ILCC Hearing on City Beverage

Yup, There’s Still Unfinished Business

In Beer News by Ryan

What? There’s more? Another ILCC Hearing on City Beverage? 

Wasn’t this put to bed over the summer when the Illinois General Assembly passed, and the governor signed, SB 754?

Actually, no.

Self distribution, craft brewers licenses and the barrel production limits to be considered a craft brewer in the state that came along with the aforementioned legislation was actually a by-product of a much larger debate over beer in Illinois and who owns the distributor you get it from.

That debate will continue Wednesday before the Illinois Liquor Control Commission:

ILCC Open Meeting on Monday Wednesday, December 7, 3pm

The Illinois Liquor Control Commission has scheduled an open meeting to discuss two questions:

  1. What effect does the enactment of P.A. 97-0005 (SB 754) have on the ability of a Brewer or Non-resident Dealer, to hold an ownership interest in an Illinois distributor?
  2. If the law prohibits a Brewer and/or Non-resident Dealer from holding a distributor license, does Illinois administrative law permit the Illinois Liquor Control Commission to grant equitable relief to City Beverage, Illinois, LLC, owner of four distributorships, to allow for the continued 30% ownership interest by a brewer/non-resident dealer affiliated entity (Wholesale Equity Development Corp – WEDCO)?

To understand the significance of this hearing we need to rewind a ways back to 2010 when Anheuser-Busch announced it was buying its remaining stake in City Beverage. A-B, since 2005, had owned a 30% stake in the distributor, and last year they brokered a deal to buy the remaining 70%. But that deal hit a snag; the Illinois Liquor Control Commission.

You see, the deal had to be approved by the ILCC and they refused to do so. In a March, 2010 decision the commission wrote:

ILCC Hearing on City BeverageEssentially, the commission said A-B fell in to the category of “Non-resident dealer” because they aren’t based in Illinois and a “Non-resident dealer” can’t own a distributor in the state. Therefore, A-B could not buy up the remaining stake in City Beverage.

What happened next may sound familiar if you followed our Save The Craft movement in the Spring. A-B sued the Illinois Liquor Control Commission in federal court claiming discrimination because in-state brewers can self-distribute but out-of-state brewers can’t. And A-B felt owning a distributor was akin to self-distribution. A federal judge sided with A-B on the discrimination argument but instead of opening up self-distribution to everyone, Judge Robert Dow Jr wanted to shut it down altogether. He did, however, give the legislature a chance to address the issue – and they did with SB 754. While the new law is far from perfect, it did retain the rights for small brewers in Illinois to distribute their own beer.

That brings us back to present day where the hearing in Chicago Wednesday will, hopefully, settle the argument of whether A-B can retain its stake in City Beverage and spell out the legality of a big brewer owning an Illinois distributor in the future.

A spokesperson for the ILCC told us there will be no decision made on Wednesday and that the commission, once they do vote, will either, “make a decision to continue to allow (by not revoking or continuing to renew) AB to hold the interest . . . or not (by revoking, refusing to renew or sending AB a letter telling them to sell their interest).”

A-B thinks they should be able to hold the remaining stake in City Beverage. Mark Bordas, region VP of state affairs for A-B, told us the new law doesn’t specify one way or another. “Senate Bill 754 allowed certain small brewers to self-distribute – but failed to address who may hold an interest in a distributor,” said Bordas. A-B will likely point to the fact that they have held this 30% stake since 2005 and have been in good standing with the ILCC over that time as a legit reason to allow the relationship to continue.

On the other side of this issue is the Associated Beer Distributors of Illinois. Bob Myers, VP of government relations for the ABDI, won’t come right out and say the new law prohibits A-B from holding an interest in a distributor – but he does think lawmakers sent a message. “When the General Assembly amended SB 754, it was clear that they understood the importance of an independent three-tier system – a system that has no control or influence of one tier over another,” said Meyers.

Retaining the integrity of the three-tier system was also part of the commission’s initial argument to deny A-B’s full purchase of City Beverage. The concern, amongst commission members at the time, and the ABDI now ,is that A-B – or any big brewer – owning a distributor gives them an unfair advantage. “In the past, Anheuser-Busch has urged (demanded) their distributors be AB exclusive,” said Meyers. “Craft brewers will get their beer to market easier and faster if the distribution tier remained independent.  An independent distributor gives 100% focus to all brands in their brand portfolio.”

But A-B claims kicking them out of the distribution game will have the opposite effect. “This is their (distributors) attempt to limit competition and maximize their financial gain.  No consumer – beer drinker or otherwise – benefits when competition is restricted,” said Bordas. Although, he didn’t completely refute Myers claim that A-B products get top billing from A-B distributors. “Anheuser-Busch brands remain the overwhelming majority of our distributors’ businesses,” said Bordas. “We don’t prohibit our distributors from carrying competitive brands.  In some instances, Anheuser-Busch-owned distributors carry other brands as well.”

We looked through the four City Beverage portfolios and the only “craft” beer we could find were breweries that A-B already had a hand in; Goose Island, which is now owned by A-B, and Widmer Brothers, Redhook and Kona – which are under the Craft Brewers Alliance umbrella, who A-B has a minority stake in.

We get why A-B would not want to relinquish their stake in a distributor that is only carrying their products. Makes you wonder, though, if the distributors themselves would like to get out from under A-B’s thumb and diversify their portfolio?

There is no timeline for the Illinois Liquor Control Commission to reach a decision although City Beverage’s myriad of distributor licenses will be up for renewal in March, September and October of 2012 respectively.

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About the Author

Ryan

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Equal parts beer nerd and policy geek, Ryan is now the curator of the Guys Drinking Beer cellar. The skills he once used to dig through the annals of state government as a political reporter are now put to use offering unique takes on barrel-aged stouts, years-old barleywines and 10 + year verticals.

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