Movers and cocktail shakers: A recipe for political influence
Last May, Rep. Tim Ryan of Ohio held a festive fundraiser with a Cinco de Mayo tequila tasting and a $1,000 minimum entry. The second annual event was thrown by the Wine and Spirits Wholesalers of America (WSWA).
During the two years the alcohol-wholesaler lobby has hosted the tasting, the wholesalers have lobbied for the CARE Act in Congress (short for Community Alcohol Regulatory Effectiveness Act), and Rep. Ryan has supported the bill both years.
“You don’t need to look any further than that as to why they are sponsoring the bill. That it is under the guise of controlling alcohol is a farce,” said small-batch winemaker Clay Mauritson. “The contributions to the 160 that signed on to the bill — the cumulative amount is in the millions.”
The bill Mauritson is talking about could hurt both small wineries like his and the consumers trying to buy his wine, while benefiting the alcohol wholesalers the WSWA represents. The CARE Act would strengthen states’ ability to regulate alcohol and block out-of-state alcohol.
In fact, the CARE Act is not supported by anyone else in the powerful alcohol industry but has the support of dozens of House Democrats and Republicans. While the bill is still wending its way through Congress, the CARE Act has garnered bipartisan support, with 41 Democratic and 47 Republican sponsors on board so far this year.
“The distributors have that ideal combination of a grass-roots base and lots of money,” said David Jernigan, a professor at Johns Hopkins Bloomberg School of Public Health who has studied the tactics of the alcohol industry for 25 years.
Mixing the Right Cocktail
In a time when the two political parties can’t seem to agree on anything, what’s the CARE Act’s magic recipe for winning support on both sides of the aisle?
One answer is that alcohol wholesalers bring to the table, and effectively blend, several key ingredients that translate into a powerful cocktail of political influence.
- Campaign Donations
- Strong Relationships
- Congressional Sponsors
Step 1: Make some money
Alcohol wholesalers hold the powerful position as middlemen between the people who make alcohol and those who sell it. Most alcohol is required by law to go through a wholesaler because of regulations created after Prohibition.
And they’re doing well even during economic down times.
“You ought to take a look at the total amount of money that these guys are making and, in this Great Recession, what’s happening,” said Paul Kronenberg, president of Family Winemakers of California, a winery association. “It’s apparent when you read the industry news that they haven’t lost any money, even though people have changed drinking habits and prices have gone down.”
The biggest wholesaler in the U.S. is Southern Wine & Spirits, which is based in Florida. It is also the 30th largest privately held company in the U.S. overall, with revenues of $8.6 billion in 2010, according to Forbes. This represents significant recent growth, as the company pulled in $3.5 billion just a decade ago.
Wholesalers also benefit from the fact that alcohol consumption does not decline as much as other recreational sectors of the economy during a recession.
“It’s a staple sector and purchases are less sensitive to downturn,” said Esther Kwon, an investment analyst at Standard & Poor’s.
The revenues for the makers of alcohol actually dwarf those of wholesalers. The sales for the top three alcohol producers in the world were a combined $65.6 billion globally in 2010.
Step 2: Make campaign donations
Despite this disparity, there is one category where the wholesalers win every time. Since 1990, the alcohol industry as a whole has run up a $110 million tab on federal political campaigns, according to the Center for Responsive Politics, a nonprofit that tracks money in politics.
Wholesalers are easily the number-one donators within the alcohol industry. In the 2009-2010 election cycle, wholesalers made more than $4 million in campaign contributions to House candidates, according to Maplight.org, another government accountability nonprofit.
Comparatively, the richer alcohol producers, like breweries and distillers, dropped less than half that amount on campaigns, with just $1.7 million in donations, also according to Maplight.
The tequila-tasting benefactor, Rep. Tim Ryan of Ohio, received $13,500 from wholesalers in 2009-2010. The biggest House recipient of wholesaler money, and another CARE Act sponsor, was Rep. John Conyers (D-Mich.), who received $70,000 during that same period.
The largest single donor within the entire alcohol industry in 2010 was the National Beer Wholesalers Association (NBWA), which lobbies for beer distributors. Its $3.5 million in federal donations last year was bigger than the donations for the next seven alcohol industry donors combined.
“That’s all a part of influence and lobbying in Washington,” said George Radanovich, a former California congressman who opposed the bill last year and who is also a winery owner.
Even critics of the bill say the campaign contributions are not necessarily a negative. But they say the contributions become an issue when the biggest donors seem to benefit disproportionately from narrowly focused, special-interest laws.
“The problem with this is you end up getting laws introduced and passed that favor one particular sector of the industry to the detriment of the rest of the industry, and more importantly, the detriment of the consumer,” said Tom Wark of the Specialty Wine Retailers Association, a vocal critic of the CARE Act bill.
View graph showing the federal contributions to House from both supporters and opponents of the bill.
Wholesalers respond by stating that even opponents of the CARE Act have taken campaign money from wholesale organizations, so those people making the campaign-contribution argument are off target.
“What do they do if they have a problem with policy? They attack the process,” said Mike Johnson, executive vice president and chief advocacy officer of the NBWA. “We are proud of our ability to participate in the political process. Last year in Congress, we contributed to 365 members, and only 152 members co-sponsored the bill. The NBWA contributed to folks who do not support the CARE Act, including vocal opponents. Those numbers haven’t changed.”
"Members who oppose the CARE Act may support us on another issue. There is no quid pro quo," added Craig Wolf, president and CEO of Wine and Spirits Wholesalers of America.
An example of the wholesalers’ success was on display in Texas earlier this year. They enjoyed a legal victory when the U.S. Supreme Court declined to hear a case involving Texas alcohol laws passed in 2007 that restrict out-of-state retailers from shipping directly to consumers.
Not coincidentally, from 2000 to 2006, alcohol wholesalers outspent banks and insurance companies with more than $7 million in Texas campaign contributions, according to the National Institute on State Politics, which tracks campaign money on the state level.
Step 3: Be Everywhere
The next ingredient wholesalers employ is their omnipresence. Across the U.S., there are 3,300 beer distributors and 3,500 wine and distilled-spirit distributors.
“Many distributors tend to be based in urban areas, while wineries are in less-populated rural areas, where there are fewer congressmen,” explained Kronenberg, the winery association president.
“The big wholesalers, are ubiquitous across a lot of states, and they’re in just about every county for the simple reason that you got to move beer, you got to move distilled spirits to grocery stores, to bars and restaurants,” said Kronenberg. “They know people and they’re more grounded.”
This pervasiveness translates into significant potential for wholesalers to influence policy, if they are well organized nationally. For instance, there are three alcohol wholesalers inside Rep. Ryan’s 17th Congressional District in Ohio outside Cleveland.
“Well, even though [wholesalers] are consolidating, there are many — thousands — of them,” said Jennifer Litz, editor of Craft Business Daily, a beer-industry publication. “And national organizations like NBWA do a pretty good job of, well, organizing them.”
Step 4: Be Organized
The advantage to being everywhere is that wholesalers are able to lobby congressmen as local constituents, explained alcohol policy researcher David Jernigan.
This allows wholesalers to rally more widely to oppose or support legislation. On the other hand, opponents of the CARE Act — alcohol retailers such as liquor stores or wine-club websites — don’t have the same powers of persuasion.
“There are way too many and they’re way too small and decentralized,” said Jernigan. “They can’t make that combination.”
Because wholesalers can field an army of local lobbyists, it gives them a leg up when they ask for help from their congressman.
“It certainly gives them a lot of entry to legislation and allows them to do a lot of advertising for their proposals,” said Vincent DeMarco, the president of the Maryland Citizens' Health Initiative, which fought for an alcohol tax increase in that state. “Just the power of having so many people who sell alcohol just write their legislators.”
Step 5: Establish Strong Relationships
Their widespread presence on the ground also allows wholesalers to build up relationships with congressmen over time.
“These are really large companies and, in any congressional district, there's going to be a local distributor,” said David Jernigan. “For congressmen, local business is their bread and butter. These small businesses, even those are pulling in $100 million a year.”
Cary Greene is COO and general counsel for WineAmerica, a national winery association. Greene pointed out that the wholesalers have been in business for a more extended period, so they have more practice at politics than most of the wineries he represents.
“They’ve been at this a long time. The wine industry is much younger than the wholesale tier,” said Greene. “So we have a lot of people out there who are new to this, who don’t see how all this comes together.”
Many wholesalers, on the other hand, are old, family-owned businesses that have grown substantially over time. The largest one, Southern Wine & Spirits, started in 1968. Another, the Republic National Distributing Company, started out in 1898, while Young’s Market, also one of the largest wholesalers, started in 1888.
This history has enabled them to build those strong relationships on Capitol Hill.
“The industry is well represented on the Hill,” said Radanovich, the former congressman and winery owner. “They have good relationships with people there. And they have some pull, much in the way they attempted in Congress to pass the CARE Act last year.”
Step 6: Consolidate
Another key to the wholesalers' continued political success is that consolidation in the wholesale alcohol business has resulted in a few very powerful players at the top. This magnifies their organizing abilities and provides them a bigger voice in Washington.
“The big wholesalers are enormous, and 10 of them control something like 60 percent of the wine market,” said Katie Grassini, CEO of the Grassini Family Winery. “I don’t have the voice that they do and, as a result, I get blocked from a lot of states.”
The second largest wholesaler, Republic National Distributing Company, was formed in 2007 when two companies that covered 17 states merged and became the 71st largest private company in the U.S.
Step 7: Get a Sponsor
Finally, a bill needs a sponsor. Because the CARE Act protects the states’ ability to regulate alcohol, a good place to find one is Utah.
The state’s alcohol laws are some of the strictest in the nation. Utahans can purchase hard alcohol and wine from state liquor stores only, and direct shipping of alcohol to consumers is banned.
The wholesalers found a primary sponsor this year in Utah Rep. Jason Chaffetz.
“You can probably guess why a rep from Utah would want to control liquor legislation in his state, rather than have national mandates,” said Jennifer Litz of Craft Business Daily.
Chaffetz said as much in a March press release announcing his sponsorship of the CARE Act.
“I want to preserve states’ rights to decide the appropriate regulation of alcohol within their borders,” said Chaffetz. “Most importantly, the bill preserves the status quo on Utah’s unique regulatory regime, and reaffirms the presumed validity of Utah’s laws.”
Step 8: Mix Well, Serve and Enjoy
So, if anyone is looking for friends on Capitol Hill, one winning recipe is to be everywhere, use your money wisely, get organized and maybe throw a tequila-fueled fundraiser or two. Whether or not the wholesalers’ methods are just business as usual in Washington depends on whom you ask.
“It’s a flawed system, and you have a bunch of crooked politicians on the take,” said winemaker Clay Mauritson. “There’s a huge amount of dollars that these distributors are putting into their coffers and the politicians are basically being bought.”