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Restricting on-site sales by wineries, craft brewers would hinder the free market

“It would more or less put in-state wineries and breweries out of business,” one winery owner says

 

By KEN WYSOCKY| July 18, 2017

It’s hard to pin down who officially crafted a controversial proposal making the rounds in Madison that would effectively prevent brewpubs and wineries from selling their products on their premises. But one thing is clear: If enacted, it would deal a crushing blow to craft brewery owners like Eric Rykal.

“The proposed legislation would put us out of business,” says Rykal, who just opened Modicum Brewing Co. in Altoona, near Eau Claire, in early July. “Our business model relies 100 percent on on-site sales. We don’t plan to distribute any of our product off-site because we believe the best way to engage our customers is face to face — educate them about our beers, as opposed to being simply another bottle on a shelf at a liquor store.”

Brad Schmiling, who co-owns the von Stiehl Winery with his brother, Aric, in Algoma, just south of Door County, echoed Rykal’s comments.

“It would more or less put in-state wineries and breweries out of business,” he says. “We’d have to move out of state in order to maintain retail sales to our customer base. Since 1967, we’ve been growing a business based on the concept of producing wine and selling it retail … more than half of our revenue comes from on-site retail sales.”

State Rep. Shannon Zimmerman (R-River Falls), whose family owns the Belle Vinez Winery in River Falls, says the legislative proposal, if enacted, would devastate the winery, which earns almost all of its revenue from on-site sales.

“This industry is getting eroded in full-stealth mode,” he notes, pointing to ongoing legislative efforts by special-interest groups that he says are bent on throttling the growth of small but ever-more-popular wineries and brewpubs.

In Texas, a similar law now forces smaller breweries to sell their beer to distributors, then buy it back if they want to sell it as retailers, explains Will Glass, president of The Brewing Projekt, a craft brewer in Eau Claire. Glass is also president of Wisconsin Brewers Guild (WBG), which represents about 125 craft brewers.

“We value our wholesalers,” Glass says, noting he recently partnered with a distributor in northwestern Wisconsin. “But certain groups want to reinforce their power in the marketplace because they see us growing … they see our parking lots full and see us as competitors instead of industry partners, even though we operate in totally different market segments.

“They see retail success as mutually exclusive — that either they (bars and taverns) are successful or we’re successful,” he continues. “But if bars sell tons of craft beer, it’s good for the bars, the wholesalers and the brewers. Everybody wins.”

Upholding three-tier system

At issue is a legislative proposal aimed at tightening up and making more uniform the so-called “three-tier” alcohol distribution system, which mandates that alcoholic-beverage producers must sell their products to wholesale distributors that, in turn, sell them to retailers.

Established nationwide since the end of Prohibition in 1933, the three-tier system is designed to prevent one tier from exerting control over the others, creating a monopoly.

The Wisconsin Policy Research Institute obtained a copy of the proposal, which outlines in great detail “clarifications” to the state statute that establishes the three-tier system’s structure.

It also proposes creating an Office of Alcohol Beverage Enforcement that would supplant the state Department of Revenue as the agency with regulatory oversight of the alcoholic-beverage industry. A director appointed by the governor and confirmed by the Senate would run the agency, serving six-year terms. Funding would come from existing alcohol-beverage permits and administrative fees, according to the proposal.

Some exceptions to the three-tier system exist; small brewpubs and wineries can sell their products on-site, for example, and brewers that produce less than 300,000 barrels of beer a year can distribute their products directly to retailers.

But winery and brewpub owners fear the proposal, if enacted, would eliminate those exceptions by barring “cross-tier ownership.” In other words, any entity in one of the three tiers would be barred from holding an ownership interest in another tier, which would effectively bar brewpubs and wineries from also being retailers, industry observers say.

“Down the road, we see this as a very legitimate attack on our ability to self-distribute and operate as a retailer,” says Glass, who also serves as president of the Wisconsin Craft Beverage Coalition (WCBC). Composed of the presidents of the WBG, the Wisconsin Winery Association (WWA) and the Wisconsin Distillers Guild (WDG), the group was recently formed to collectively defend against legislation considered harmful to state alcoholic-beverage producers.

“We all have a lot of the same issues in regard to production caps, simultaneous ownership of different liquor licenses and distribution issues,” Glass says. “It seems we’re all behind the eight ball all the time.”

Groups deny involvement

Nothing in the actual memo says who’s behind the proposal. But the name of the electronic file that contains the memo includes the following acronyms: TLW, WBDA and WWSI. Industry observers say those acronyms clearly stand for the Tavern League of Wisconsin (TLW), the Wisconsin Beer Distributors Association (WBDA) and the Wisconsin Wine and Spirit Institute (WWSI).

In response to a request for an interview with Eric Jensen, executive director of the Wisconsin Beer Distributors Association, a WPRI reporter received an emailed statement from PRW Communications, a public relations firm in Madison. In the statement, the WBDA disavowed any involvement in helping draft the proposal.

“In recent weeks, it has been suggested, implied and even directly stated that we seek to have brewer taprooms and beer gardens closed or to restrict brewers’ ability sell or sample their own products, either to consumers or to alcohol retail businesses,” part of the statement reads. “In no uncertain terms, these claims and innuendos are completely false.

“Craft brewers are our partners,” the statement continues. “Our mutual success and survival are inextricably linked. We will not support legislation or regulations or bureaucratic policy decisions that directly or indirectly threaten either of these functions that can aid a craft manufacturer’s start-up and growth.”

 After a request for an interview with Scott Stenger, a lobbyist for the Tavern League, a WPRI reporter received an emailed statement attributed to Pete Madland, the league’s executive director.

“There have been some erroneous media reports concerning legislative proposals related to the three-tier system, as well as the position of the Tavern League of Wisconsin,” the statement reads. “I would like to make clear that the TLW does not support, under any circumstance, limiting a craft brewer or a winery from selling their own product. The Tavern League of Wisconsin values Wisconsin breweries and wineries, and we have not seen or heard, nor would we support, any proposal that prohibits them from selling what they manufacture.”

Wisconsin Wine and Spirit Institute lobbyist Joel Frank did not respond to an emailed request for an interview.

Avoiding open debate

Some observers believe that the current public backlash against the proposal dooms its chances of being enacted. But state brewers and wine-makers fear it still could be secretively slipped into the state budget bill, currently pending approval in the Legislature, as a so-called 999 motion. Originally intended to resolve technical issues and errors in budget bills prior to approval, legislators are more and more often using 999 motions to secretly add new policies and projects to budget bills.

“I’m not a fan of 999 motions” being used to enact policy, Zimmerman says. “If we’re talking about something of this magnitude, then take it to the floor as a bill and get public commentary. If it’s so good for Wisconsin residents, let the sunlight shine upon it.”

Zimmerman also says it’s “unimaginable” to him that conservative lawmakers — or even non-conservative legislators, for that matter — would ever support the proposal in question.

“On its merits, no matter what political party you’re from, common sense tells you this is dumb,” he notes. “If we continue down the path of choking them (craft brewers and wineries) off, it’s detrimental to small businesses and start-ups — and nowhere near representative of a free market. The concept goes against what every conservative-party member stands for.”

Ken Wysocky of Whitefish Bay is a veteran freelance journalist and editor.

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