Press Release:

(Springfield, IL) – This week, Governor Pat Quinn signed HB 2606 (PA 98-0021), which prohibits manufacturers of beer from holding any interest in beer distributorships, ending over three years of court and legislative actions. Anheuser-Busch InBev’s (ABI) ownership, through its affiliate WEDCO, is now required to divest its 30 percent interest in City Beverage a holding company with distributorships in Arlington Heights, Bloomington, Chicago, and Markham, by January 1, 2015.

The new law clarifies that the three-tier regulatory system is intended to prevent vertical integration (ownership in another tier). HB 2606 requires independent ownership of distributorships from manufacturers. Its passage also reasserts the intent of SB 754 (PA 97-0005) which became law on June 1, 2011. Additionally, it reaffirms the Liquor Control Act’s (LCA) public policy which is to protect “. . . the health, safety and welfare of the People of the State . . .” through the “. . . sound and careful control and regulation of the manufacture, sale and distribution of alcoholic liquors.” Illinois now joins 39 other states that have a pure three-tier regulatory system which was adopted as a means to prevent industry practices that existed prior to Prohibition from reoccurring following the adoption of the 21st Amendment to the U.S. Constitution which ended Prohibition.

HB 2606 also allows the Liquor Control Commission (Commission) to assure that a brewer is not violating a distributor’s ability to be “free to manage its business enterprise,” as contained in the Illinois Beer Industry Fair Dealing Act (BIFDA) which defines the contractual relationship between a brewer and a distributor.

“This has been a long, arduous process, but preserving a regulatory system that prevents illegal business practices, promotes competition, collects all liquor taxes due, and prevents counterfeit and illicit alcohol in the marketplace has certainly been worth it,” said Bill Olson, president of the Associated Beer Distributors of Illinois (ABDI).

“ABDI recognizes Representative Mautino, Representative Leitch, and Senator Munoz, who introduced the legislation, and Senate President Cullerton, who held several negotiation meetings, for working with the stakeholders to address all concerns.”

“If brewers had been allowed to hold any interest in distributorships, the ability for new products to enter the market would have been limited,” Olson continued. “Independent distributors provide a means for all brewers to get their products to market. Brewer-owned distributorships would have no incentive to carry brands other than their own.

Without independent distributorships, new products like craft beers, regional brands that want to enter Illinois, and new imports would be limited in getting their products to market.”

Following the passage of HB 2606, House Sponsor Representative Frank Mautino (R-Spring Valley), said, “This legislation makes it absolutely clear that manufacturers of beer and any affiliate or subsidiary are prohibited from owning any interest in or controlling a distributorship.”

Representative David Leitch (R-Peoria), chief co-sponsor of HB 2606, stated, “It’s extremely important to preserve the three-tier system in Illinois. This post-Prohibition law protects consumers from the threat of large brewers controlling distribution, thereby creating vertical integration – a means by which they can create a monopoly in the marketplace.”

Meetings initiated by Senate President John Cullerton (D-Chicago), which brought interested parties together including the ABDI, ABI, the Wine and Spirits Distributors of Illinois (WSDI), the Illinois Licensed Beverage Association (ILBA), MillerCoors (MC), and the Beverage Retailers Alliance of Illinois (BRAI) were held which resulted in the final legislation. Knowing that there was strong opposition to ABI owning any interest in distributorships
(SB 754, passed in 2011, had only one no vote), ABI agreed that they would divest themselves of their interest, through WEDCO, a subsidiary, in City Beverage that holds four distributor licenses, but ABI requested some time to find a purchaser and complete the buyout. The divesture must be completed by January 1, 2015. The agreed amendment accomplished the objectives of all parties.

Bill Olson continued, “The legislation resolves the issue of prohibiting a brewery from having any interest in a distributor which can be tracked back to early 2010 when the Commission ruled that ABI couldn’t buy all of City Beverage but could retain the 30 percent interest that it held. Even after a Federal court decision prohibiting any brewer from distributing beer and the General Assembly passing SB 754, the Commission issued its October 31, 2012 Order allowing ABI to continue to hold its 30 percent interest.”

Distributors are intended to be an independent licensee separating manufacturers (brewers) from retailers. Brewer ownership of a distributorship is vertical integration of the three-tier system, thereby creating a two-tier system which negates the purpose of the three-tier system.

The Associated Beer Distributors of Illinois, a not for profit business trade association, represents, maintains, and improves the interests of its Members who distribute beer of all brewers. Distributors are licensed by the State of Illinois to import and distribute beer to licensed retailers. ABDI Members directly employ more than 3,300 people across the state. They collect and pay $63 million each year in excise taxes to the state and pay more than $280 million in direct wages and health care benefits.