Late on an August afternoon nearly five years ago, Tina Kondo, the chief of the antitrust division for the Attorney General in Washington, received an eighteen page letter from one David Burman, an attorney representing the Costco warehouse club. The letter spoke of how Costco would do business in Washington in the absence of alcohol regulation, and then explained why they felt Washington’s alcohol regulations violated the Constitution.
That letter sparked nearly five years of the most intense litigation ever felt in the modern alcohol beverage industry, taking the industry on a roller coaster ride of victories and defeats. And now, yesterday the same David Burman ends the long saga with a letter, this time just over one page, notifying the AG that Costco would not seek an appeal before the U.S. Supreme Court. Yes, it’s finally over.
So why is Costco throwing in the towel? You might say because after their shattering defeat in the 9th Circuit Court, which followed their victory in District Court, they don’t want to throw good money after bad. But that’s not why they’ve called it quits.
They’ve called it quits because Costco “has accomplished much of what it sought” which includes the end of post and hold and direct shipments. “In a broader sense,” writes Burman, “Costco also fully vindicated its position that almost all of the restraints harm consumer interests, are of a nature that would amount to a per se violation of federal antitrust law, and were not intended to and do not serve temperance purposes.”
Costco also cites “a new chapter of legislative reform” with the Task Force which “will be a catalyst for substantial change.”
Burman ends with a parting shot at the 9th Circuit Court: “Judge O’Scannlain affirmed the power of state government to treat its citizens in violation of federal law. We believe the Task Force should conclude that such power should not be exercised without good cause, and certainly not to serve the financial interests of private wholesalers.”
Costco did accomplish much in the form of setting precedents, creating lively discourse on three-tier, antitrust, and Commerce Clause legal arguments. Costco also may have helped spark a rash of other direct-to-consumer and retailer lawsuits in other states. And it’s true that a few components of Washington’s alcohol code have changed due to Costco’s litigation. There’s no doubt this litigation has contributed much to both sides of the three-tier legal landscape.
But ultimately, during the five years’ time between Costco’s first letter and its last, and the mountain of treasure rivaling Mt. Rainier spent by both sides, the fact remains that a major control state has maintained the legal integrity of its right to regulate alcohol within its borders. That is the true legacy of Costco v Hoen.
In a note to the NBWA board, chief Craig Purser remarked that the Costco case “has been a significant focus of NBWA and our distributor family over the past four years. Many have contributed countless hours, energy and other resources to reach this conclusion.”
BBD QUICK ANALYSIS: 7-ELEVEN TEST FACES CHALLENGES
The 7-Eleven test, whereby Southern Cali beer distributors and cola bottlers deliver to a central warehouse, has been in the works for weeks, though there has been limited or no beer distributor participation in the planning stages so far, according to sources on both the beer and soft drink sides. That may explain why there are so many unintended consequences. Coke is indeed a part of it, and our sources tell us that the current plan involves distributors and bottlers generating orders from 7-Elevens, processing and picking the orders, and then delivering them to a third-party independent logistics company’s warehouse. From there, the logistics company will deliver the products together with the same trucks at night or during off-peak hours. One of the third-party warehouse/logistics providers reportedly being considered says that they will “bundle products into compelling packages…..it’s about living by the rules of retail giants.” No truer words were ever spoken.
There are challenges to such a plan, not the least of which is that the laws would have to be changed. Will the third-party logistics provider get a retailer and wholesaler license, because one is required for a beer distributor to deliver to it, and other is required to move the beer again to another retailer. In fact, there is no license for this type of hybrid in California. Also, there’s a sunset law by which beer can’t be delivered after 8, so night delivery is tough. And then there is pricing: what margin does the third party warehouse get?
Essentially you’re adding a fourth tier to a system to reduce congestion … at 7-Eleven stores. But overall congestion and product handling actually increases. So lots of challenges to the program as we understand it. But the brewers and soft drink manufacturers have to play along with one of their largest customers.
BEER BRIEFS:
TORENTIAL RAINS AND FLOODING in the Midwest has taken a toll on the region’s beer industry, as well as on its main ingredient, corn, whose pricing is spiking. Indeed this has been wreaking havoc on the region for some weeks. UBS Kaumil Gajrawala reports that May weather was “wetter across the board, with precipitation levels rising 38.3%, 25.9% and 39.9% vs. 2007 for A-B, Coors and Miller respectively. Temperatures also were cooler by 4.6%, 4.2% and 5.3%, but the week of Memorial Day was the warmest week since October.”
HUSA IS LAUNCHING a “comprehensive marketing campaign” including a TV spot for their BeerTender personal draft beer unit for father’s day. The ad follows two guys around on a suburban tour of home bars where Heineken is being poured by the BeerTender. On another note, HUSA is rolling out new secondary packaging for Heineken, HPL, XX and Tecate.
MOLSON COORS named former Coors Brewing chief Peter Swinburn as its new chief executive to succeed Leo Kiely, who of course is leaving to head up MillerCoors. Peter kept Coors momentum going after Frits left, and indeed accelerated it.
Molson Coors also appointed Stewart Glendinning as global chief financial officer to succeed Tim Wolf, who will be chief integration officer-designate of MillerCoors.
IMPORTS REBOUND IN APRIL. Import shipments made back about half the ground they’ve lost so far this year in April. Not a bad performance though there was an extra shipping day. But let’s not kid ourselves – the ups and downs of total import shipments this year is ruled by Mexican shipments as they ebb and flow. Mexican shipments shot up 21% in April, but are still down 5% year to date. Netherlands up 8% in April, bringing total year up 1%. Belgium wins with shipments up nearly 40%.
WE HAVE ANOTHER REASON to question reports out of Belgium that InBev has already been in contact with A-B: An A-B board member told Reuters that this was the first he’d heard of it. Modelo chairman and A-B board member Carlos Fernandez told the press that he was unaware of any takeover talks between the two brewers. Asked whether he thought Modelo would retain its independence over the next year, he said, “Based on what we have seen today, yes.”
REMEMBER THAT shareholder that filed a lawsuit seeking class action against A-B for not responding to a theoretical bid from InBev which hasn’t materialized yet? Turns out he is elderly and was duped into doing it, and now wishes to be removed from the lawsuit. Go figure.
IT IS MY DEEP REGRET to report that death came to patriarch Chris J. Yahnis, a prominent South Carolina beer distributor, who passed away last Wednesday at home from heart failure. He was 81 years old. His son Byron told BBD that “he had the most wonderful life you could ever imagine. He was of sound mind and was having fun until the end. He was so proud of where we had taken The Yahnis Co. over the last eight years. He was also proud of his family and mostly his grandchildren.”
Indeed, Mr. Yahnis was a true gentleman and a legendary beerman. I remember speaking with Mr. Yahnis a few years ago a few times on the phone regarding a variety of issues, particularly regarding state politics and three-tier. He would have liked today’s issue regarding Costco calling it quits. He was known to say, “Schlitz got me started, Coors kept me going and Heineken took me to the pinnacle.” He will be sorely missed.”The murals in restaurants are on par with the food in museums.”
-Peter De Vries
——— Sell Day Calendar ———-
Today’s Sell Day: 8
Sell days this month: 21
Sell days this month last year: 21
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YTD sell days Over/Under: +0
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