A new law in Oklahoma will restrict some sales of wine and spirits between wholesalers, and supporters say there will be no impact for consumers. The law, originally House Bill 1604, was signed by Gov. Brad Henry on April 20, strengthening Oklahoma Alcoholic Beverage Laws Enforcement Commission rules and giving the commission more authority to enforce them.
Oklahoma has a three-tiered system for alcohol imports: manufacturer to wholesaler to retailer. Under old rules, wholesalers were required to keep the 18 most common brands (by sales volume) in stock. According to supporters of the legislation, smaller wholesalers were buying and selling to each other to maintain the appearance of complying with the rules.
Lobbyist Chad Alexander, speaking on behalf of Central Liquor Company, one of the state’s largest wholesalers, said the new law simply took current policy that was in rule form and put it in statute form.
“This law only regulates wholesaler to wholesaler transactions,” he said. “The rules were already in place, but the law gives ABLE more authority to enforce the laws.”
Alexander said the codification was necessary because small distributors were “gaming the system.” The rules stipulated that wholesaler to wholesaler sales were permitted so long as the purchases did not exceed 15 percent of wholesale inventory. Alexander said that small wholesalers were exceeding the limit.
“We had small wholesalers using loopholes to avoid compliance,” he said. “You cannot buy from another wholesaler cheaper than you can buy from the manufacturer, so why would wholesalers purchase more than 15 percent of their inventory from another wholesaler unless they were gaming the system?”
Wholesalers are required to keep the most common brands in stock, and it is this rule that wholesalers were trying to avoid, Alexander said.
“Certain products come into the state, and every wholesaler has a right to an equal percentage of these limited items, irrespective of the size of the wholesaler,” he said. “What was happening was the smaller wholesalers were making their profit off these limited, high-demand items and avoiding compliance with maintaining inventory levels of the most common brands.”
Al Horton is one of the small wholesalers. Horton, who started Dixie Liquor Company in McAlester in 1966, quickly outgrew the building and moved to nearby Hartshorne. He said the new legislation is frivolous and disingenuous.
“They are trying to make it sound like small wholesalers are a danger to the system,” Horton said. “In fact, we’re not, and there is absolutely nothing in the distribution system that this law will help. I’m really disappointed with it. It looks like restraint of free trade.”
Horton said he is the only wholesaler in the state not located in a major metro area, and he believes the reasons are related to larger wholesalers “suffocating” small businesses.
“This law is written strictly for the big wholesalers,” he said. “They already have 70 percent of the state’s liquor business, and they want to be assured that they’ll keep it. There used to be wholesalers in Enid, Ponca City, Durant and other small towns, but they were slowly suffocated. Now I’m being told I have to limit what I sell and to whom.”
Rep. Daniel Sullivan, R-Tulsa, was the bill’s principal author, and he said the new law is not a restraint of free trade and not hostile to small businesses.
“This is a regulated industry,” Sullivan said, “so no argument about restraint of trade is valid. This law doesn’t affect the retail or consumer side of the business at all. It’s limited to certain wholesaler transactions, and the small wholesalers signed off on the agreement.”
Sen. Richard Lerblance, D-McAlester, was one of very few senators to vote against the legislation. Dixie Liquor is located in his district, and he said he debated against the bill because businesses like Dixie are the “Davids” in a David and Goliath story.
“This law is like Wal-Mart coming to town and running the moms and pops out of business,” he said. “Why are large wholesalers worried about controlling the market? They just want to keep them out of free trade. Small wholesalers are already at a disadvantage, and this legislation penalizes them further.”
Lerblance said the issue did not get enough attention because of the limited number of small wholesalers in the state.
“There were only about a half-dozen senators with constituents who were affected,” he said, “so there was very little debate. I got involved because Al Horton is a constituent, businessman and friend. He’s important to Hartshorne. He provides jobs and income in a small town.”
Alexander said he doesn’t believe the law is bad for small businesses. He pointed out that the rules were already in place for large and small businesses prior to the law’s passage.
“This legislation did not change any standards for establishing a wholesale business,” he said. “It didn’t raise the licensing fee. It just insists that all wholesalers comply with the rules.”
Both Alexander and Sullivan said they expected absolutely no impact on choices or prices for consumers in Oklahoma. “Greg Horton