The Alcohol Industry's Plan to Give America a Giant Drinking Problem
Continued from previous page
Supermarkets, in particular, profited from the new regime. They were free to stock wine, beer, and liquor alongside other consumables, making alcohol as convenient to purchase as marmalade. They were free, also, to offer discounts on bulk sales, and to use alcoholic beverages as so-called loss leaders, selling them below cost to lure customers into their stores and recouping the losses through increased overall sales. Very quickly, cheap booze became little more than a force multiplier for groceries.
When the supermarkets themselves subsequently underwent a wave of consolidation, the multiplier only increased. Four major chains—Tesco, Sainsbury’s, Asda, and Morrisons—now enjoy near-total dominance in the UK, and their vast purchasing power lets them cut alcohol prices even further. Relative to disposable income, alcohol today costs 40 percent less than it did in 1980. The country is awash in a river of cheap drink, available on seemingly every corner.
Part of the problem, too, was that Britain’s “tied houses”—drinking establishments that are owned by liquor producers—have remained, in one form or another, a dominant part of the country’s drinking landscape. From the time brewing industrialized in the late 1700s, brewers were permitted to operate their own pubs, which they owned outright or whose owners signed exclusive retail agreements with them in exchange for inventory discounts, no-interest loans, and other assistance. The result of this system, which also existed in the U.S. before Prohibition, was a glut of pubs, since each brewer needed its own tied house in a given neighborhood, and a race to the bottom ensued, with each pub competing to offer lower prices and lure customers in with extras like gambling and prostitutes. The problem of this beer-fueled mayhem—of the lager louts smashing up storefronts, beating up foreigners, and glassing one another—became so acute in the 1980s that Parliament finally acted to break up the tied houses, passing legislation in 1991 known as the Beer Orders.
But intense industry lobbying quickly watered down these reforms, and the result was a bitter farce. In the end, brewers were allowed to keep many of their tied houses, and wound up effectively controlling the rest through exclusive retail agreements and other corporate maneuvers. Some brewers simply split in two, with one side retaining the brewing operations and the other responsible for sales. Many other brewers instead sold off their brewing operations and repurposed themselves as giant landlords-cum-barkeepers, while continuing to enjoy exclusive—and lucrative—relations with their former partners. The Beer Orders thus had the unintended consequence of actually catalyzing comprehensive conglomeration and vertical integration, as a handful of giant firms snapped up thousands of independent pubs. This “rationalization” of the industry delivered economies of scale previously unknown, and soon drinkers in England found that booze was even easier to come by than it had been before. Far from vanquished, the lager lout had entered his heyday.
In the United States, the problem so far has not been one of vertical integration like that found in the UK. Here, the story so far has been mostly about horizontal integration—of one brewer buying another.
To be sure, the typical American beer drinker might have a hard time realizing the extent of horizontal consolidation that has already occurred. The shelves of your average gas-station convenience store offer not just Bud and Busch and Miller and Coors but Stella and Hoegaarden and Shock Top and Rolling Rock. At any decent grocery, Kirin of Japan sits beside Boddingtons of Ireland, Peroni of Italy beside Pilsner Urquell of the Czech Republic. Basses shadow Red Hooks in the lea of Goose Islands. Blue Moon shines down on it all.