Kentucky beer distribution battle draws debate

FRANKFORT, Ky. – The beer battle in the Kentucky legislature over whether larger brewers like Anheuser-Busch should get to distribute their product, as well as make it, is already prompting meetings and debate — and legislators aren't even due back until Feb. 3 for the remainder of their 2015 session.

Supporters of a bill to take away Anheuser-Busch's ability to own distributorships in Louisville and Owensboro met with Gov. Steve Beshear on Thursday, the same day that Anheuser-Busch officials met with the sponsor of House Bill 168, Speaker Greg Stumbo, D-Prestonsburg. Meanwhile, a local union and Greater Louisville Inc. are opposing the bill, while a new Northern Kentucky distributor believes he would be an unintended victim of the change.

Stumbo, in an emailed response to a question, said he was not part of the meeting with Beshear but did meet with Anheuser-Busch officials "to see if we can come up with a resolution."

Stumbo said he "agreed to sponsor the bill to protect a number of Kentucky distributors, much like we have done with other franchisees in the past like auto dealers. I will try to come up with a resolution during the interim this month before the General Assembly returns to the Capitol."

Stumbo's bill would close what some say is a loophole in Kentucky law that allows larger brewers to act as distributors, something that state Alcoholic Beverage Control department officials say no other alcohol producer can do.

The bill seeks to reinforce the post-Prohibition three-tier system for the alcohol industry that tries to keep producers, distributors and retailers separate as a check against any one player in the system having too much power. Abuses helped lead to Prohibition.

Stumbo's bill — supported by state alcohol regulators — follows a court battle won by Anheuser-Busch late last year that allowed the company to buy an Owensboro distributorship, like the one it has owned in Louisville since 1978. The court decision said that the concerns about the potential for monopolistic practices by Anheuser-Busch may be worthy of debate, but nothing in Kentucky law prevented malt beverage makers from being distributors.

Representatives of the Kentuckians for Entrepreneurs & Growth industry group, which includes craft brewers, distributors and retailers in opposition to Anheuser-Busch's efforts and in support of Stumbo's bill, met with Beshear.

They argue that allowing brewers to act as distributors and solely distribute their products risks the jobs that independent distributors provide the state. They also say letting Anheuser-Busch have distributorships makes it tougher for craft brewers by reducing competition among distributors — since Anheuser-Busch distributes its products — and keeps some brands from having their beers sold in Kentucky.

"House Bill 168 addresses the need to preserve the local jobs at risk with mega monopolistic brewers acquiring distributorships in Kentucky," Greg Thomas, director of sales and marketing for Chas. Seligman Distributing Co. in Northern Kentucky said in a statement.

Anheuser-Busch, the American arm of Belgium-based Anheuser-Busch InBev, responds that employment at the Louisville distributorship grew from 20 to about 175 under its ownership and that craft brews are abundant in the area.

The beer battle played a role in Kentucky's 2014 legislative lobbying costs coming in at a record of about $18.4 million. Anheuser-Busch spent $113,333 during the final four months of the year on Kentucky lobbyists -- landing it in the top 10 spenders among groups. The KEG group spent $16,058 during the 4-month period.

The lines drawn in the legislative battle are similar to the ones in last year's lawsuit. Greater Louisville Inc., which is the Louisville Chamber of Commerce, supported Anheuser-Busch in the court fight and is communicating with Jefferson County legislators in opposition to the Stumbo bill.

Normally a Stumbo ally, the Teamsters Local 783 that represents about 100 of Anheuser-Busch's Louisville distribution employees, is opposing the bill, calling it anti-union.

"We believe our workers at (Anheuser-Busch) are paid better and receive better benefits than similar workers at the non-union distribution shops elsewhere in Kentucky," local President John Stovall said in a statement. "If (Anheuser-Busch) is run out of the state and other distributors are allowed to buy their property, then there is no guarantee these jobs will remain as they are, particularly the ones that our part of our Teamsters union."

Somewhere in between is Cincinnati brewer Bob Bonder, who is an owner of Rhinegeist Brewery, which he says can distribute its own beer under Ohio law. Bonder also started Riverghost Distributing company in Erlanger, Ky., with the purpose of giving craft brews — including his own — greater access to Kentucky markets, but he says the Stumbo bill likely would put his distributorship out of business. He'd like to see something that blocks Anheuser-Busch but not businesses like his.

"Rhinegeist is one of the fastest growing breweries in the nation and one of the fastest growing small business in Cincinnati," Bonder said. "We hope that Riverghost Distributing will see a similar growth path in Kentucky, but that will only be possible if this legislation is modified or does not pass at all."

Ideally, he said he'd like to see an exemption for smaller brewers, possibly below 10 million barrels a year to "prevent monopolistic behavior from the juggernauts of the industry while encouraging entrepreneurship, job creation and craft beer growth."

If Stumbo's bill passes as is, Bonder said his company's almost $250,000 investment in the distributing business would be lost — along with about $30 million in revenue over the next five years and about 50 jobs that were expected.

Without a company like Riverghost, Bonder craft breweries looking to enter the Kentucky market are forced to choose between distributors that mostly sell either Anheuser-Busch or Miller Coors products or distributors sell a multitude of brands.

"If Riverghost Distributing closes, many of these brands (it is catering to) would send that volume to another state rather than going with a larger distributor in Kentucky," Bonder said.

Reporter Gregory A. Hall can be reached at (502) 582-4087. Follow him on Twitter at @gregoryahall.