 percent of the market share," Calvert said. "They've grown that in those 12 years [since Olinger merged with Glazer] at least three percent, and they've done that against the 400-pound gorilla. So don't just sit here and assume that all the sudden Southern Wine and Spirits comes into this market and then all of a sudden, everything that's happened in this market, is all done and gone and things are going to change."

Calvert, along with Brian Burdick of the Distilled Spirits Council of the United States, said that while the bill appears "benign," it will actually harm competition and drive up alcohol costs.

"The bottom line here is it impedes competition," Calvert said. "Any hurdle that you put in front of a supplier to be able to move brands is a hurdle to competition. And if we know what hurdles to competition do, chances are it's probably going to raise prices."

Dale Szyndrowski, vice president of government relations for DISCUS, wrote a letter to Gov. Mitch Daniels expressing concern about the legislation.

"This anti-competitive legislation inserts the state into private business relationships between spirits supplier and wholesaler, and makes it virtually impossible for a supplier in Indiana to change wholesalers, irrespective of marketplace dynamics, conditions or performance," Szyndrowski wrote. "The real objective of this legislation is to block out the competition by freezing in time a supplier's brands with his or her existing wholesaler... It threatens, not protects, the public interest."

Similar yet more strict legislation was passed by the Illinois Legislature in 1999 called the Spirits Industry Fair Dealing Act. It said that a supplier could not switch wholesalers without a good reason. It caused an immediate rise in retail prices.

"This legislation was ultimately repealed," Szyndrowski wrote. "It was a 'no fair' deal."

Both the House and Senate bills passed their respective committees.

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