Liquor, Beer, and Wine: A Look Back at the Year in Booze
By Chuck Sudo in Food on Dec 26, 2006 4:00PM
In business, one rule holds true: “money talks, bullshit walks.” When you’re talking about a multi-billion dollar industry as alcohol, that old adage takes on an often literal meaning. In the past twelve months, we’ve seen a series of issues that have shed a light on the seedy underbelly of wholesale liquor distribution, most notably in the lengths the state’s liquor distributors go to acquire and maintain their business. They’ll lobby Springfield to pass laws ensuring that breweries, distillers, and wineries have little choice, but to deal with them, and then have legislation drafted making it virtually impossible for a brand to extricate themselves from their agreement.
Money talks...
Knowing that the wholesalers pretty much have control over the market climate, the vineyards, breweries, and distilleries have to get creative. Sometimes, they find a way to access better business opportunities within the three-tier system that regulates liquor distribution. Sometimes, they lobby Springfield themselves, coming up with a compromise that both they and the wholesalers later regret. Sometimes, they’ll simply get so fed up with the system that they pull their product from the shelves, refusing to do business with the distributors in their current configuration. And in very rare occasions, they actually do use the system to their advantage and set themselves up for increased profits.
...bullshit walks.
It’s a flawed system, to be certain. But none of the involved and/or affected parties are in this particular business to lose money. The constant lobbying by the liquor distributors is only proof that the “squeaky wheel” theory is, in fact, irrefutable law. It’s the application of Bruce Lee’s “art of fighting without fighting” to big business. The irony here is that if distributors weren’t licensed to do business in Illinois, much of their lobbying efforts would be RICO Act violations. Still, the only other viable option is Prohibition, and that didn’t work for anyone the first time around. If it did, we wouldn’t be here writing about Illinois’ award winning breweries, blossoming wine industry, and neophyte boutique distilleries, which also made news of their own in 2K6. Following the jump, we’ll look back at some of the major liquor-related stories of the year.
Just as a chill spread across Chicago in January, a frost formed between the state’s wine industry and wholesalers over just how much wine the vineyards could directly sell to their customers. The wholesalers, arguing that direct sales by vineyards to customers would reduce tax revenues to the state and put wine in the hands of underage drinkers, proposed legislation calling for all wine that a vineyard produces be sold through a wholesaler. The Illinois Wine and Grape Growers Association countered, lobbying for a bill that gave them more flexibility to directly sell their product to customers, restaurants, and increase their production. As spring neared, a compromise was reached, increasing the amount vineyards could directly sell to customers, while losing the ability to directly sell to restaurants and retailers. This effectively closes off a major revenue stream for vineyards; if a distributor refuses to represent a vineyard, they have no other way to market their product. There are a couple of silver linings in this.
The agreement allows Illinois vineyards to develop their customer base and phone/internet sales business. The second point of contention by distributors - underage drinkers obtaining wine directly from vineyards - was dismissed as ca-ca by none other than the chief legal council of the state liquor control commission. Moreover, wine distribution is one of the few aspects of the state liquor industry that seems to have some semblance of fair competition. We’re seeing the formation and appearance of smaller wine distribution houses in Illinois. Almost all of them deal with smaller, boutique vineyards with low yields that would get lost in the shuffle of your larger liquor houses. Proof of quality is always in the bottle, and we’ve tasted some wonderful wines made in Illinois this year.
2006 was also a banner year for Goose Island, which sold a share of their business to Portland-based Widmer Brothers Brewing, which is partially owned by Anheuser-Busch (leading to speculation that A-B was actually buying a stake in Goose Island). Skeptics say that since A-B already has a stake in Widmer Brothers, they also now have a stake in Goose Island by proxy. It’s all semantics. The Widmer Brothers buy-in allowed Goose Island to form a distribution agreement with the companies that distribute Anheuser-Busch product. This caused so much consternation from beer geeks and "Chicagoans" up in arms that the Clydesdales would soon be rolling onto Fulton Street that Goose Island brewmaster Greg Hall replied both in the comments, and in a one-on-one talk with Chicagoist. The expanded distribution agreement allowed Goose Island to ramp up their reserve line production to year-round status, and resulted in increased sales, improved marketing, and an expanded presence on store shelves. Hall noted at the time that “people (don’t) really care or put much thought into where they get their beer.”
Bell’s Beer founder Larry Bell was one who did. For years, both Goose Island and Bell’s were distributed by Union Beverage, a subsidiary of National Wine and Spirits. While Goose Island’s business dealings provided one template to get out of a bad distribution deal, Bell’s opted for the nuclear option. Or, for fans of Alan Moore’s “Watchmen”, Goose Island was Ozymandias to Bell’s Rorschach. Faced with the possibility of having their product distributed by Chicago Beverage Systems, Bell’s decided that selling their beer in Illinois wasn’t worth the hassle.
Looking at a 2007 without Oberon on draft, others started to ask questions about the distribution system. While some people were complaining that the loss of Bell’s in Illinois was a casualty of the “Wirtz Law” that was ruled unconstitutional in 2002, Bell's decision is actually a protest of the Beer Industry Fair Dealing Act of 1982. At the time that law was passed, this legislation guaranteed distributors fair compensation from large breweries like Anheuser-Busch, Miller, and Coors, if any of those breweries left for a better deal with another wholesaler. Today, with exclusivity agreements between the major breweries and distributors, it’s a draconian document that essentially punishes craft breweries like Bell’s for wanting to do business that more benefits them. While we’ve taken our shots at Chicago Beverage since then, the most damning accounts against them came from Larry Bell himself. Recalling an August meeting with Chicago Beverage executives to gauge the company’s interest in distributing his product, Bell said to Nicholas Day in the Reader that “their answers to questions about carrying all the (Bell’s) brands were extremely unenthusiastic.”
Not all was bread and circuses with breweries. Some of them actually set a standard worth its weight in gold. Piece’s Jonathan Cutler was crowned best microbrewer at the World Beer Cup. And Flossmoor Station’s Matt Van Wyk earned top honors at the Great American Beer Fest. Since they’re microbrewers, they don’t have the deal with the headaches that come with distribution.
The business of bottle service in nightclubs received some much-needed attention from the state liquor control commission this year . The thirteen clubs required to argue the merits of bottle service in front of the commission took the position that since bottle service comes with a designated server, the consumption by patrons was being adequately monitored by professionals. That still makes us shake our head. Their own counsel even admitted that bottle service was a pretension. “What customers are buying is not the actual drink, they're buying real estate", was what Harlan Powell said at the time. He’s absolutely right to make a statement so unvarnished and cocksure. But don’t cloak the practice under the guise that customers are being monitored, because we all know better. We’ve even seen the pictures. The liquor control commission isn’t being completely altruistic in its concern, either. While they have every right to be worried about over serving of club patrons, they also realize that there some revenue that could be earned from, say, a bottle service license, or extra taxes to clubs that engage in the practice.