DETROIT FREE PRESS | WWW.FREEP.COM UNDER THE INFLUENCE THURSDAY, FEB. 10, 2005 7A
A SWEET INVESTMENT
In Michigan, beer distribution is family affair
Firms handed “People are
tafson, are among them. Until her
death in March 2003, Shotwell
Gustafson was the chief executive
down through seeing these
at Hubert Distributors, an Anheus-
er-Busch distributor in Pontiac.
generations stay in the
Her husband succeeded her.
Shotwell Gustafson was one of
Oakland University’s most gener-
By JENNIFER DIXON Central Distri- ous contributors.
FREE PRESS STAFF WRITER She financed the renovations of
an indoor equestrian arena into a
To understand the business of the family is involved in the busi- 22,000-square-foot banquet and
distributing beer in Michigan, step ness. exhibit hall named the Shotwell
inside a cavernous warehouse just Herman Cox founded his com- Gustafson Pavilion.
east of Metro Airport. pany, H. Cox & Son Inc., in 1933 in a Because of the couple’s many
This is the home of Central Dis- small garage in Traverse City. To- contributions over the years, they
tributors of Beer in Romulus. Cas- day, members of the fifth genera- are listed as members of the Mead-
es of Budweiser and Michelob Ul- tion are working at H. Cox, which ow Brook Society, open only to
tra and Kirin Light are stacked on distributes wine, Anheuser-Busch those who give $500,000 or more
pallets, almost to the ceiling. Kegs beers and other lines in seven to the university.
are kept in a separate room, where northwest Michigan counties. The Gustafsons are also bene-
the temperature is always set at In all, there are about 135 whole- factors to St. Joseph Mercy/Oak-
frosty. salers in Michigan. That number, land; the hospital in Pontiac has a
Central’s drivers truck that however, includes companies with wing housing an emergency center
beer to 1,700 customers in 38 com- multiple licenses because they are named in his honor and an ambula-
munities, from Downriver through distributing in several locations, as tory surgical center named for her.
Plymouth to a sliver of Oakland well as small specialty operations. And in November, Robert Gus-
County. HUGH GRANNUM/Detroit Free Press A better count may be the mem- tafson gave a Sabreliner 60 corpo-
They have 44 routes — and the At Central Distributors of Beer, employees Brian Shufeldt of Taylor and Corey Kowalski of bership in the Michigan Beer & rate jet to his alma mater, Western
road all to themselves. Brownstown Township fill orders late last month. The Romulus company delivered more than 5 million Wine Wholesalers Association, Michigan University.
Because of state law, no other cases in 2004. The company says it is one of the largest Anheuser-Busch distributors in the country. with 75 family-owned companies Wilson of Central Distributors
Anheuser-Busch distributors can that distribute more than 90 per- donated $2 million to the Cleveland
serve bars and restaurants, gro- Today, his granddaughter, Ka- ness going. People are very much The business is spread across cent of the beer and wine sold in Clinic Brain Tumor Institute last
ceries and party stores in Central’s ren Wilson, is the company’s chief committed to seeing these busi- 200,000 square feet of warehouse, Michigan. year. And Fabiano Brothers Inc., a
territory. executive. Her son-in-law began nesses continue to stay in the fami- garage and office space. Some Lansing insiders call the beer, wine and liquor distributor in
Central decides the price for taking over the day-to-day respon- ly. Each generation feels that com- Frank Petipren and his two association the Millionaires Club. Mt. Pleasant, has contributed more
that beer — and every retailer pays sibilities in January. mitment.” sons, Stan and Fran, delivered beer “A lot of these people, on paper, than $1 million to Central Michigan
the same amount. Their building covers 191,726 in wooden cases from the backseat are millionaires,” said the group’s University.
Central’s markup varies. Some- square feet — big enough to hold Success stories of the family car when he started chief lobbyist, Pat Laughlin. Mike Lashbrook, president of
times, it charges retailers about $5 650,000 cases and 40,000 kegs. Other distributors tell similar Petipren Inc. in 1933 out of a six-car But no one outside the industry the wholesalers association, said
a case more than it paid Anheuser- Central’s drivers delivered more stories of success. garage in Macomb County. Today, knows exactly how much the the group’s members work hard at
Busch. Sometimes, the markup is than 5 million cases in 2004, and Thomas Ryan used a borrowed the Anheuser-Busch distributor wholesalers are worth. Their com- being business leaders in their
closer to $4, according to Liquor the company says that makes it one truck to make his deliveries in Flint delivers beer to more than 1,350 re- panies are private and rarely sold communities and are important
Control Commission records ob- of the largest Anheuser-Busch dis- when he started Tom Ryan Distrib- tailers in the county and Ham- on the open market. employers in the state. He added
tained under the state Freedom of tributors in the country. uting Co. in 1946. Today, his son J. tramck. In 1998, the most recent that he would not “apologize for the
Information Act. “We are very active in our com- Michael Ryan owns and runs the year for which figures were avail- Good works fact that they are successful busi-
Jack Gorsuch founded the busi- munities, in supporting our chari- company, the sole Anheuser-Busch able, the company had record sales Through their success, some nesspeople.”
ness in 1933 with two trucks and a ties,” Wilson said. “We’re a very distributor in Genesee and Lapeer of more than 4.8 million cases of have become philanthropists.
1,400 square-foot building in De- good corporate citizen. We have a counties. Its 32 trucks deliver 4 mil- beer. It has grown from one vehicle The late Alice Shotwell Gustaf- Contact JENNIFER DIXON at 313-
troit. huge investment to keep this busi- lion cases of beer and wine a year. to 175, and the fourth generation of son and her husband, Robert Gus- 223-4410 or firstname.lastname@example.org.
THREE-TIER SYSTEM BUSINESS, PLEASURE
HOW MICHIGAN’S PRICES STACK UP
State law is at root So how does Michigan compare
with neighboring states on beer
and wine prices?
Critics of Michigan’s distribution
system for beer and wine say an
also were at fault — even though
the survey subtracted excise
The Free Press compared prices absence of competition at the He said there is competition in
of wholesale power
of several well-known brands at wholesale level is to blame for the state — between brands such
Meijer stores in Michigan, Ohio, higher prices. as Miller and Budweiser. Beer
Distributors bank on territory, price rules
Indiana and Illinois and found that
consumers paid more overall for
beer in Michigan than in the other
three states — up to $4 more for a
“When you’ve got a protected
market and protected monopo-
lies, you’ve got the license to
gouge,” said state Rep. Leon
makers are the ones who set
prices, he said. Wholesalers and
retailers simply add markups.
Michigan Liquor Control Com-
By JENNIFER DIXON
FREE PRESS STAFF WRITER
tion. Like Michigan, most states
cart full of seven items.
Wine prices tended to be
cheaper in Indiana and Illinois
Drolet, R-Clinton Township.
But Pat Laughlin, chief lobbyist
for the Michigan Beer & Wine
missioner Jim Storey said he
thinks one reason prices are high-
er in Michigan is that retailers
have exclusive territories and than in Michigan, but higher in Wholesalers Association, said cannot sell alcohol below whole- In late November 2002, four
It’s called the three-tier system. franchise rules for beer distribu- Ohio. wholesalers aren’t the reason for sale cost to entice shoppers into lawmakers piled their guns,
But to the Michigan Beer & Wine tors. State laws, however, vary in For the survey, the newspaper price differences. He said Michi- stores. camouflage jackets and a gold-
Wholesalers Association, it’s the how strongly they protect whole- subtracted each state’s excise, or gan’s bottle-deposit law is partly “I don’t think anyone is dying of en retriever named Maverick
gospel. The system dictates how salers’ interests. sin, taxes — so pretax prices were to blame and insisted excise taxes thirst in the state,” he said. into a couple of SUVs for a trip
alcohol is sold in Michigan. to New York with Mike Lash-
The Legislature created the Exclusive turf Royal Oak, Toledo, South Bend, Bolingbrook, brook, president of the Michi-
framework with Public Act 8 of Michigan gives beer wholesal- BEER Mich. Ohio Ind. Ill. gan Beer & Wine Wholesalers
1933, the year Prohibition was re- ers competition-free turfs, pro- Miller Lite, 12 pack, 12-ounce cans $8.75 $8.79 $8.16 $8.08 Association.
pealed. tected by law. Their customers Miller Genuine Draft, 12 pack, 12-ounce bottles 9.06 8.79 8.26 8.08 The trip was an opportunity
The act established the Liquor must buy only from them. Miller Genuine Draft, six pack, 12-ounce bottles 4.88 4.69 4.73 4.69 to mix business with pleasure.
Control Commission and a three- In 1976, the year Michigan vot- Heineken, six pack, 12-ounce bottles 7.88 7.69 7.43 7.49 Lashbrook’s companions
tier system for the production, dis- ers approved refundable deposits Heineken, 12 pack, 12-ounce bottles 13.76 11.79 12.36 14.78 were John Cherry Jr., then a
tribution and sale of alcohol. The on bottles and cans, the Legisla- Bud Light, 12 pack, 12-ounce cans 8.66 7.79 8.16 7.88 Democrat in the state Senate
tiers consist of manufacturers ture required beer makers to grant Budweiser, 12 pack, 12-ounce cans 8.66 7.79 8.16 7.88 and the lieutenant governor-
(such as brewers and wineries), each wholesaler an exclusive terri- BEER SUBTOTAL $61.65 $57.33 $57.26 $58.88 elect; Rep. Randy Richardville,
distributors (also known as whole- tory — typically a county or sever- a Republican from Monroe who
salers) and retailers, such as gro- al counties. WINE was poised to rise to floor lead-
ceries, party stores and bars. A Likewise, distributors have the er; Rep. Charles LaSata, a St.
Black Swan Chardonnay $6.09 $6.93 $5.90 $7.15
person or business in one tier can- right to sell their brands in their Joseph Republican who had
Glen Ellen Cabernet 4.39 9.93 4.90 6.25
not own an interest in another. territories. No competitor can sell been elected to his third and fi-
Kendall-Jackson Cabernet Sauvignon 13.89 17.93 16.90 15.35
The result, with a few excep- the same brands. nal term, and Rep. Ray Basham,
tions, is this: Beer or wine makers Retailers have no choice but to Stone Cellars Merlot by Beringer 7.89 7.93 6.90 6.65 a Taylor Democrat who had just
must sell to licensed distributors, buy from local wholesalers. They Sutter Home Cabernet Sauvignon 6.69 10.93 4.41 4.85 won a state Senate seat.
who in turn sell to licensed retail- can’t shop around for a distributor. Vendange Cabernet Sauvignon 4.89 5.93 3.90 3.65 They drove along Lake Erie
ers. Essentially, the wholesalers’ “A retailer can complain to us, Turning Leaf Cabernet Sauvignon 8.69 7.93 5.90 6.85 through a snowstorm and
role as middlemen was written into but there’s nothing we can do Turning Leaf Merlot 8.69 7.93 5.90 6.85 checked into a Holiday Inn in
law. about it,” said Rick Perkins, direc- Turning Leaf Chardonnay 8.69 7.93 5.90 6.85 Waterloo, N.Y. Then for three
In the case of spirits, the state tor of enforcement for the Liquor WINE SUBTOTAL $69.91 $83.37 $60.61 $64.45 days and two nights, Lashbrook
buys from distilleries and hires pri- Control Commission. “We don’t Sources: Research by JENNIFER DIXON and VICTORIA TURK/Detroit Free Press squired them around the scenic
vate firms to distribute the prod- have the authority to say, ‘Go to an- Finger Lakes region.
ucts. other wholesaler.’ ” Detroit Free Press They hunted ducks from a
The Michigan Beer & Wine Unlike beer suppliers, wine sup- blind at the edge of a small pond
Wholesalers Association, which pliers are allowed to use more than them protection by approving dent of the wholesalers associa- The practical effect of price as snow fell and gusts of wind
represents 75 family-owned dis- one distributor in a territory, a sys- franchise laws for beer and wine tion, said the group sought the postings is that wholesalers cannot lashed their faces. They went on
tributors, describes its members tem known as dualing. But Perkins distributors. franchise laws because it wanted be drawn into a price war, especial- a winery tour. They ate togeth-
as the vital link in the equation. The said large wineries tend to give Vintners and brewers cannot its distributors protected “from ly for beer, industry experts say. er. And they talked business.
group says the state benefits from wholesalers exclusive territories. ask to see a wholesaler’s books as a overnight terminations.” The wholesalers say the price Lashbrook discussed his
the system because wholesalers The wholesalers say territories condition of renewing an agree- Ghosh, the U-M marketing pro- postings protect small merchants concerns about a federal law-
help assure the collection of all tax- are good for consumers because ment and cannot set a wholesaler’s fessor, said of the wholesalers: by allowing them to buy beer and suit filed by a handful of wine
es due from brewers and wineries. merchants are assured of being prices or force a wholesaler to con- “Unless and until you really do bad wine for the same price as big na- connoisseurs seeking the right
Wholesalers must inform the li- able to buy all brands carried by tribute to any local or national ad- things, you’re basically assured tional chains do. Volume discounts to buy wines directly from out-
quor commission of all the beer their wholesalers, regardless of vertising fund controlled by the you are going to get the business in on wine and beer are not allowed. of-state wineries, Richardville
and wine they buy for resale. Beer their size or location. manufacturer. perpetuity.” Critics say the price rules are said. If the suit succeeded, con-
and wine makers also must report Mrinal Ghosh, assistant profes- The law, in effect, also makes it more about protecting the whole- sumers could bypass Michi-
all shipments to wholesalers. The sor of marketing at the Stephen M. nearly impossible for a brewer or Price protection salers’ bottom line than creating a gan’s wholesalers and retail
various records allow the commis- Ross School of Business at the Uni- winery to fire a wholesaler, unless Michigan’s beer and wine dis- level playing field. And even outlets and buy directly from
sion to verify that excise, or com- versity of Michigan, said exclusive a wholesaler commits fraud in its tributors are insulated from price though small retailers may be wineries in California and else-
modity, taxes are paid, the whole- territories have value. dealings with a supplier, fails to wars and can’t give volume dis- helped, the critics say, anticompet- where.
salers say. The taxes amount to One benefit is that manufactur- comply with its agreement with its counts to large customers, such as itive controls harm consumers. “That could do damage to the
about $50 million a year. ers deal with only one distributor supplier, sells outside designated Costco, Meijer or Farmer Jack. “In every other facet of U.S. in- wholesalers in Michigan,” Rich-
Critics, though, say the whole- in each territory, giving them some territories or loses its state license. Under state rules known as dustry, quantity discounts are a ardville said.
salers mainly are interested in pro- control over the freshness of the It’s rare for a wholesaler to lose price postings, beer wholesalers fact of life,” said John Taylor, asso- The case landed before the
tecting their monopoly. The trade beer. They can dictate storage its license. Perkins said the state must tell the Liquor Control Com- ciate professor of marketing and U.S. Supreme Court, where the
group’s members control the dis- temperatures in the wholesalers’ has not revoked a wholesaler’s li- mission how much they charge re- logistics at Grand Valley State State of Michigan defended the
tribution of 98 percent of the beer warehouses and buyback policies cense in his 27 years with the agen- tailers for every product. If a University and a scholar with the laws at taxpayer expense. A de-
sold in Michigan and more than 90 for outdated beer on store shelves. cy. wholesaler lowers a product price, Mackinac Center for Public Policy, cision is pending.
percent of the wine. The rest is ei- “Exclusivity helps you maintain The franchise law also allows the company must tell the state a think tank in Midland. Basham said the trip was
ther distributed by small, specialty that brand integrity,” he said. “The the owners of these businesses to and keep the price the same for at “There’s almost no sector of in- simply a hunting outing with
wholesalers or sold directly to con- distributor is responsible for the pass ownership of the company to least 180 days. dustry where we require that small friends.
sumers by in-state wineries and freshness of the beer.” family members when they die or Wine wholesalers must file a buyers be allowed to buy at the Lashbrook said the legisla-
small brewers. retire, and the breweries and win- quarterly schedule of prices same price as bigger buyers. tors reimbursed him for their
Harry Schuhmacher, editor of Lifetime guarantees eries cannot stop those transfers. charged to their retailers and can- There’s no economic logic to that rooms. Disclosure statements
Beer Business Daily, a daily news- Michigan’s wholesalers have The family-owned businesses tend not change those prices without whatsoever.” show he spent $82.35 on food
letter for industry executives, said made it tough for brewers or win- to be passed from one generation commission approval. Price and beverages for each lawmak-
every state has a system for regu- eries to fire them. to the next. changes on wine must remain for Contact JENNIFER DIXON at 313- er.
lating alcohol sales and distribu- In 1984, the Legislature granted Dennis Hybarger, vice presi- at least 14 days. 223-4410 or email@example.com. Richardville said the trip was
low-key — and cold more than
anything else. “It was not all
In Michigan, 2.35 gallons, or 11.90 bottles, of wine are consumed per adult per year. that extravagant,” he said. “It
Sources: Michigan Liquor Control Commission and Wayne State University
By Jennifer Dixon