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Anheuser-Busch Buying Spree a Wake-up Call for Florida Craft Brewers

John F. Kennedy, in an address to Canada's Parliament, once remarked of America’s relationship with the nation to our north, “Geography has made us neighbors.... Economics has made us partners. And necessity has made us allies. Those whom nature hath so joined together, let no man put asunder. What unites us is far greater than what divides us.”

The relationship between Florida’s distributors and craft brewers admittedly got off to a rocky start when small brewers didn’t get the container size they wanted – and should have had – years ago. Things escalated when the Brewers Guild abruptly cancelled two consecutive meetings and put out an attack video.  But it’s more critical than ever now to stop, take a breath, relax, and focus together on what unites us – and it truly is far greater than what divides us.

Because what unites us are the aggressive efforts to preserve market share by Anheuser-Busch-InBev, the world’s biggest beer company. Last week ABI announced plans to buy Elysian, one of the top brewers in the craft-friendly state of Washington – the most recent in a “buying spree”, as the Wall Street Journal described it, of comparatively small craft brewers including 10 Barrel, Blue Point and Goose Island. (Each of these brewers manufactures about 50,000 barrels per year.) ABI CEO Luiz Edmond last month told the Journal not to be surprised if ABI buys several more craft brewers (the very same Luiz Edmond who famously stated to the WSJ that he was loyal to his wholesalers and he expected them to be loyal to him).  

The lesson to craft brewers and the legislature, as many of us have been trying to communicate for several years now, should be clear: ABI is losing market share to craft brewers – with sales volumes down nearly 9% in the last decade – and will not just roll over.  More specifically, ABI will not allow itself to be put at a competitive disadvantage by specialty brewers seeking to bury the three-tier system under special exceptions.

What kind of response can we expect from ABI?  The beer behemoth could buy some craft brewers in Florida and then leverage its economic power and market position to exploit retail exceptions and other loopholes.  Such a move would blur the lines between craft and large brewers and allow the company to elbow into the craft market in Tampa, Jacksonville and other areas.  While a small percentage of hard-core craft drinkers will know which breweries are truly local and which are owned by ABI, a large percentage of the local residents will not, and hardly any tourists will either. ABI will make sure of that by dipping into its deep pockets to scoop up the coolest taprooms in every city.

Craft brewers could fight back by convincing the legislature to base special exceptions solely on size, preventing ABI from infiltrating their space. In which case, as we’ve seen it in other states where ABI wants to own distributors, the company will resort to litigation, once again leveraging a massive war chest the small companies would be hard-pressed to match.

But there’s another scenario: Florida’s craft brewers and wholesalers could wake up and realize they are indeed united not just by geography, but also economics and necessity – a common competitor in the world’s largest brewer.  We could work with influential, fair-minded leaders in the legislature such as Dana Young and Jack Latvala, and design a compromise that gives everybody what they need to continue under their current business models – without devaluing anyone’s investment in millions of dollars of storage facilities, trucks, brewing equipment and jobs. 

This is the right path for both parties – and one being followed in other states where craft brewers and distributors are locked arm-in-arm to stand up to ABI.

But for craft brewers to recognize their strongest potential allies in business and politics are Florida’s independent beer distributors, they will need to get past an emotional sticking point: the “Big Beer” label they have attached to us.  That label falsely conflates distributors with the major brewers.

In other words, although it has served as a successful public and government relations talking point up to now, distributors hardly represent “Big Beer” – and it’s high time that craft brewers set aside the phrase and the attitude it represents, and recognize that necessity should make us partners and even friends.

I hope the good folks at ABI will forgive my characterization of their plan – which is pretty obvious in any event. I understand that the company is obligated to protect its shareholders.  My message here is to our potential friends in the craft brewing sector: if you want to dig a shallow tunnel under the three-tier system, the roof – in the form of ABI – will come crashing down on top of all of us. Believe it or don’t believe it— but don’t say I didn’t warn you.

Florida's small brewers and distributors have too many common interests to continue fighting among ourselves, and the greatest of those interests is the consumer.  We can be pro-consumer, pro-public health and pro-craft beer—together. We are natural allies, and to paraphrase JFK, those whom nature hath so joined together, let not past bitterness, pointless disagreements and outdated “labels” put asunder.

Don’t Count Your Majorities Before They’re Hatched

Don’t Count Your Majorities Before They’re Hatched

By: Stuart Roy

One would have to be pretty much living under a rock to miss the emerging conventional wisdom that momentum for control of Congress has moved to the Republicans.

Maintaining their majority in the House has long been agreed to be pretty much a lock for the GOP – top Democratic strategists have been conceding continued opposition control since at least the beginning of the year. The Center for Politics’ Crystal Ball, the Cook Political Report and Washington Post’s Election Lab are all forecasting slight gains for the Republicans, and the last gives Democrats less than one percent chance of retaking the body.

Which puts most of the attention on the Senate, where not only the Post but also the New York Times and Nate Silver’s 538 blog have been consistently pointing to solid Republican prospects, with projections ranging from a 57 to more than 80 percent chance of regaining the majority in the upper chamber.  The political publication The Hill recently reported that “Democrats are starting to play the blame game as they face the possibility of losing the Senate in November.”  When news of such circular firing squads begin to make its way into the media – with party insiders even allowing themselves to be quoted on the record – it’s always bad news for campaigns.

A host of reasons have been cited for Republican optimism (or Democratic pessimism, depending on your point of view):

The six-year “itch:” In every election but one – 1998 – since Reconstruction in which a president was completing the sixth year of his term, the opposition party gained seats in both Houses of Congress.

The GOP turnout advantage: More Republican voters appear at the polls in off-year elections, a factor which doesn't show up in polls of registered voters.

Playing in GOP territory: Seven of the Democratic-held seats being contested are in states won by Mitt Romney.

Obama on the ropes:  President Obama’s approval ratings, while improving recently, appear to be a drag on candidates.  A recently released Gallup Poll shows that registered voters are more likely to view their votes in this year's midterm elections as a message of opposition (32%) rather than support (20%) for the President – a gap similar to that faced by President Bush in 2006, a disastrous year for Republicans.  Even recent polls in deep-blue New York and California show approval of the President at just 39 percent and 45 percent, respectively.

Better GOP candidates: We’re not seeing the same kind of foot-in-mouth performances that cost the GOP near-certain wins in Missouri and Indiana in the last election, and Republican candidates have been more than holding their own during the debate season.

Stronger-than-expected GOP showings:  Republican candidates have all but locked down Democratic seats in Montana, South Dakota and West Virginia (the New York Times’ model puts GOP chances in those states at over 99%), appear to be pulling away in Alaska, and are surprising in states previously written off, specifically Iowa and Colorado.

Missteps by Democratic candidates, including an embarrassing leak of an internal memo from Michelle Nunn’s campaign in Georgia and Iowa’s Bruce Braley’s snub of popular GOP Sen. Chuck Grassley as "a farmer from Iowa who never went to law school."

Still, a word to the wise to GOP partisans from one of your own: don’t count your majorities before they are hatched.  Republicans have been in this position before and disappointed their partisans, and the reasons why it could go that way again are just as numerous as the bright spots:

Too many “tossups:” Ten races are still put in that category by Real Clear Politics and 10 by Cook – one and three more than earlier this year, respectively. And although all the projection models continuing to show solid probabilities of the GOP retaking the Senate, those numbers are softening, which is to be expected as races tend to tighten as Election Day nears (and as, in some states, early voting has already begun). The Wall Street Journal reports, “Across the U.S., some races are so unstable that polls look promising one week and spell big trouble the next.”

Recent history:  We’ve all heard the excitement about surprisingly close races in the recent past. Most, notably Nevada in 2010 and Montana, Florida and Virginia in 2012, end with comfortable wins by the favored party.

No wave:  There is no sign to date of a so-called “wave” election that could sweep marginal Republicans to victory.  In fact, while the Real Clear Politics average shows Republicans with a very slight lead in the generic ballot measuring straight party preference, the most recent Rasmussen results show Democrats up top.  More important, however, there appears to be little intensity in this election:  a recent NBC-Wall Street Journal poll found huge voter apathy, with more than half of voters saying Washington would be unchanged by the midterm elections, regardless of the result.

The power of Democratic incumbency:  In the Senate, that factor is working in the Democrats’ favor.  Endangered incumbents in states including Arkansas, Louisiana and especially North Carolina are hanging in or even holding slight leads.  And the GOP has not knocked off more than two incumbents in a single year since 1980.

A particular factor worth highlighting is the surprising weakness of two GOP incumbents in deep red states who have been unable to shake off strong challengers:

McConnell struggling in Kentucky:  A recent poll found Kentucky’s Mitch McConnell, in line to become Majority Leader if the Republicans retake the Senate, down two points to challenger Alison Lundergan Grimes after a string of previous surveys had appeared to show McConnell solidifying his position.  Grimes recently had popular ex-President Bill Clinton, a family friend, in to stump for her.

Roberts on the ropes in Kansas:  Meanwhile, Kansas’s Pat Roberts, who won his last race with 60 percent of the vote, was softened up in the primaries by a conservative opponent who exposed the fact that the Senator does not have a residence in the state. Now, the three-term incumbent appears to be in deep trouble against Greg Orman, who is an running as independent and has not said with whom he will caucus. However, he has recently run for office as a Democrat and contributed money to Democratic candidates, and the Democratic Party pulled its candidate from the race to make it a one-on-one battle and thereby help Orman.  Polls have consistently shown Orman up by between five and 10 points in the race, and both the 538 and LEO models show him with a strong likelihood (83 percent in the latter case) of pulling the upset.

But perhaps the “sleeper” factor is the Democrats’ growing skill – especially in 2012 but also in 2013 in Virginia – in confounding the turnout model.  The party has not only gotten more of its voters out, especially minorities, but have focused on issues that shift loyalties among Republican voters in key blocs such as single women.  For that reason, expect to see the “war on women” theme pounded this fall in key battleground states to boost incumbents.

The bottom line is that the races are really just about to get interesting, and that a GOP Senate majority is far from in the bag. So fasten your seat belts.

Commentary: Craft Beer — It’s Good For Florida

Commentary: Craft Beer — It’s Good For Florida

By Eric Criss

Tampa is home to one of the finest craft brewers in the state of Florida, indeed the nation–Joey Redner’s Cigar City Brewing. Mr. Redner has elevated the unique history of the Tampa Bay area through, of all things, great beer!  With brands such as Jai Alai, Florida Cracker White Ale, and Invasion Pale Ale, Cigar City takes pride in the Bay area, and in making good beer.  Redner’s originality and creativity is emblematic of the craft beer industry as a whole.  This is good for the beer industry and good for Florida.

Yet, currently, there is an important debate in Tallahassee related to breweries like Mr. Redner’s.  Some have even referred to this discussion as “beer wars” between big beer producers, local beer distributors, and small craft brewers like Cigar City.

The term “beer wars” is an unfortunate moniker because it fails to capture the complexity of a classic “good news-bad news” situation.  The good news is that there is plenty of room for growth in Florida’s craft beer market.  The bad news is that craft beer represents just 5 percent of total beer sales in Florida.

While craft brewers like Cigar City may boost a distributor’s revenue, individually they represent a small portion of total sales.  In this sense, Cigar City benefits from being sold and delivered alongside the distributors’ larger and more established domestic and imported beers, especially in Florida.

In other words, small brewers get broad access to the marketplace and enjoy the economies of scale created by distributors operating under Florida’s state-based form of alcohol regulation.

This relationship helps both brewers and distributors maximize revenue.  Craft brewers invest millions of dollars in brewing the best beer in the world, such as fermenters and bottling equipment, while distributors invest millions in delivery and sales people, trucks, and other infrastructure.  For this reason, an invisible story behind Cigar City’s success is another Tampa business:  J.J. Taylor Distributing.  As one of the state’s largest beer distributors, J.J. Taylor gets Cigar City to market in 17 counties in Florida, making the Tampa brewer one of J.J. Taylor’s largest and fastest selling craft brands.

Craft brewers and distributors enjoy a positive, mutually beneficial partnership and our differences in Tallahassee are not insurmountable.  Indeed, our biggest challenge is not related to commercial competition at all.  Rather, it is the preservation of Florida’s orderly alcohol marketplace.

In crafting Florida’s alcohol beverage laws we must not run afoul of the United States Constitution by favoring, intentionally or unintentionally, in-state brewers over out-of-state brewers.  This is an invitation to have Florida law decided on the federal bench as it was with wine in Granholm v. Heald.  For those of us who believe, as Thomas Jefferson did, that states like Florida should jealously guard the right to make their own laws, this is the worst possible outcome of the so-called “beer wars.”

Strategic partnerships like the one between Cigar City and J.J. Taylor represent the best the industry has to offer: choice, quality, and public safety.  With double-digit annual growth in craft beer sales, abundant opportunity exists for those who are willing to work together in good faith, both in the marketplace and the legislature.  The only thing we can do to screw up this situation is to put it in the hands of the federal government.

Eric Criss: Beer regulations protect our communities

Eric Criss: Beer regulations protect our communities

Today, America is brewing the best beer in the world, and lots of it. In 1978, there were less than 100 American breweries. Now, there are more than 2500! Craft beer sales consistently grow around 15 percent annually while better known brands like Budweiser are hemorrhaging market share.

Florida’s beer distributors benefit from this trend, because craft beer has better margins. What surprises many folks is the fact that distributors have invested heavily in promoting the brands of craft brewers. They enthusiastically buy, store, market, sell, and ship craft beer to retailers who, in turn, sell to the public. Distributors market craft beer through festivals, dinner pairings, and tastings, and they do all of this under the three-tier system of regulation.

The three-tier system has fostered the growth of craft brewers but in spite of their meteoric rise some are attempting to convince legislators that Florida’s alcohol regulations are antiquated, “Prohibition-era” rules. This is patently false and dangerous.

Florida’s alcohol regulatory system was implemented after prohibition, not during or before, and it has been consistently updated as recently as last year. Such changes include the creation of brewpubs, micro-distilleries and new rules addressing coupons, licensing, and underage drinking.

Nevertheless, it is helpful to understand the history of the alcohol industry. There was a time when brewers often sold direct to the public through retailers they owned or controlled called “tied houses.” This led to aggressive sales tactics, deep discounts, and high-volume drinking with the end result being large-scale addiction, domestic violence, and worse. Such social problems fueled a national backlash leading to passage of the 18th amendment to the Constitution and the prohibition of alcohol.

When prohibition was repealed in 1933, the federal government empowered states to regulate alcohol based on the values of individual citizens and communities. As a result, layers of protection known as the three-tier system, were created to safeguard against these abuses. The three-tier system prevented vertical integration of the alcohol industry in Florida and most other states. Under this system, many dangers of over-consumption were reduced, increasing the acceptance of beer as a hallmark of American leisure time and celebration.

The cycle of abuse and reform is not one we wish to repeat.

In 2012, Mothers’ Against Drunk Driving data showed 697 alcohol-related driving fatalities, 53,664 DUI arrests and 28,689 DUI convictions in Florida. These figures, though alarming, constitute an improvement over years past—a success achieved through tighter enforcement of existing laws and regulations.

In spite of the obvious value of the three-tier system, irrational exuberance over the craft beer revolution threatens to unravel the layers of protection it provides to our children and communities. Beer distributors will work with legislators to allow innovations sought by craft brewers, such as the 64-ounce “growler” container but they will oppose the destruction of the three-tier system and return of the pre-prohibition “tied-house.”