Illinois liquor law stifles competition among distributors
Running a competitive business can be difficult – unless you have friends in government to help squash competition for you. In late May, Gov. Pat Quinn signed House Bill 2606 into law, which amended Illinois’ Liquor Control Act to prohibit out-of state brewers, distilleries and other alcohol manufacturers from owning any part of an alcohol distributor in...
Running a competitive business can be difficult – unless you have friends in government to help squash competition for you.
In late May, Gov. Pat Quinn signed House Bill 2606 into law, which amended Illinois’ Liquor Control Act to prohibit out-of state brewers, distilleries and other alcohol manufacturers from owning any part of an alcohol distributor in the state of Illinois. The new law is only the most recent example of a long-going and troubling trend where laws reinforce the anti-competitive privileges a handful of businesses enjoy at the expense of competitors and consumers.
Under the Illinois liquor licensing system, established with the passage of the Liquor Control Act in 1934, the Illinois liquor industry was set up into three distinct tiers. There are the producers – or manufactures – of alcohol, including wineries, distillers and brewers; there are also retail outlets, such as liquor stores and bars, which sell alcoholic beverages to consume; and finally there are distributors, through which the act mandated producers must sell their beverages, making distributors the exclusive middle-men between producers and retailers.
All alcohol producers (except for a few craft brewers) must work through licensed distributors to get their products placed in stores.
HB 2606 was motivated by opposition to an Oct. 21 Illinois Liquor Control Commission decision that allowed WEDCO, a subsidiary of Anheuser Busch, to retain a minority stake it had bought in distributor City Bev. Lobbies like the Association of Beer Distributors of Illinois, or ABDI, protested almost immediately, arguing that the arrangement would threaten the “day-to-day operations of the four beer distributorships” and “Illinois’ ability to regulate alcohol beverages.” It’s no surprise that the sponsors of HB 2606, including main sponsor state Rep. Frank Mautino, D- Spring Valley, have received thousands in campaign contributions from ABDI. They were successful insofar as the legislation effectively bullieda private business into giving up its holdings in City Bev.
The Illinois licensing system was supposedly justified as a system of common sense measures to ensure the safe production and distribution of alcohol, but if this is the policy goal, the distribution mandate is superfluous. There’s no logical connection between the distributor system and ensuring safe and responsible alcohol sales. The law already provides for the prevention and punishment of alcohol sales to minors, subjecting businesses or individuals who furnish alcoholic beverages to minors to criminal and civil liability.
What the distribution requirement does do is reinforce the legal privileges and power of distributors, who get a share of nearly all alcohol sales in the state. Even the Federal Trade Commission hascriticized the anticompetitive nature of the three-tier system as increasing the cost and reducing the variety of wine that would otherwise be available in a free market in alcohol sales. But the system also inhibits market growth by provoking some brewers to leave the state altogether, rather than deal with Illinois’ burdensome distribution scheme.
While these sorts of dealings are not unusual in Illinois, there’s no reason why they should be tolerated. Legislators shouldn’t be in the business of fixing the rules at the behest of their friends. And when outdated regulatory systems come to serve no other purpose than furthering cronyism, it’s a sign that they need to be repealed