Jim Koch Urges Beer Trade Groups to Fight Spirits’ Equalization Efforts

Boston Beer Company founder Jim Koch is urging the leaders of the beer industry’s three major trade groups — the Brewers Association (BA), the Beer Institute (BI) and the National Beer Wholesalers Association (NBWA) — to work together to beat back efforts by spirits groups to bring taxes on spirits-based, lower-alcohol, ready-to-drink offerings in line with beer, hard seltzers and FMBs.

Koch — in the message addressed to BA president and CEO Bob Pease, BI president and CEO Jim McGreevy, and NBWA president and CEO Craig Purser — called for a “unified and effective response” to efforts by the Distilled Spirits Council of America (DISCUS) and its members “to change the fundamental tax and regulatory structures of alcoholic beverages to tilt the current playing field in their favor.”

Efforts are already underway in several states with more to follow, Koch warned. (The entirety of Koch’s letter is shared at the end of this post.)

“We need you to unite us with one message and one mission,” he urged the three trade group leaders, suggesting the industry form a task force to respond at both the state and federal levels. “Together, we are heavy.”

Koch cautioned that the growth the beer industry has enjoyed from the second half of 2019 through 2021 will be threatened if spirits groups are successful in their equalization efforts.

“They have publicly stated that they can reduce beer volume by 45 million barrels if they succeed,” he wrote. “If they succeed in changing state regulations, instead of a future of growth, the beer industry, brewers and wholesalers alike, would face virtually permanent declines in volume, revenue, and profits while liquor volume and profits would soar.”

Koch pointed to DISCUS’s success two decades ago “to increase hard liquor’s share through expanded retail availability, access to TV advertising, marketing to millennials, et cetera.”

“For twenty years, spirits companies have eaten our lunch,” he wrote. “We now have the innovation, the efficiencies and the superior retailer service to win this fourth category, unless DISCUS and its allies can change the rules. Let’s not let them eat our dinner.”

Each of the trade groups has since responded.

BI president and CEO Jim McGreevy told Brewbound that equalization of the tax rates between beer and spirits is “an existential threat to the beer business.”

“Equalization is always the biggest issue facing beer,” he said. “That’s why we should take Jim’s letter seriously.”

McGreevy explained that there are fundamental differences between beer and spirits products, chief among them that beer is typically lower in ABV than spirits products, with beer averaging 4.62%, while spirits average 40%.

Nevertheless, McGreevy said the trade groups, as well as state associations and guilds, have been already working together to prevent legislation from passing that would change the tax structure and regulatory environment for spirits. He added that there are efforts underway in nine states — Arizona, Hawaii, Missouri, Nebraska, New Jersey, Utah, Virginia, Vermont and Washington — but the legislation has yet to gain traction. In some cases, legislative sessions have already concluded in those states.

BA president and CEO Bob Pease issued a statement praising Koch for “bringing this issue forward” and affirming that his organization does not support equalization.

“Successful alcohol policy has always recognized the fundamental differences between beer and distilled spirits,” Pease added. “We accordingly take the threat of tax equivalency very seriously. To that end, we are in communication with the other national trade associations that represent the beer family. Rest assured that we do not support legislation that would tax beer and distilled spirits equally.”

In a separate statement,NBWA president and CEO Craig Purser said the NBWA would also push back against equalization efforts. He pointed out that “beer, wine and spirits are each unique with regard to origin of production, level of alcohol concentration and manner of consumption.”

“Policies related to how these products are taxed and regulated vary from state to state,” he wrote. “Public health concerns related to higher concentrations of alcohol are well known. NBWA will continue to work with distributors, state associations and brewers to stand up for beer and oppose the pursuit of equalization.”

Read Jim Koch’s full letter to the BA, BI and NBWA below.

Dear Bob, Craig and Jim,

After a decade of declines, the beer industry started growing again in the second half of 2019. That growth continued in 2020 and has accelerated in 2021. This change in trend has been driven by beer’s success in the fourth category – the white space between traditional beer, wine and spirits, where innovations like hard seltzers and FMBs have successfully created new demand by offering drinkers new choices.

That growth is now threatened by our very capable and determined friends at the Distilled Spirits trade association (DISCUS) and the big spirits companies. They want to change the fundamental tax and regulatory structures of alcoholic beverages to tilt the current playing field in their favor. They have publicly stated that they can reduce beer volume by 45 million barrels if they succeed. That is almost as big as all Mexican import and craft beer combined. If they succeed in changing state regulations, instead of a future of growth, the beer industry, brewers and wholesalers alike, would face virtually permanent declines in volume, revenue, and profits while liquor volume and profits would soar. Our friends in the liquor lane of alcoholic beverages are trying to change the game by expanding access outside their traditional retailers and reducing their state and federal taxes (or increasing beer taxes), part of their long-term effort to gain tax “equivalence.” With little fanfare, such efforts are currently underway, and, so far, under the radar, in over a dozen states with more to come.

We need to wake up. I believe all of us in the beer industry should get our act together to push back against this growing campaign aimed at taking away beer’s newfound growth. We can win in the current marketplace because our brewers have been more innovative and more efficient, and our wholesaler network is better at servicing coolers and the fast-moving high bulk products of the fourth category. But being able to win in the current marketplace is not enough if the liquor companies are able to change the tax rates and the access rules. We need a unified and effective response. We need the collective strength and leadership of our industry associations, the BA, BI and NBWA. We need you to unite us with one message and one mission. Together, we are heavy.

I am writing to suggest that the three of you lead our industry in this effort by forming a task force to respond to state and federal efforts coming from DISCUS and its members.

Twenty years ago, DISCUS led a successful effort to increase hard liquor’s share through expanded retail availability, access to TV advertising, marketing to millennials, et cetera. For twenty years, spirits companies have eaten our lunch. We now have the innovation, the efficiencies and the superior retailer service to win this fourth category, unless DISCUS and its allies can change the rules. Let’s not let them eat our dinner.

Cheers!

Jim