R.E. "Tuck" Duncan, KWSWA
(March 24, 2005) The KWSWA opposes SB 299. (This testimony if based upon presentations by the author to the Kansas Legislature in 1993 and again in 2002 as revised for 2005 and this most recent incarnation of the proposal).
Introduction -- Proposals to create a so-called “one-strength beer” changes a distinction that has existed since May 1, 1937, twelve years before the repeal of prohibition on Novermber3, 1948, implemented by the 1949 Legislature. 3.2% Cereal malt Beverage was re-legalized by Congress on April 7, 1933, under the Cullen-0Harrison Act which declared it a non-intoxicating beverage and provided for its sale in any states where it was not proh8ibited by law. This enactment by Congress preceded by 7 months the final ratification of the federal repeal amendment, the 21st Amendment to the United States Constitution, On November 7, 1933. Consequently, 3.2% cereal malt beverages historically have been understood by the electorate to be something other than an alcoholic liquor.
Why we have the laws we have -- We have the laws we have because Kansas over the last half century has declared its public policy to be one of strictly regulating the beverage alcohol market in order to (1) restrict access by underage consumers (2) to collect needed state tax revenues and (3) to control vertical integration in the industry (what we refer to as the “three tier system”). Proposals to eliminate or redefine cereal malt beverage represent a significant structural alterations. As one former Secretary of Revenue used to state: the beverage alcohol industry is akin to a spider web and when you touch one gossamer thread the rest of the system experiences turbulence as the vibration waves across all the delicate threads spun throughout the years into an intricate pattern. Kansas has a fine reputation nationally in the beverage alcohol business. That is not an accident. It is due to the regulatory environment created by the legislature and the diligence of the ABC.
The current system serves Kansas well -- The current system is not confusing and has been working without disruption for 56 years. Currently criteria of K.S.A. 41-311 which apply to retail liquor stores do not apply to CMB retailers. For example, a liquor retailer may not have any felony convictions whereas a CMB retailer may not have been convicted of a felony within two years preceding the date of application. A liquor retailer must be 21 years old. A liquor retailer can’t employ a person under 21. A CMB retailer can employ persons 18 and older to dispense or sell cereal malt beverage. If a liquor retailer’s license is suspended the entire store is closed whereas the CMB retailer may still operate their non-CMB business if their license is suspended, for example, due to selling to a minor.
In the past some of the proposals to redefine CMB or eliminate same would have imposed on communities which have either not approved a retail liquor store, or rejected one, a higher strength product. Retail liquor stores can only be located in cities after an affirmative vote of the electorate of that municipality.
Impact on retail liquor stores -- The last authoritative study on the percent of sales by retail liquor stores conducted by the Kansas Department of Revenue in 1982 stated: “Beer, constituting 45% of the total volume of liquor stores, cannot be ignored in analyzing the total profit picture… it has an average mark-up of 19% and ranks second only to spirits in contribution to profit… it is the largest single category in volume;” (emphasis added)
In implementing the recommendations of the December 1982 Sunset Audit Report on the alcoholic Beverage Control and the Governor’s Liquor Law Review Commission, December 1986, the Legislature by codifying the elimination of price controls and affirmation, and b allowing certain advertising and trade practices, including sales of strong beer directly from beer wholesalers to clubs/drinking establishments instead of through retail liquor stores, has created market forces which have brought the number of Kansas retail liquor stores in line with the average in “license states.” (Sunset Audit, page 38).
The Daicoff study of the Kansas Retail Liquor Industry commissioned by the Department of Revenue, issued December 1985, found that within Kansas there are a small number of large stores and large number of small stores with yearly profits of 4.1% of sales; and which are less profitable than retail liquor stores nationally. Retailers located in interior counties are the least profitable. At the time of the study (based on tax year 1984) there were 1,078 retail liquor stores in Kansas as compared to the 700 plus stores operating in 2004. (Source ABC)
Protectionism myth -- The state’s public policy has been, and continues to be, to maintain an orderly market. If there was any protectionism for the industry it was a by-0product of the controls implemented pursuant to constitutional mandates. Most of the so-called “protections” have been eliminated, while federal and state taxes have increased. There is no more price control, no affirmation, there is advertising, and increased competition among retailers (for consumer business, club/drinking establishment business and amongst brands). If there was still significant protection we would not have seen the reduction of 400 (38%) retail liquor stores in the past two decades.
Social responsibility -- The beverage alcohol industry is concerned that if the legislature were to eliminate or redefine cereal malt beverage it would increase the availability of a stronger (no matter how slight) alcohol content product and that there is an increased potential for abuse. When abuse occurs it has negative effects on society and the industry. Long before the term “social responsibility” became fashionable in the lexicons of academia our industry has urged moderation, restraint and temperate use of its products as enjoined by President Roosevelt at the time of federal repeal. The beverage alcohol industry does extensive training and education to dissuade underage purchases. There can be no better assurance against sales to minors than a locally operated liquor retailer who knows the community and cares about its families. There is a less restrictive environment in the sale of CMB at convenience stores and grocery stores. Young cashiers do feel peer pressure to make the sale.
Alcohol production and content -- People do not usually drink pure alcohol but a beverage containing alcohol, specifically ethyl alcohol. Alcoholic beverages include wines, beers, and spirits. Wines are fermented from the sugars in fruits or berries (most commonly grapes), from various plants or their saps and from honey Beers are fermented from grains after the starch in them is first converted to sugar. .Spirits are distilled. While wines and beers are usually a final product, spirits are most often considered a “concentrate”.
The main ingredient that characterizes alcoholic beverages and the chief contributor o the effects sought by people who drink them is ethyl alcohol (hereafter referred to simply as alcohol).
In beers the alcohol content varies from about 2 percent in some mild
Scandinavian varieties to about 8 percent in especially strong types;
most U.S. beers contain between 4 and 5 percent. Natural or unfortified
wines (the so-called dry wines, such as burgundy, chianti and sauterne)
usually contain between 8 and 12 percent alcohol, although most U.S.
varieties have a somewhat higher content, ranging from 12 to 14 percent.
Vermouths and aperitif wines usually contain 18 percent, and dessert,
sweet, and cocktail wines (such as sherry, port, and muscatel) contain
20 to 21 percent. These percentages are by volume; Le., the proportion
of alcohol in the fluid volume of an average American beer is 4.5 percent.
This is the product that would be sold everywhere if the legislature
redefines or eliminates cereal malt beverages. Since fermentation yields
only 14 percent alcohol, the extra strength of fortified wines comes
form the addition of alcohol or brandy. Spirits, including vodka, gin,
and whiskeys (rye, Scotch, bourbon), rum (distilled from sugarcane or
molasses), brandies (distilled from fruit wines), and liqueurs (flavored
syrupy spirits) usually contain between 40 and 50 percent alcohol (80
to 90 American proof). Cordials, made of flavored spirits, such as anisette,
blackberry, curacao, maraschino, and sloe gin usually contain between
25 and 40 percent.
Proponents of redefining or eliminating cereal malt beverages acknowledge
that a difference in the products, they suggest its not much. The difference
is, nonetheless, more alcohol in one’s system. It is ironic that
as this Legislature has reduced the threshold b y which to determine
impaired driving, it might as the same time consider increasing the alcohol
levels in cereal malt beverages.
Others Considerations…. “…. A need has been created (by the liquor-by-the-drink constitutional amendment) for cereal malt beverage for on-premise consumption in this establishments in liquor by the drink counties who do not choose to become food service establishments. And in those counties where liquor by the drink is not adopted. In conclusion, when the constitutional amendment’s requirements are taken into consideration it would seem that as far as on-premise sales are concerned the present dual system of distribution will have to be maintained.” Liquor Law Review Commission, 1986. How SB299 impacts this concern is unknown as this new Cereal Malt Beverage Retailer’s Act is extremely complicated and its approach untested.
Summary – It would be inappropriate for the Legislature to reestablish
market share after 56 years wherein the current stakeholders have relied
upon the existing system. Truly it would be poor public policy particularly
if the only rationale for red
efining or eliminating cereal malt beverages is to alter market share.
Yes, there are historical accidents that have created the system we have
in place today, a history that sets parameters; but, it is a history
that needs to be respected to avoid economic dislocation the Kansas retail
liquor dealers and to maintain an orderly market as described heretofore.
Thank you for your attention to and consideration of these matters.
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