Features

November/ December 2012 Last Call

Industry giants are threatening to swallow up America's carefully regulated alcohol industry, and remake America in the image of booze-soaked Britain.

By Tim Heffernan

No longer required to set across-the-board prices for their goods, breweries learned that they could manipulate the much smaller wholesalers to extract more favorable terms, brand support, and profit by offering lower prices to those that did their bidding. The threat of higher prices could be used to force a wholesaler to drop competing brands. Conversely, lower prices might be offered to a wholesaler who promised to push a given brand more forcefully. This ability to use pricing to “discriminate” among wholesalers gave producers another valuable return: detailed knowledge of their wholesalers’ acceptable margins. That could be used to extract profit right up to the maximum feasible limit.

Something of a countertrend to consolidation seemed to appear in the 1980s, which saw a boom in small independent craft brewers. Examples include the founding (among others) of such well-known brands as Sierra Nevada (1980), Sam Adams (1984), and Harpoon (1986). Smaller brands and brewpubs added to the mix. But few of these brewers succeeded in gaining significant market share, or even in maintaining their independence. Since big brewers had been freed up to use price discrimination to reward and punish wholesalers, they could passively pressure wholesalers into keeping competitors—particularly small, independent brewers—off the market. Meanwhile, after the election of Ronald Reagan, the Justice Department cut back sharply on enforcement of U.S. antitrust law, setting in motion an unparalleled period of consolidation across virtually all American industries, including the beer industry.

In 1980, forty-eight breweries served the fifty states, and the largest of them had only a quarter of the market. Today, again, the market is overwhelmingly dominated by two: Anheuser-Busch InBev and MillerCoors.

Here’s how it went down:

Stroh Brewery Company, founded in 1850, entered the 1980s as the eighth-largest brewery in the nation. But after a sleepy first 130 years, during which it marketed a single brand, director Peter Stroh had come to recognize that “it’s either grow or go.” Released from antitrust constraints by the new Reagan regime, grow they would. In 1981, Stroh bought Schaefer, a big New York regional, and moved to seventh. Two years later, Stroh took over Schlitz, leaping and to fourth place. By the mid-’90s, the company had also swallowed up Augsburger and G. Heileman, then the fifth-largest brewer in America.
Coors, famously secretive in its business dealings, began the Reagan era as the fourth-largest brewer in America, with a reputation for high quality and an almost chic image in the vast East Coast market as a great beer you could only buy west of the Mississippi. Then, in 1981, Coors crossed the river, crashed through the East Coast, and hurdled across the Atlantic. In 1994, Coors purchased El Aguila in Spain and founded Jinro-Coors in South Korea. And in 1997, Molson, Foster’s, and Coors partnered to bring the Silver Bullet to Canada for the first time. Coors was now number three.

Miller entered the 1980s riding the tremendous success of its innovative Miller Lite brand. Already the second-largest brewer in America, the company set its sights on expanding, purchasing Jacob Leinenkugel in 1988, and in 1992 bought distribution rights to 20 percent of Canada’s Molson. Distribution rights to Foster’s and several other top imports followed later in the decade. With a market share of 21 percent, Miller had solidified its position as number two.

Anheuser-Busch, like Coors, was run by a family famous for its intensely private control of its business. The company entered the Reagan era as the number one brewer in America, and spent the next decade consolidating that position by leveraging its size, mostly via internal brand diversification, and by aggressively expanding its presence abroad. As the 1990s drew to a close, Anheuser-Busch remained by far the top brewer in the United States, with nearly 50 percent of the market, and one of the biggest brewers in the world. It is a testament to the size of the global beer market that even those eye-popping mergers left vast opportunities for other companies to play the same game. Three are of interest here:

In 1987, two of Belgium’s leading brewers, Artois and Piedboeuf, joined together as Interbrew. For fifteen years they quietly ate up dozens of other brands, and by 2001 they were the second-largest brewer on the planet.

In 1999, Brazil’s two largest brewers, Antarctica and Brahma, joined forces as AmBev, instantly dominating that country’s market and moving quickly to buy up smaller brands throughout South America.

And during the 1990s, South African Breweries, virtual monopolists at home with 98 percent of market, moved decisively into eastern Europe, Russia, India, and China, establishing a formidable position on three continents.

So the 1990s drew to a close with four major players in America and three abroad—seven giant brewing conglomerates for six billion people. The contest to own the world’s beer market had entered its endgame.

In 1999, Stroh was split up and sold off.

Six left.

In 2002, South African Breweries bought Miller, creating SABMiller.

Five left.

In 2004, Interbrew and AmBev merged, forming InBev.

Four.

In 2005, Coors and Molson merged to form Molson Coors.

Three.

In 2007, Molson Coors and SABMiller created the joint venture MillerCoors to produce and distribute their products in the United States as a single entity.

Two and a half.

And in 2008, in a blockbuster $52 billion deal, InBev bought Anheuser-Busch to form Anheuser-Busch InBev. At the stroke of a pen, half the U.S. beer industry came under the control of an even more powerful firm—one with a huge inventory of international brands ready to ride Budweiser’s coattails into the American market. Then, in June 2012, Anheuser-Busch InBev announced plans to pay $20 billion to acquire the 50 percent of Grupo Modelo that it does not already own.

Two.

And soon one?

Industry analysis have recently floated the idea that Anheuser-Busch InBev might purchase MillerCoors. But even in the lax antitrust environment that currently prevails, it is almost impossible to imagine a single company being allowed to control—overtly—80 percent or more of the domestic beer market. This means both Anheuser-Busch InBev and MillerCoors have, for all intents, reached the limit of their horizontal expansion. As in the UK, the only direction to go now is vertical, with the first target being the wholesalers—the second tier of the three-tier system.

Prior to the 2008 takeover, Anheuser-Busch generally accepted the regulatory regime that had governed the U.S. alcohol industry since the repeal of Prohibition. It didn’t attack the independent wholesalers in control of its supply chain, and generally treated them well. “Tough but fair” is a phrase used by several wholesale-business sources to describe their dealings with the Busch family dynasty. Everyone was making money; there was no need to rock the boat.

Tim Heffernan writes about heavy industry and the natural world for the Atlantic and other magazines. He lives in New York.

Comments

  • jim carozza on November 15, 2012 8:36 AM:

    This article is true. Examine what 18-30 year olds are drinking. Straight shots,(Jagermeister, Jim beam, crown royal) or mixing vodka, vodka flavors {popcorn flavor now available} with energy drinks.
    Today's youth is encouraged to abuse alchol! Current Wholesalers are at the mercy of Foreign liquor conglomerates, (Diageo, Pernod -riccard, Wm. grant) the wholesalers face loss of items, brands if they do not carry out higher sales!
    Example, I was fired as a sale rep from Southern Wine and Spirits. I live and promoted our local Finger Lakes wineries. Southern wanted to promote Australian, New Zealand sauvignon blanc as the foreign wines were priorities of Pernod -ricard?
    Jim Carozza

  • Adam on November 15, 2012 9:22 AM:

    Most of the economic analysis here is wrong. Monopolies lead to higher prices and reduced output, not lower prices.

    And to the extent that here are policy reasons to favor higher prices as a means of reducing consumption, creating legally mandated and highly lucrative distributors to collect rents is the worst way to do it. Higher excise taxes would actually accomplish the goal without inserting a rent seeker.

  • James on November 15, 2012 9:37 AM:

    Adam points out a serious problem with the article. Two more: (1) If the problem in the UK is off-license retailers like Tesco's, then the vertical integration story has less bite (unless British grocery chains are owned by breweries, which I doubt), and (2) if cheap beer prices contribute to the UK's alcohol problem, then why doesn't the article present any evidence that beer is cheaper in the UK than it is in the US? I very much doubt that it is, but I could be persuaded with a little evidence.

    It would also be interesting to know the market structure in other beer-drinking countries that don't suffer Britain's problems (which, as far as I know, is every other beer-drinking country).

  • ajay on November 15, 2012 9:46 AM:

    The illustration isn't Gin Lane. It's the companion print, Beer Street, which Hogarth made to show the virtues of beer (compared to the evils of gin).

    And that's not the only mistake here: the author touts the fact that Brits consume "nearly ten liters" (actually it's 13.4 according to the WHO) of alcohol per adult per year... without noting that this is slightly less, as it happens, than France. It's the US that consumes nearly ten liters a year.

    Alcohol is considerably cheaper in the US than in the UK, at least according to this site (http://www.mytravelcost.com/alcohol-prices/) and the US, of course, has a higher per-capita income. Certainly it's not my anecdotal experience that beer is any cheaper in the US. You can get a pint of beer in Manhattan for $4-5. Good luck finding a pint in central London for anywhere close to that.

  • Matt on November 15, 2012 10:06 AM:

    Monopolies lead to low prices? That's exactly the opposite of what history tells us. Monopolies "maximize profit" - which never translates to "sell cheap" - particularly when it comes to "vice" products (alcohol, drugs, gambling etc.), which tend to be price inelastic due to the irrational demand.

    The author is obviously desperate to find a big-business bogeyman to blame the problem on. His analysis is intellectually bankrupt.

  • Dave on November 15, 2012 10:14 AM:

    I have extensive experience in this industry and I found this article extremely interesting. Many of the conclusions by the author are correct in the academic sense, however incorrect in practice. The market for beer and spirits will continue to fragment and in 10 years will more resemble what the wine market was 25 years ago. Marketing is changing, people are thirsty for knowledge and they will end up buying higher quality brands based on taste, personal beliefs or support of a local business. The US market is extremely competitive and that lowers prices, large spirits and beer producers in fact cause higher prices.

  • James on November 15, 2012 10:25 AM:

    In fairness to Heffernan, there is a distinction between horizontal integration (which would generally lead to higher prices) and vertical integration (which may not). Unfortunately Heffernan didn't develop this point sufficiently, and in fact muddied the water with his discussion of horizontal consolidation - which is too bad, because it's not an absurd claim. But as I argued in an earlier comment, what is really missing is any evidence that beer is unusually cheap in the United Kingdom.

  • Milt on November 15, 2012 10:26 AM:

    I no longer drink and I think a great many of personal and social problems are caused by alcohol but I'm not sold by the points raised in the article. The author is using the "single cause" argument which rarely is accurate. There are multiple reasons for the increased consumption of alcohol in the UK, only one of which may be the price.

    I live in a poor area of the country where the price of alcohol is quite high, yet the number of drunk drivers increases each year. This seems to indicate cost is not a contributing factor in the problem. I agree alcoholics will be able to drink more for less but they seem to have no particular problem now. However, cheaper booze does not mean non-drinkers will begin drinking. This slippery slope argument is the same one used to outlaw marijuana. It has been proven false.

    The greater insidious problem illustrated by the article is the gradual monopolization of industry by multinational corporations. My concern is not for the cheaper price of a glass of suds but the growth of influence of WalMart types upon our lives.

  • Ashbee on November 15, 2012 10:34 AM:

    Why is everyone stuck on the monopolies thing? Low cost monopolies exist and as evidence I would ask you to look at Ryanair. The point is when a company is vertically integrated they aren't in competition with anyone but themselves.

    Plus consider the nature of booze. It's cheap as chips to make. If the whole point is to hook the average consumer and turn him into a hyper-consumer, what good would it do to run up prices and skew elasticity?

    Oh and Matt (you up there! lol), HEROIN and other opiate derivatives, are almost the only vice products with inelastic demand. Beer however, nobody is buying a 40 dollar 12-pack of PBR, regardless of the suppleness of its nectar.

    I digress. Booze is dirt cheap in England. Cheap cheap, as in a 32oz. bottle of cider will run you a pound (1.70) at Sainsbury, Tesco, or wherever. And get this- the problem has been compounded over the past 5 years or so as British preferences are shifting away from pubs, beer, and pub culture, to wine and home entertaining. Consequently, brewers were forced to drop prices in off-licenses AND pubs so the suds are scandalously cheap! All it does is encourage people to drink beer and lots of it.

    I'm ranting. Sorry.

  • Champ on November 15, 2012 11:09 AM:

    What's the point of all this? Many of his assertions lack reference to the mandated three tier system that is aggressively supported, by heavy lobbying and lots of $$, by the wholesaler's association, and not giving any credit to the power of the consumer. The supply companies, in the final analysis, have to deliver products that consumers demand. Period. Furthermore, what's Mr. Heffernan's beef? What posseses a writer about "heavy indusrty and the natural world" to tackle an industry he appears to know nothing about other than the consolidation that's taken place. Odd.

  • A on November 15, 2012 12:31 PM:

    Both article and comments are interesting. Heffernan accurately portrays a long and distant history, and rationale for the creation of the three-tier system.

    Politics aside and regardless of which administration's policies may or may not have led the brewing consolidation he describes, his recitation of it is accuratet. Implicit in Heffernan's discussion, but not expressly mentioned, however is the unanticipated benefit of this system that many simply don't realize or acknowledge.

    Vertical monopolies stifle competition and entrepreneurism by controlling markets and preventing new competition from getting off the ground; variety and innovation die. What policy makers couldn't have anticipated when they created the three-tier system was that an independent middle tier would lead to our craft brewing industry - an industry that will be destroyed as we know it if there is a successful resurrection of vertical monopolies in the beer industry.

    Independent wholesalers are the sales force, the marketing department, the inventory storage and the delivery team for craft brewers. The costs of all of these are spread across many brewers - including the mass brands (almost uniformly, wholesalers distribute a mass brand as well as many craft brands). These are facts. The loss of a mass brand by a wholesaler because a large brewer takes over distribution means all of these costs are now suddenly borne solely by craft brands - a tiny fraction in terms of volume. Regardless of who now distributes the remaining craft brands, the cost to do so skyrockets, along with prices. Inevitably market forces dictate that competition and variety will diminish.

    A quick look at other countries reveals that none have the craft beer industry we have. A quick look in your local supermarket reveals that no other consumer product in the store enjoys the sheer variety of brands as beer. A quick look at Tesco or Sainsbury's in the UK reveals many fewer brands of beer than at Kroger's or Winn-Dixie in the US. A quick look at other countries reveals none have the independent distribution tier we have.

    As Heffernan points out, the actions of some of the largest brewers demonstrate their intent to regain the vertical beer monopolies - for the sake of their own profits (profits that now go overseas). The business model of our largest retailers is to sell a small variety of any given product in the greatest possible volume at the lowest possible price. The beer they will sell will be the high volume, low cost "mass" beer, and if successfully established this partnership will severely impact or flat out destroy our craft industry.

    If you are a "beer snob" or "beer geek" or craft beer drinker, THIS is the threat if we lose the middle tier.

  • Z in MT on November 15, 2012 12:50 PM:

    The real danger is not a drop in price and an increase in drunkenness, it is as some have noted here the danger to the craft brew industry.
    Montana, a state with less than 1 million people, has about 15 craft breweries. This growth has been led by higher affluence, but it could be threatened if the behemoths decide they need that extra 9% Market share.

  • Adam on November 15, 2012 1:21 PM:

    A - You make a better argument than Heffernan, and foreclosure is exactly the issue to be concerned about from vertical integration.

    I'm not sure that it's true that our three tiered system has led to a stronger craft brewing industry though. For a rough but readily at had example, there are more than a 1,000 brewers in Europe: http://laughingsquid.com/breweries-of-europe-by-pop-chart-lab/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+laughingsquid+%28Laughing+Squid%29

    I'm also skeptical about Heffernan's assertion that having three tiers decreases, instead of increases, the political clout of the industry. Beer distributors tend to be quite well connected and politically influential at the state and local levels.

  • Jack Savidge on November 15, 2012 1:57 PM:

    While I found this article interesting, it is based on a classic logical fallacy, False Dilemma. Basically, the author is saying that in the UK there is more drinking problems and less stringent regulation and in the US there are fewer drinking problems and more stringent regulation. Therefore, less regulation causes greater drinking problems. The fallacy lies in the either/or thinking. There could be a host of other reasons for increased problems in the UK. It might not necessarily be a result of regulation. (it may but the author does not try to make this argument, merely noting the correlation). Could it be some sociological reason? Maybe in reduction in religious practice in the UK in comparison to the US? Maybe, maybe not. But correlation does not always mean cause.

  • Chris on November 15, 2012 2:17 PM:

    I'd like to thank Adam, Jim and AJay for their insightful comments. Really, really good stuff.

    As an aside, rent the movie "Beer Wars" to learn about the plight(s) of the local brewer (v. the big boys). Really difficult to penetrate the market when you have to rely on the competition to distribute those goods. CA & CO are the only two states that don't have the legal separation of brewer, distributor and retailer; do they have higher incidences of alcoholism and bad behavior? Not so sure. Further, consumers in those states get a the benefit of being the first to try those innovating in the field because it's so much easier to get your product to the market. Highly recommended.

  • PeakVT on November 15, 2012 3:43 PM:

    If raising the price of alcohol is an effective way to reduce the amount alcohol consumed, then recreating and/or reinforcing the three-tier system would be a cumbersome way to do it. Raising the excise tax further would be much more straightforward. I believe high taxes on cigarettes and other tobacco products have been an important element in reducing smoking, especially among teenagers. The three-tier system seems like it doesn't do much at this point but enable the middle tier to extract economic rents.

  • Chris on November 15, 2012 3:48 PM:

    Interesting read but as most have pointed out he throws a ton of issues and numbers out there but doesn't really prove anything beyond that he is good and researching information and providing a plethora of facts to the reader. most of said facts lack any connection to each other

    As most have noted, his condradictory position with respect to monopolies (vertical or horizontal) - regardless would lend to higher prices not lower ones. As way of example, on 8/12/12 InBev said it is raising prices on all its beers http://money.msn.com/top-stocks/post.aspx?post=ac882b03-b2bc-4d15-9316-c256256723de

    Second, at least in the US, beer sales are flat but microbrew sales have seen double digit growth over the last 5 years. People are paying for premium over the mass-marketed beers.

    Third, he tries to link two distinct industries and demonstrate a potential problem. He cites to higher liquor (and alcohol) usage in the UK and then links it to InBev and SABMiller's mergers over the last 20 years. But, both global corporations, to the best of my knowledge only sell beer. Thus, he is comparing apples to stop someone from selling oranges.

  • Stephen Riden on November 15, 2012 6:21 PM:

    Lots of misleading statements in the article.

    The reason that UK alcohol consumption has doubled since WW2 is because the starting point for the comparison was the end of the war and grain for making alcohol was scarce. The Battle of the Atlantic and Germany's campaign to starve Britain into surrender may ring a few bells.

    And per capita consumption in the UK peaked in 2004 and is heading downward rapidly. Underage drinking is decreasing in the USA, and the UK and Australia, and has done so for the past decade (roughly).

    Liver disease (alcohol-related or not) is exacerpated by obesity and hepititus A, B, and C - and those rates are skyrocketing in the population.

    The author has simply read some neo-prohibitionist material on the UK and then tried to make the case that the US must ignore any case for allowing its alcohol industry to change.

  • Nicodemus Boffin on November 16, 2012 3:29 AM:

    The idea that the American alcohol market is a "carefully regulated alcohol industry" is risible. The various State alcohol-control authorities are nothing more than "harass-the-small-time-vendor" crepuscular satraps that provide sinecures and jobs to political toadies and failed cop wanna-be's. Their ameliorative influence relative to drunk driving, alcohol-related violence, and trending levels of alcoholism in the population-at-large is ZERO.
    The various State ABC's throughout our country contribute nothing to our commonweal but red-tape, kangaroo-courts, and a swarm of licensed over-eager morons (a.k.a, ABC "special-agents") with the very-questionable privilege of brandishing a firearm while making sure that a restaurant's sales don't come "too much" from alcohol sales or that their dishwasher isn't a former felon.

  • ajay on November 16, 2012 4:49 AM:

    Yet another problem with the article, specifically with consumption figures: the US has a fairly large percentage of its population who are Mormons, Baptists or members of similar cults, and who therefore don't drink at all. The UK doesn't - or at least not as many. This is going to skew the per-capita consumption figures down. If you want to look at social impact in terms of law and order, etc, you want to look at consumption per drinker, not per capita.

    Why is everyone stuck on the monopolies thing? Low cost monopolies exist and as evidence I would ask you to look at Ryanair.

    Ryanair is not a monopoly, you dope, it competes with other airlines. Nor is it particularly low-cost; on average, it saves only £29 to fly your family on Ryanair compared with a full-service carrier. Ryanair is just very good at making people think it's low-cost.

  • Rjschwarz on November 16, 2012 8:10 AM:

    Soviets were big drinkers , semi-socialist Irish are big drinkers, as the british government became more and more socialist drinking became more and more of a problem.

    Perhaps removing the responsibilities from the lives of citizens encorages them that it is ok to be irresponsible.

  • VA Teacher on November 16, 2012 8:11 AM:

    Like most progressives, the author seems to believe that the problem is freedom. Left to themselves, those stupid proles will drink too much. They need to be "protected" by their wiser betters. Wiser betters who will derive a comfortable living from raking off a portion of the monopolies rents. As a bonus, the proles will be fleeced of any extra income, which will help keep them subservient and in need of additional "help" and "guidence"...whether they want it or not.

    Oh yeah, and free birth control. Lots of free birth control. Too many of those smelly proles as it is.

  • Paul C on November 16, 2012 8:12 AM:

    "...regulate the alcohol market as a rancher might fetter a horseóletting it roam freely within certain confines, neither as far nor as fast as it m........."

    What lefty thought is complete without making other people into " the masses" , class, race or in this case animals. Where would us unwashed be without them?

  • MassJim on November 16, 2012 8:32 AM:

    Consolidation of the beer industry? Has the author never visited a brew pub or sampled a micro brew. I remember when you could only get a beer by one of about seven brewers. Now it must number in the hundreds. And, lets not get confused. Liberals are not about liberty. They are only about control.

  • Ernie G on November 16, 2012 8:47 AM:

    Perhaps the problem with excessive alcohol consumption is not that the prices are too low, but that they are too high. We know that whenever price controls are in effect, regardless of good intentions and whatever the commodity, shortages always result. Thus, if a system of strict price control were to be implemented, say, beer at $.25 a can and whiskey at $2.50 a bottle, the shelves would be empty within weeks.

  • Jah Blonski on November 16, 2012 8:50 AM:

    Since vertical integration is the problem, I presume we're all opposed to brewpubs, since they control the entire supply chain, from manufacture to consumption?

    Or is it just cheaply available alcohol that we're opposed to, because Bud, NASCAR, and drunk 20-something football fans are so damn gauche? I also notice that nobody is saying anything about the massive consolidation in the liquor market (Hello, Diageo...)

    Couldn't we just focus on banning salt in food and sodas in restaurants first, before we start going after beer?

  • John Skookum on November 16, 2012 9:16 AM:

    Delightful to see so many well informed people pushing back against all the economic ignorance and feeble logic on display in this article. And props to the guy who recalled that Hogarth drew "Beer Street" as the virtuous counterpoint to his more famous "Gin Lane".

    I will just say that this is the very first time I have ever seen a serious argument made that the wholesalers do not have enough political power wih state legislatures, are not collecting enough money from the consumer, or that without them we would have fewer rather than more choices on our beer and wine shelves. This article is so jarringly at odds with conventional wisdom that I wonder if some tentacle of the liquor-wholesaler octopus is responsible for paying to have it written and published.

  • Brian on November 16, 2012 9:58 AM:

    Oy! Boddington's is from England (Manchester), not Ireland!

    Other than that, great article :)

  • US DOT guy on November 16, 2012 10:13 AM:

    Well, as the comments clearly show, Mr. Heffernan is certainly not an economist. And of course, he mis-understands much about the brewing industry as well.

    But I love his central point, that monopolies lower prices so people will drink more. Huh? The point of a monopoly is to RAISE prices. So what's going on here? Oh, it's that people are drinking too much. Well, why not just make the stuff illegal? That'll show the monopolists..oh, wait, we tried that and it didn't work.

    Why do we even waste time reading articles like this?

  • Squid on November 16, 2012 10:48 AM:

    ajay,

    Baptists and Mormons are not the only "cults" that abstain from liquor. Perhaps you ought travel to England and see if you can find any members of the "Cult of Allah" who follow similar strictures. Go ahead and call them cultists while you're at it; I'm certain that you're not the sort of coward who only insults those he know won't fight back.

  • Jerryskids on November 16, 2012 11:05 AM:

    Just right off the bat: The theory is that regulating alcohol more strictly leads to less alcohol use. The author cites the fact that they have drive-through liquor stores in Arkansas and only state-run liquor stores in New Hampshire as examples of the gamut of regulatory schemes.

    And yet - he doesn't do the obvious thing and cite the lower alcohol use that results from New Hampshires tighter regulations. Is that a curious omission? It is - of course - not curious at all that he would leave out this information if you've been on the internet for more than a few days. When you see such a prominent red flag as this, you do the natural thing and Google alcohol consumption statistics by state to see just how much lower New Hampshires rate is than Arkansas.

    I'll give you two guesses as to which state leads the nation in per capita alcohol consumption. Here's a hint - it's one of the two states he mentions and it ain't Arkansas.

  • Anonymous on November 16, 2012 11:07 AM:

    This article never talks about actual prices. How is the supposition that cheap alcohol is at fault in Britain supported? Because it isn't. A quick search (recent Economist article) shows that it takes twice as much work for a person in Great Britain to buy a pint than in the US. Five pages and not a shred of actual evidence.

  • Rich K on November 16, 2012 11:15 AM:

    This guy is PAID to write long articles for the Washington Monthly and this is his umpteen thousand word bilge on all things alcohol. Just read it like a superman comic book and go on with your day.

  • Anonymous on November 16, 2012 11:25 AM:

    This article is a joke. It cites as a problem that bars encouraged gambling and prostitution. No, gambling and prostitution are, like beer, something folks should be allowed to buy and enjoy anywhere anytime.

    Secondly, the article justifies regulation of beer claiming that "beer is not apples" in that it is addictive and causes injury to the drinker and others. Sex, however, is like beer: it is addictive and causes injury to the practitioner and others. Its results, the rampant breeding, cause misery to the breeders, their brood and the rest of society that has to pay for the education, crime and pollution of the planet.

    Indeed, worldwide, beer is much safer than water: if Africans in many places were supplied with Miller lite, they could free themselves from their lousy, disease-causing water!

  • aaron on November 16, 2012 11:32 AM:

    While this article is entertaining and provides some nice history, I don't know if I've ever read anything more wrong.

    England has many demographic differences from the US, primarily population density, then wealth and income.

  • ajay on November 16, 2012 12:13 PM:

    "Baptists and Mormons are not the only "cults" that abstain from liquor. Perhaps you ought travel to England and see if you can find any members of the "Cult of Allah" who follow similar strictures."

    I am in England, and all the Muslims (that's the word you're struggling for) whom I know drink regularly.

  • LaFollette Progressive on November 16, 2012 2:33 PM:

    This is the first time I've EVER seen anyone seriously try to defend our country's scattershot, archaic liquor laws. The general consensus is that arcane requirements like state-owned liquor stores and regulate independent distributors are just a cash cow for state and local governments and well-connected insiders.

    Maybe there's something to this argument. But based on the thin evidence provided (much of which seems to have been refuted in comments), I'm not buying it. "Vertically-integrated monopolies are bad because of lower prices" is not an argument that's going to win you a lot of favorable attention from economists.

  • Adam on November 16, 2012 3:22 PM:

    My longer take on why the economics and antitrust analysis here isn't up to par: http://upwardpricingpressure.com/roll-out-the-barrel/

  • Mike on November 16, 2012 3:27 PM:

    Why don't you jet on over to the UK, hit a few pubs, and see what you have to pay. It's more. Crash goes the theory.

  • TBIJournal on November 16, 2012 5:46 PM:

    Big beer, just like Big Box, thrives on the high-volume, low-margin model. Wal-Mart is a fair monopoly in many towns, but they didn't raise their prices because they know that as soon as they do, someone can come in and undercut them.

    What many of you are forgetting is that their success comes from their ability to keep prices so low that your typical mom-and-pop shops can't compete. If they could, they'd survive or come back.

    so what you have with big beer is that yes, they keep prices low but they kill quality AND make it impossible for craft beers to operate since the majority of the "powerful consumer" (which happens to have no taste in beer) don't drink craft beers because they mainly drink beer to get drunk - which costs a hell of a lot more to do if you're getting hammered on crafts. Or at least that's the mythology.

    As for this being the first time youv'e ever seen anyone tryin to defend the laws... wow. You should really read more.

  • Bob on November 16, 2012 6:18 PM:

    Australian alcohol prices are extremely high, and consumption there is actually higher than it is in the U.S..

    "This is the first time I've EVER seen anyone seriously try to defend our country's scattershot, archaic liquor laws. The general consensus is that arcane requirements like state-owned liquor stores and regulate independent distributors are just a cash cow for state and local governments and well-connected insiders."

    There's also the fact that the Northeastern states - which mostly have those kinds of restrictions - have higher alcohol consumption rates than the Western states where you can generally buy liquor in the grocery store.

    "I digress. Booze is dirt cheap in England. Cheap cheap, as in a 32oz. bottle of cider will run you a pound (1.70) at Sainsbury, Tesco, or wherever"

    You can find 40oz bottles of malt liquor at 6-8% ABV for the same price here in the US.

  • Andrew on November 16, 2012 6:42 PM:

    TBIJournal, I find your fear of Walmart cornering the market in smaller towns to be amusing. Just curious, have you ever heard of the Internet? You should look it up and check it out sometime.

  • Andrew on November 16, 2012 6:46 PM:

    Bob quotes the following:

    "I digress. Booze is dirt cheap in England. Cheap cheap, as in a 32oz. bottle of cider will run you a pound (1.70) at Sainsbury, Tesco, or wherever."

    Then he says:

    "You can find 40oz bottles of malt liquor at 6-8% ABV for the same price here in the US."

    He forgot to add this delicious irony: One of the most popular brands of those "40s" is OLDE ENGLISH!

  • Jeremy Cowan on November 16, 2012 9:20 PM:

    Love more reasons to be excited about the evolution and success of small breweries in the US - and the associated businesses that feature these wonderful beers. Spend a buck or two more for something special, delicious, creative, and high quality. Meet the passionate makers through groups such as the New York City Brewers Guild and others through the Brewers Association. Drink better!
    Jeremy Cowan, Shmaltz Brewing
    New York City Brewers Guild

  • el polacko on November 16, 2012 10:54 PM:

    so you're telling me that the same coompany that has been jacking up the price of budweiser every six months for the last several years is conspiring to sell their product for a lot less?!? not buyin' it.

  • Walker on November 17, 2012 12:31 AM:

    Nice article, but this made me laugh.

    A momentís thought makes it obvious that alcohol is different from, say, apples. Apples donít form addicts.

    Only someone who did not know anything about the temperance movement in this country would say something like that. People weren't home-brewing beer in the time of prohibition; they were making Applejack. Applejack was so ubiquitous that the temperance movement advocating the cutting down of apple trees.

  • Grant on November 17, 2012 5:04 AM:

    It's only fitting that an article so gobsmackingly stupid would mislabel the illustration on its very own header, while the illustration itself makes a point diametrically opposed to the one the author tries (poorly) to make. What gaggle of fools has been duped into paying good money to print the musings of such a monumental moron?

  • Frank Dobbs on November 17, 2012 5:27 PM:

    Alcohol and government regulation.

    The one seduces the nervous system and warms the heart of man. The other corrupts the mind excites lust for power over the innocent.

    No one has any idea how to secure the benefits of either without shattering lives and families and flooding this world with misery.

    To expect either to give us freedom from the either is folly. Prohibition did not free us from alcohol, and alcohol did not free Soviet Russians from the state.

    Of course success will never be perfect, but assuming responsibility and exercising freedom is the only way forward in the face of both these seductions.

  • Samazama on November 18, 2012 2:08 AM:

    So, the author is saying, because it's illegal to buy alcohol on Sunday in Connecticut, we're better drinkers in California?
    Also, does this author know what two-buck Chuck is?

  • A Brit on November 18, 2012 5:20 AM:

    "Glassing is something that happens in movies, not at the corner bar."

    I'm British. I spend an evening in the pub pretty much every week (twice last week). In all my 63 years, I've never come across a glassing, or met anyone who has.

    On the other hand, the author is American - and therefore four times more likely to be murdered than I am.

  • Gene Callahan on November 18, 2012 2:54 PM:

    Wow! You'd think in an article claiming that Brits drink more because of lower alcohol prices, there'd be some wee little bit of evidence about... alcohol prices?

  • Brian on November 19, 2012 9:35 AM:

    @JerrysKids:

    "I'll give you two guesses as to which state leads the nation in per capita alcohol consumption. Here's a hint - it's one of the two states he mentions and it ain't Arkansas."

    New Hampshire is arguably the worst example. I'm presuming that the study you found was the August 2011 NIH report. It's based on sales.

    Let me tell you something about NH liquor sales as someone who lives in a neighboring state: A LOT of NH's sales are to people in Vermont, Maine, and Massachusetts. The state's liquor outlets are often conveniently located next to highway exits or even in some cases rest areas. NH is tax-free and their prices are lower than in neighboring states. As one example, the state liquor regulator in Maine estimates that nearly 1/3 of the liquor and wine consumed in Maine is purchased in New Hampshire. New Hampshire itself estimates that nearly 40% of its sales are to non-residents.

  • JB on November 20, 2012 11:24 AM:

    You can abuse alcohol 24/7 with proper planning. Personal Responsibility prevents most abuse. I have a fridge full of beer and drink 3-4 a week.

  • Bill on November 20, 2012 9:12 PM:

    I found the historical aspects of this article fascinating. I have no idea whether increased market power has really reduced prices. A monopolist might conceivably have an incentive to avoid raising prices to grow more addicts, but it's not evidently true.

    Many commenters have pointed out that higher taxes would be a much more efficient way to reduce drinking. This is true, and could be socially desireable due to externalities of alcohol use.

    But states that have tried to raise excise taxes have generally failed due to industry influence and general anti-tax sentiments. As a result, the real value of taxes have dropped by over half in recent decades as unchanged dollar-defined rates have been eroded by inflation. Thus those who want higher alcohol prices may support market inefficiency as a less-effective strategy toward their goal.

  • Neil on November 21, 2012 2:24 AM:

    A really well written article, well done to the author.

    It seems to me that you've attracted some comments from corporate lobbyists.

    Being a beer fan and having visited the UK a few times, the stranglehold of the retailers and breweries on distribution has lead to a dire choice of beers. It seems that plenty of brands are sold but behind the scenes it's mostly the same stuff, so production costs are reduced.

    Maybe the only way to fix this if for consumers not to by beer from these two big organisations that care about profit and growth way too much, to the extent of a nice game of hardball with their loyal partners (ok, yes "that's business").

    Microbrewery beer FTW, tastes better and made with love.

  • Rob on November 21, 2012 7:51 AM:

    Boddingtons isn't Irish, it's made in Manchester England.

  • Tom Mahon on November 21, 2012 5:54 PM:

    The definition of fisking is a point-by-point refutation of a blog entry or (especially) news story. None of the posts here have done a complete fisking, but collectively they have.

    The major point of this article is that increasing monopolization of the beer industry is causing lower prices in Britain which in turn is causing ever increasing alcohol consumption. Lesser points are that the industry consolidation is reducing consumer choice and that diminishing government regulation (e.g. the three tier system and limits on times and places of sales) is also causing increased consumption.

    As of November 21, 2012 2:24 AM there have been 56 posts (55 not counting a duplicate at November 16, 2012 11:51 AM). Of those 55, only five (jim carozza, Ashbee, Brian, Bill, and Neil) support the author. Three more (A, Z, and TBIJournal) support the author on a minor point: that monopolization reduces the number of beers available. Except for some entertaining spam from Jeremy Cowan, the other posts disputed the article, usually with facts. My favorite post was by Frank Dobbs on November 17, 2012 5:27 PM comparing alcohol to government regulation.

    Eight posts raised the point that monopolies result in higher prices, not lower ones. One (ajay) offered a rebuttal to that argument using Ryanair as an example, but Ashbee rebutted that.

    Mitt pointed out that even if this process is reducing prices, that doesn't seem to have an effect on consumption: there seems to be a low price elasticity of demand. Eight posts pointed out problems with relative prices. James mentioned this twice, noting a lack prices in the article. Gene Callahan also complained about the lack of evidence. ajay actually had price information (prices are higher in the UK) which contradicted the claims of the article. Anonymous (November 16, 2012 11:07 AM) also had real information from the UK that did the same. Mike made the same point from personal experience. Bob had relative price information from Australia which made the point yet again. He also had information about US vs. UK prices. Andrew supported Bob.

    Four posts pointed out confounding factors that provide alternate explanations for increasing alcohol consumption in Britain. Jack Savidge mentioned religion, Rjschwarz mentioned socialism, aaron mentioned population density, wealth, and income. Stephen Riden noted that another reason alcohol consumption increased in the UK is the low base at the end of World War II.

    Four posts argued that government regulations other than those regarding monopolies don't have much effect on alcohol consumption. Chris (2:17 PM) wrote that California and Colorado don't have the three tier system, with no ill effects. Nicodemus Boffin wrote that regulation via Alcoholic Beverage Control departments is ineffective. Jerryskids wrote that Mr. Heffernan chose New Hampshire as his example of a state with tight regulation, but it has the highest per capita alcohol consumption. Brian (November 19, 2012 9:35) responded that the numbers don't actually reflect consumption, only sales: much of the sales go out of state. But Bob wrote that the Northeastern states have more restrictions and higher alcohol consumption than the rest of the country. Since that is an entire region, interstate sales shouldn't be a large factor.

    Although three posts supported the author on the issue of the number of beers (disappearing small market beers, or craft beers), three rebutted him. Dave pointed out that in America changes in the market are supporting craft beers. Adam added that Europe has many craft beers without the American system of regulation. Chris (3:48 PM) also added that in the US craft beers have been increasing market share.

    Three posts pointed out minor errors of fact. ajay pointed out that the illustration for the piece was mislabeled and actually contradicted the article's main point (the dangers of beer). aja

  • Tom Mahon on November 21, 2012 5:57 PM:

    My post got cut off. Here is the rest of it.

    Three posts pointed out minor errors of fact. ajay pointed out that the illustration for the piece was mislabeled and actually contradicted the article's main point (the dangers of beer). ajay also pointed out an error in the consumption numbers. Brian (November 16, 2012 9:58 ) complained that Boddington's beer is English, not Irish. A Brit wrote that glassing is rare in Britain.

    Four posts (VA Teacher, Paul C, Jah Blonski, and Anonymous on November 16, 2012 11:25 AM) didn't offer facts, but complained that Mr. Heffernan was arguing for a nanny state.

    Champ argued that the article's points aren't logically connected. Also Mr. Heffernan was writing about a matter outside his area of expertise.

    This pretty well demolishes this article. But in the interest of stomping it completely into the ground, I'll offer three more arguments.

    In 1991 60 Minutes ran the episode "The French Paradox" which showed that the French had low rates of heart disease in spite of a diet that "would put the American Heart Association into cardiac arrest". Their conclusion was that a major reason for the healthy hearts in France was consumption of wine. In France children start drinking wine (albeit very diluted) at about age six or eight. The health effects are so obvious that they said that if the AHA could get away with it politically, they would advocate replacing the milk in schools with watered wine. In his article, Mr. Heffernan wrote that a third of Americans are non-drinkers as if that were a good thing. It should be considered a public health problem.

    A second problem with Mr. Heffernan's article is that he misrepresented the history of alcohol in America. He seems to think that changes in consumption are due to government regulations. At the beginning of the country, alcohol consumption was much higher. The Founding Fathers drank beer for breakfast when writing the Constitution. This was due at least partly to health reasons: water was disease ridden. (Anonymous on November 16, 2012 11:25 AM made a similar point). From the beginning of the Republic until 1920, there had been a steady shift from distilled spirits to beer. This was due mainly to improved refrigeration. From 1920 until 1932 there was a shift back to spirits. That was due to Prohibition which made distilled alcohol more valuable because it was easier to conceal. Since repeal the trend back to beer has resumed. Based on history, we should expect this trend to continue regardless of the price of beer.

    A third problem is confounding factors. The price of alcohol doesn't account for all of the difference in alcohol consumption between the US and UK, maybe not any of it, since prices are higher in Britain than in America. In addition to the factors mention by Jack Savidge, Rjschwarz, aaron, and Stephen Riden, there is the difference between Nordic and Mediterranean cultures. The Nordic cultures (Ireland, Britain, the Scandinavian countries, Austria) drink alcohol mainly at parties. The Mediterranean cultures (Portugal, Spain, France, Germany, Italy, Greece) mainly consume it with meals. The Mediterranean cultures also usually start children drinking (in limited amounts) early. Many years ago I read a letter to the editor in Time magazine from a German student who was shocked by the level of drinking at American colleges. He wrote that in Germany a child typically got drunk for the first time about age ten and learned from that experience to be more careful with alcohol. In France, if a child gets drunk he is likely to be the target of ridicule. In Nordic countries alcohol is associated with strong emotions. This probably leads to higher rates of alcoholism. This is analogous to education. I read a study based on a survey of drinking habits in the US: the higher the educational level, the more likely a person is to drink nearly every day, and the less

  • Christopher Mote on November 24, 2012 5:03 PM:

    Mr. Heffernan acknowledges the regulatory powers granted to the states in the Prohibition-ending 21st Amendment, yet he neglects to go into great detail on how alcohol laws and taxes vary from state to state, and how these variances correlate with rates of alcohol consumption. I am writing this in Pennsylvania, a state that a) runs its own wine and liquor stores, b) does not permit alcohol sales in supermarkets or big-box stores, c) is the headquarters of Yuengling, a brewery that has increased its market share recently yet is not owned by any big-industry conglomerate, nor does it show any signs of being acquired in the future. These last two points would seem to present exceptions to his thesis, yet he does not seem inclined to acknowledge them.

    Even granting these points as insubstantial, the link between cheaper beer and higher alcoholism rates is largely unproven (and besides, it should have been noted that the beer industry and the alcohol industry are by no means synonymous). As one example, take a look at the CDC's state-by-state comparison of binge-drinking rates among adult women. Despite its more stringent regulations, Pennsylvania's rate is not substantially lower than that of Heffernan's state of New York (15.4% vs. 15.8%). [http://www.cdc.gov/ncbddd/fasd/data.html] This single study is hardly conclusive, but a finding to the contrary would have been welcome in place of an illustrative, yet mostly anecdotal, comparison with the United Kingdom.

    Heffernan does present some very salient data on the rise of beer conglomerates and their threat to competition from independent and craft breweries. His essay would have been much more effective had it limited its focus to the problems that monopolistic forces pose to the market. By attempting to forecast a rise of inebriated hooliganism in the US as a result of said forces, the argument risks broaching the rhetoric of a temperance movement that was justly laid to rest long ago.

  • Stephen on November 25, 2012 7:50 PM:

    My student's family lost a major distributorship when Imbev took over AB. No discussion, just out. Just business. As we learn in econ, makes sense for InBev to work to control all aspects of production, distribution, and sales, and then lower the price of their product, which will shut down larger competitors. InBev likely won't touch the boutique brewers from Sam Adams on down, just as Coca Cola takes a laissez-faire approach to minor soft drink bottlers, and as Walmart tolerates Dollar General. The majors consider these threats about as seriously as water buffalo and bison regard the cowbird, the oxpecker, and the cattle egret -- that is, either not at all or as helpful distractions.

  • Dave Barnes on November 26, 2012 1:45 PM:

    My one word refutation: Mexico.

  • Michael on November 27, 2012 10:42 PM:

    Minimum drinking age in US is 21.
    UK is 18.

    Huge difference. A 16 year old can pass for 18, and drink.
    A 16 year old can't pass for 21.

  • jafi on December 02, 2012 9:29 AM:


    Then how do you explain Germany where beer and wine are cheaper than soda and don't have the public drinking behavior problems of Britain? They have a lower drinking age (16 for beer, 18 for spirits) and higher per capita consumption than Britain.

    Living in a US college town - I've seen an increase in binge drinking that seems to be better associated with when the age to purchase alcohol was raised to 21 than with the price of what they're drinking. The focus now is much more "we're not supposed to have it, so we need to get drunk because who knows when we'll get it again"
    My experience is the old 18 for beer, 21 for hard alcohol worked better than the current "don't touch a drop till you're 21" hypocrisy.

    A coalition of college presidents has acknowledged as much and is requesting a drop in the drinking age to combat binge drinking. (100 college presidents call to lower the drinking age http://fosters.com/apps/pbcs.dll/article?AID=/20080820/GJNEWS_01/1871)

    Forbidden fruit is so much more attractive.

  • Cecile on December 02, 2012 5:34 PM:

    This is pure propaganda.

    Stop lying to your public.

    How dare you make this problem every country shares sound so simple? And how dare you not tell the truth. Which is..... More education, better jobs + working conditions, pay. More affordable housing better healthcare. Power back to the local governments (not church groups or local school groups). And understanding that children are to be heard and not just seen. So we can teach the next generation to talk it through and not suck it up and bury it under drink and drugs.

    I am very disappointed with your article and hope you grow an analytical mind for your next one.

  • Henry on December 03, 2012 4:32 PM:

    As cute as the Budweiser ads are on TV, beer commercials should be restricted from athletic events. It creates the false association between healthy exercise and alcohol. (Of course, now there is brain damage from football, but let's not create beer brain damage among the spectators.) While some may claim free speech rights, Virginia Slim cigarette ads were banned from tennis.

  • Tim on December 04, 2012 10:39 AM:

    F.Y.I:

    "England" is one part of the big island. (The others are Scotland and Wales).
    "Britain" means England, Scotland and Wales.
    "The United Kingdom" = Britain and Northern Ireland.
    "The British Isles" = The UK (one country) and Ireland (another).

    Important distinctions, not least because of differences in the severity of alcohol problems between England and Scotland.

  • Peter M on December 17, 2012 11:44 AM:

    Heffernan makes the unfortunately common mistake of applying economic analyses to a cultural problem. Vertical (an increasingly horizontal) integration of the alcohol industry may be good or bad. I don’t know. But it is almost assuredly not the cause of “glassing” and other tippling woes in the UK. Other countries with vertical integration, such as the Netherlands, seem to hold their beer much better, with consequences rarely more dire than pissing in public or a singing while biking drunk.

    Heffernan blames British drinking culture on the cheap alcohol provided by the economic “efficiency” of vertical integration. But drinks in vertically integrated British pubs are not cheap. It is the prohibitive cost of alcohol in more civilized (and civilizing) pubs that pushes so many yobs and youngsters to buy cheap high-alcohol drinks (such as fortified beer) in corner stores.

    Cheap alcohol may indeed contribute to a problematic drinking culture in the UK, but the key words are drinking culture, not cheap alcohol. The question isn’t how much people drink, but how and where and with whom they drink. Mixed gender and generational, that is to say, adult drinking environments are part of the solution. Simply raising the price of a pint brings unintended consequences. How many “tiers” a tipple travels from brewer to bar is largely irrelevant.

  • pete woodhouse on December 21, 2012 1:12 PM:

    "glassing" is when an actual glass is rammed in someone's face, when a bottle is used it's a "bottling" but having said that, I'm a nightclub manager with 14 years experience in Edinburgh, the capital of Scotland, and can honestly say I've only encountered two "bottlings" throughout that period, so if you don't mind could you please refrain from any over-exaggeration of our problems before I start mentioning your's.

  • David on January 10, 2013 8:47 AM:

    This is nonsense --- the UK has more expensive alcohol than any other place I've been to, including New York. Last time I was in London I don't think it was possible to find a pint for less than £3.00 --- more than $5 --- and it was rare to find one that cheap. In France, New York, or China, alcohol is a lot cheaper, even relative to average incomes.

  • jake on June 27, 2013 11:39 AM:

    So if this is entirely accurate (and I tend to side with the comments that believe there are economic nuances and cultural variances that are not being considered), then Pennsylvania will be one of the last standing refuges from the upcoming frat-party apocalypse. Even the pro-business government can't privatize the state's monopoly on liquor and wine sales. Nor can they seem to rework the convoluted system where consumers can only buy individual bottles of beer from places that also sell prepared food (e.g. restaurants) - or - go to a specially designated case distributor to buy an entire box of beer. You don't get much more consumer unfriendly than that.