Beer Bust 

How state laws leave Georgia microbrewers with a hangover

Page 2 of 5

The other idea behind the system was to prevent monopolies, which occurred in pre-Prohibition days when a big brewer could crowd out the competition by buying up the local bars and stocking them solely with its product. But over time, the three-tier system has ensured a monopoly of another kind. If you own a bar and want to sell Budweiser on tap, you're forced to do business with the distributor in your area that sells that brand. Don't bother looking for the competition; in the three-tier system, competition -- at least between distributors selling the same brand -- doesn't exist.

As with any commodity in any industry, the more beer a distributor sells, the more money he makes. So distributors don't just distribute. They work with the brewer to promote the brand. They give out merchandise, like mugs or caps. They build up the brand.

In the 1960s, distributors began lobbying state legislatures for more protection. They were worried that the work they'd done to promote a brand would be all for nothing if the supplier -- the brewery, winery or distillery -- took its business to another distributor. Soon, franchise laws were enacted in dozens of states. Georgia ended up with one of the toughest franchise laws. It allows an alcohol supplier to switch distributors only in extreme cases. Even then, the state must give the OK.

"The franchise laws are justified by the distributors in terms of the allegedly great market power of the alcohol suppliers, such as the brewers," says Glen Whitman, a California economist who wrote Strange Brew, a book critical of franchise laws. In fact, Whitman says, it's now distributors who have become all-powerful through mergers and huge economies of scale. Alcohol sales in metro Atlanta are dominated by a handful of distributors. This past July, Smyrna-based United Distributors, which employs 1,000 people in nine states, bought out Better Brands, creating what is thought to be Georgia's biggest distributor.

"It's really a form of corporate welfare," Whitman says. "It's protecting an industry from competition. What people think of as corporate welfare is handouts. But that's almost never what it is. It's almost always some form of protectionism."

Distributors protect their turf with heavy involvement in the political process, including thousands of dollars each year in campaign contributions to both Democrats and Republicans.

Carl Von Epps, a Democratic state representative from LaGrange, is chairman of the Regulated Industries Committee, which decides the fate of legislation that would affect the three-tier system or the franchise laws. In a three-year period that ended last January, he reported approximately $91,000 in campaign contributions. Of that amount, at least $40,000 came from distributors or their lobby.

Distributors also fork over thousands every year to the Georgia Wholesalers for Better Government, a lobby that in turn donates to the campaigns of lawmakers across the state. In the 2002 election cycle, according to disclosures filed with the Georgia Secretary of State's office, the lobby gave $125,000 to candidates or their parties.

Distributors don't just woo legislators; they also know how to coax regulators to become lobbyists for their cause. Chet Bryant spent 27 years with the federal Bureau of Alcohol, Tobacco and Firearms, and most recently was director of the state Department of Revenue's Alcohol and Tax division, the office responsible for regulating the three-tier system. Bryant is now executive director of the Georgia Beer Wholesalers Association.

In 2001, when he still worked as a regulator for the state, Bryant was one of many officials who testified before a special state House committee reviewing the three-tier system. The committee was prompted by a lawsuit filed earlier that year by convenience and grocery stores. Georgia Department of Revenue rules said that if a store wanted to carry a certain type of beer, it had only one choice: to buy the beer from the distributor in that territory who sold that brand. And the stores were claiming those rules improperly favored wholesalers.

The committee heard from all three tiers of the system. Testifying for wholesalers, veteran lobbyist Bryan Fiveash said that "our industry ... fosters vigorous inter-brand competition and provides accountability at all levels. It is our opinion that the system is not only not broken, it is working well."

Another endorsement came from Bryant. In his report to the committee, Bryant and then-Commissioner T. Jerry Jackson called the system a "time-tested framework that has proven to be an effective regulatory scheme."

Representing brewers were officials from Anheuser-Busch and Miller. Both companies operate huge breweries in Georgia, employing hundreds. The Anheuser-Busch official likened the three-tier system to a "reliable family car. It might need a tune-up and maybe even a new set of tires, but neither the industry, nor the state, needs to incur the expense of designing and building a brand new vehicle."



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