Gerald A. Dinallo, Jr.Gerald A. Dinallo, Jr.Senior Managing DirectorSenior Managing Director

NABCANABCA1616thth Annual Symposium on Alcohol Annual Symposium on Alcohol

Beverage Law & RegulationBeverage Law & Regulation

“Who’s Tied to the House?”“Who’s Tied to the House?”

March 9 – 11, 2009March 9 – 11, 2009

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium“Who’s Tied to the House?”“Who’s Tied to the House?”

Gerald A. Dinallo, Jr.

Jerry R. Jolly

William D. O’Donaghue

Morton Siegel

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium““Who’s Tied to the House?”Who’s Tied to the House?”

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium “Who’s Tied to the House?” “Who’s Tied to the House?”

• Suppliers :

– 387 suppliers of alcohol the top 10 suppliers account for 73% of volume (NABCA)

– $7.1 billion in CY 2008 sold through the control states

• Wholesalers:

– 86 spirits distributors/brokers in the US (DISCUS)

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium “Who’s Tied to the House?” “Who’s Tied to the House?”

• Retail licensees:

– 82,674 Off Premise Liquor License Outlets

– 190,000 On Premise Liquor License Outlets

• “Big Box” alcohol retailers (50K+ annual cases and chains):

– 64 retailers, thousands of outlets; approximately one third of major suppliers’ sales

– Approximately 50 million cases of spirits annually

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium “Who’s Tied to the House?” “Who’s Tied to the House?”

• 1984: 3,911 people for every liquor store (as measured by number of off-premise distilled spirits licenses). 

–2007 there were 4,810. 

• 23% more people served by a single outlet in 2007

–Larger population equals the opportunity to grow and supply a wider variety of services

–Fewer stores per person indicates larger stores; therefore, a trend toward larger retail entities

• Wholesaler consolidation continues to accelerate

– Top wholesalers larger than most suppliers, with multi-state operations

• A “pull” versus “push” market: retailers large/demanding

– Marketplace dynamics have changed since the 1930s

– Historical basis for three-tier system: protect retailers from supplier’s monopoly power and exclusive ties (“tied houses”)

– “Big box” retailers now have “tied-house” power

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium “Who’s Tied to the House?” “Who’s Tied to the House?”

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium“Who’s Tied to the House?”“Who’s Tied to the House?”

Regulators’ Point of ViewRegulators’ Point of View

• Public policy rationale for tied-house laws:

– promote the state’s interest in an orderly market place

– to prohibit vertical integration and dominance by a single producer in the market place, commercial bribery and predatory marketing practices

–to prevent the intemperate use of alcoholic beverages.

• To prevent overly aggressive marketing practices, laws were passed to prohibit giving gifts, premiums, or free goods

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium “Who’s Tied to the House?” “Who’s Tied to the House?”

Regulators’ Point of ViewRegulators’ Point of View

• Historically the legislature and industry has only allowed narrowly crafted exception to the tied-house laws to address a specific problem such as brew pubs, stadiums, ownership interest in amusement parks etc. Very difficult to make major changes in law because of competing interest.

• Despite the states inability to make changes in a global market place it has achieved many of its public policy goals.

• In general the market for alcoholic beverages is orderly and disciplined and licensees are committed in good faith to comply with the law.

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium “Who’s Tied to the House?” “Who’s Tied to the House?”

Regulators’ Point of ViewRegulators’ Point of View

• Consumers have a broad array of convenient choices in both available beverages and in outlets with a wide and diverse option of amenities.

• Suppliers and retailers have been able to promote their businesses and products in creative ways and in a wide variety of media.

• The legislature and industry has been successful in passing exceptions to the tied-house laws to continue business development in the hospitality and tourist industries.

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium “Who’s Tied to the House?” “Who’s Tied to the House?”

The Illinois ExperienceThe Illinois Experience

1. TIED HOUSE EXAMPLES

• Traditional- Untouchables

• Modern- Retailer

 

2. ILLINOIS PROBLEM

• Retailer Domination

 

3. ENFORCEMENT ACTION

 

4. RESULTS AND IMPACT

• Greater Competition

• Consumer Benefits

• Industry Benefits

 

5. ENFORCEMENT IS GOOD & NECESSARY!

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium“Who’s Tied to the House?”“Who’s Tied to the House?”

Legal/Industry Point of ViewLegal/Industry Point of View

• Application of historical principles of the past to the present – industry business practices

• Identify the historical principle underlying regulatory structure – a control analysis

• Today’s inquiries on industry business practices

• The industry today – business model

• Maximum efficiency vs. regulated industry

• Enforcement vs. Change

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NABCA 16NABCA 16thth Annual Symposium Annual Symposium“Who’s Tied to the House?”“Who’s Tied to the House?”

QUESTIONS?

THANK YOU!