HAS MICHIGAN LOST COMPLETE CONTROL OF ITS LIQUOR SYSTEM

 

The State of Michigan is 1 of 17 states that is considered a control state for liquor purposes. In control states the government has a monopoly over the wholesale or retail aspect of a complete category of liquor. For example, in North Carolina the only source in which to purchase spirits from is a State of North Carolina ABC store.

In Michigan the state maintains a monopoly over the wholesaling of distilled spirits. Under Michigan’s government-controlled liquor distribution system, it only authorizes three distribution agents to distribute spirits to Michigan retailers. The three distributors are Republic National, General Wine & Liquor Co, and Imperial Beverage Co.

So, what is problem?

Michigan’s system lately has shown some disturbing trends that are impacting the marketplace, hurting small retailers during one of the busiest times of the year, and leading to lost tax revenue.

The first major folly is the Republic National Distributing (Republic) issue. As indicated previously, Republic National Distributing is only one of three distributors appointed by Michigan to distribute spirits in the state.

Problematically, Republic has a hard doing that these days. Republic built a new state of the art 515,000 square foot regional distribution facility in Livonia, Michigan. Republic garnered $8.6 million in tax incentives over 12 years from Livonia in exchange for 67.5 million in investment and creating 525 jobs. [1]

But this new facility is wreaking havoc in the marketplace and has resulted in excessive delivery issues. The fact is because of Republic screwups, liquor is not getting to the marketplace.

Pam Hamilton, Director of the Michigan Liquor Control Commission’s (MLCC) Financial Management Division, stated that because of Republic’s screw ups the state has lost $58 in gross sales and $7 million in tax revenue. She further indicated that if Republic can’t fix their snafus by the end of the year, it could result in $100 million in lost sales. [2]

Republic controls 66 percent of the Michigan liquor market and had to go off line for three days to get caught up on delivery backlog.

The MLCC has received 762 written complaints about Republic’s service, clearly, retailers and their sales are being impacted greatly.

Republic’s company executives blame computer glitches and employees struggling to learn a new system for custom-packing cases of liquor orders for bars and restaurants. 

So, what is the solution?

Republic’s incompetence has clearly resulted in economic damage, lost tax revenue, and may even put a struggling retailer or two out of the business. So, what is the solution to the problem and how should Republic be dealt with?

The Michigan Attorney General filed an 88-count complaint against Republic with fines ranging from $26,000 to $300 per count. Also, and more significantly, the Attorney General is proposing a 50 cent a case reduction per case of liquor delivered. Although this would be a significant penalty, the fact remains Republic will still probably deliver and control over 2/3rds of the liquor in Michigan. Even after costing the State of Michigan millions of dollars, there is no evidence that Michigan will significantly reduce their business operations in the state.

In essence, the Michigan Attorney General’s sanction is a glorified slap on the wrist that won’t result in significant changes.

But it begs the question, with such a significant screw up and a mammoth loss of revenue, why can’t Republic lose significant accounts like Jameson as a sanction for this snafu?

The answer is simple, because of government control! Jameson’s if they are unhappy with their distribution network in Michigan, they don’t have many if any options. Everything must go through the state and the state provides limited options. In a non-control state if Jameson is unhappy with the distributor, they could register their brand with another distributor. That option is not so easy when the government controls the marketplace and it is a closed instead of an open market.

Further, I am sure based on having a government created monopoly in Michigan, Republic made a huge investment in the state, and in turn the local government forked over a large sum in tax incentives. Cancelling Republic’s major contracts in Michigan would wreak havoc on this major investment in Michigan.

Problematically, the market is suffering because of Michigan losing control over its system. Jameson as a brand suffers because it sees reduced sales because of Republic’s errors and of course unlike in a free market, they can’t walk away from an incompetent party that damages their business. The consumer suffers because unlike in a free market where supply and demand dictate the availability of brands, the availability of this brand in Michigan is dictated by Republic’s incompetence.

Michigan is losing control of the market

In the last two months there are two instances where Michigan’s liquor market was impacted or faced a serious challenge to maintain its marketplace.

Just last month the Michigan marketplace faced a serious threat of political squabbles dictating what the marketplace could look like. http://irishliquorlawyer.com/control-states-how-political-infighting-could-devastate-the-liquor-industry/

Now just a month later, an entity in its government created monopoly has wreaked havoc

on the marketplace.

Maybe it’s time for Michigan to consider whether the control state is adequately serving its customers or whether change is necessitated.

[1] https://www.hometownlife.com/story/news/local/livonia/2018/04/27/alcohol-distributor-invests-67-5-m-brings-525-jobs-livonia/550935002/

[2] https://www.crainsdetroit.com/food-drink/commission-grills-states-largest-liquor-wholesaler-over-distribution-woes

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