Transcript The Important Role of Tied House Laws in Today`s Market

The Important Role of Tied House
Laws in Today’s Market
Pamela S. Erickson, President/CEO, Public Action
Management and Former Director of Oregon
Liquor Control Commission
Free markets bring large quantities of
cheap alcohol with heavy promotion
But…aren’t lower prices a good thing?
• Since the recession, people
expect and value low prices.
• But, alcohol is different:
– Lower prices increase
consumption.
– Lower prices often require
high volume purchase.
– Continued low prices will
eventually lead to serious
social problems.
Alexander C. Wagenaar, PhD,
University of Florida College of
Medicine.
“Our meta-analysis cumulated information
from all the published scientific
research on this topic over the past half
century, and results clearly show
increasing the price of alcohol
will result in significant
reductions in many of the
undesirable outcomes associated
with drinking."

Look what happened in the retail sector
before Prohibition: prohibition:
The Alcohol Scene:
 Alcohol sold primarily in “Tied
House” saloons.
 Most common drink was beer,
sold in glasses, kegs and
buckets.
 Aggressive sales promoted high
volume drinking.
 Social problems: public
disorder, intoxication and
addiction, family wages
squandered, prostitution,
gambling.
Saloon System: Large, out of state,
manufacturers own many retail
outlets
How do free markets lead to problems?
• Domination: Markets evolve toward a few, large players, e.g.
Intel, Home Depot.
• Fierce price competition: price wars, loss leaders, discounts for
volume consumption. Small, local operators are undercut and out
of business.
• Community norms are ineffective: National or foreign
corporations are hard to constrain.
• Weakened regulation: Large corporations with major legal and
lobbying budgets advocate for deregulation and regulatory agency
cuts.
Today’s market problem: Supermarkets
high volume, low prices
Net profit for food retailers is less than
two pennies on each dollar of food
sales.
 How can supermarkets
survive?
 “To earn a dollar,
supermarkets would
rather sell a $1 item 100
times, making a penny on
each sale, than 10 times
with a dime markup.”
Source: Food Marketing Institute
(Advocacy group for supermarkets)
What grocery chains need for their “mass
merchandising” business model model
 Large chain with many “big box”
stores.
 Warehouse and distribution
system.
 Ability to buy directly from
manufacturer.
 Ability to buy at discount, sell
high volume, freely advertise,
and offer promotional
incentives.





Availability. Allows alcohol to be sold by the bottle and the
drink, but limits the number, location, types of alcohol
products, and hours of outlets.
No “Bargain Booze”. Regulations balance prices, control price
competition, and restrict dangerous marketing and promotional
practices.
Children and Teens. Age restrictions protect young people from
the serious problems of underage drinking.
Drunk driving. Creates and enforces strict measures against
drinking and driving—sobriety checks, blood alcohol
limits, driver’s license suspension.
Education and Enforcement. Uses the carrot of education
(alcohol awareness programs, “schools” for offenders) and the
stick of enforcement (fines, community service and jail) when
education fails.
 Source: Adapted from World Health Organization recommendations.
State regulatory systems meet the ABC’s,
but they are endangered
We’ve forgotten why we have
alcohol regulation
“Free market” advocates cry for
deregulation
In 1933, state alcohol marketplaces designed to prevent
problems experienced before Prohibition
Objectives:
Methods:
Separate manufacturer from retailer to
prevent market domination by vertical
integration. Wholesaler is a “buffer.”
 Eliminate sales tactics that promote
intoxication, violence and other
problems.
 Promote “lighter beverages”, i.e. lower
alcohol content (usually 3.2% beer); sell
beer in single-serving containers v. kegs
or buckets.
 Allow for modification of regulations to
meet changing conditions.

• Reduce economic and political
influence of large alcohol
companies.
• Reduce public disorder, violence
and other social problems.
• Promote moderation for those that
drink.
• Gain public acceptance; eliminate
lawlessness.
Three Tiered
System

supplier


wholesaler





retailer
Financial Independence prevents business practices which promote
increased and high volume consumption through price reductions.
(Ownership prohibited between sectors)
Functional Independence protects the integrity of the three-tiered
system by prohibiting ways to circumvent it. (One sector can’t perform
function of another)
Price Regulations prevent increased consumption that would occur by
selling large quantities of very cheap product. (Uniform pricing, ban on
volume discounts)
Promotion and Advertising Regulations prevent business practices
that target high drinking groups and promote volume consumption.
Tax Collection provides for an efficient tax collection system.
Product Tracking prevents sale of tainted and counterfeit product.
Age Restrictions prevent sales to underage youth.
Availability Limits reduce consumption, social problems and burden on
law enforcement.
Retail system fosters moderation
What to do about current threats?
Threats
Lawsuits--Retailers and manufacturers
challenge marketplace regulations. Since
2005, over half the states have been sued in
federal court.
• Legislation--Retailers challenge
regulations: sell all categories of alcohol;
more locations; extension of hours and days
of sale; eliminate tiered system; eliminate
advertising and promotion curbs.
• Ballot measures--Large corporations
finance ballot measure signature gathering
and campaigns.
• Budget reductions--prevent regular
enforcement.
•
Actions
1. Support Congressional efforts to
reaffirms state’s primary authority
to regulate alcohol such as the
CARE Act.
2. Educate policy makers about the
effectiveness of regulation.
Understand the difference
between education and lobbying.
3. Reach out to public health,
prevention advocates and others
to work together on these issues.
For more information contact: Pamela Erickson,
www.pamaction.com
 www.healthyalcoholmarket.com for Healthy Alcohol
Marketplace newsletter and resource material