Senate Bill 1120
A message from the Idaho Beer & Wine Distributors Association HERE.
Wholesaler Pricing Regulations
The 21st Amendment to the Constitution repealed Prohibition and gave each state, individually, broad authority to regulate alcohol sales within their borders. Most states (including Idaho) established a three-tier structure: manufacturers (brewers/wineries), wholesalers/distributors and retailers. States included restrictions on wholesaler pricing practices intended to strengthen the three-tier system, reduce the amount of low-price alcohol products in society, and combat corruption and crime in the alcohol market.
Research suggests that the specific wholesaler pricing restrictions stabilize the price of alcohol to consumers and help prevent society’s access to cheap alcohol. Research also shows that underage consumption and problems are strongly influenced by alcohol prices. One study has suggested that restrictions on certain wholesale pricing practices may have a stronger effect on alcohol pricing than do alcohol taxes.
Types of Wholesaler Pricing Policies
In general, wholesaler pricing regulations include: restrictions on volume discounts, restrictions on discounting practices, price posting requirements and restrictions on the ability of wholesalers to provide credit extensions to retailers.
Volume Discounting Restrictions
Large retailers often have an advantage over smaller retailers due to the large volumes they are able to purchase at once. This purchasing power allows them to negotiate lower prices on most commodities and therefore offer items at lower prices to consumers. Many states (including Idaho) have imposed restrictions on the ability of wholesalers to provide volume discounts. The same price must be charged for products regardless of the amount purchased by individual retailers. The primary purpose of these laws is to protect small retailers from predatory marketing practices of large volume competitors and to prevent corruption. They have a secondary effect of increasing retail prices generally by making retail price discounting more difficult.
Credit Extension Restrictions
Many states, including Idaho, restrict alcoholic beverage wholesalers’ ability to provide credit to retailers, by banning loans and limiting the period of time required for retailers to pay invoices – sometimes called the “cash law.” The primary purpose of the restrictions is to limit the influence of suppliers and wholesalers on retailer practices. When a retailer is relying on a wholesaler’s credit, the retailer is more likely to promote the wholesaler’s products and to agree to the wholesaler’s demands regarding product placement and pricing. The restrictions have a secondary effect of limiting the retailer’s ability to operate on credit, indirectly stabilizing retail prices.
Liquor licenses in Idaho are governed by a “quota” system. Each incorporated city is allowed two (2) licenses and an additional license for every additional 1,500 residents. Tying liquor outlets directly to the number of residents is good public policy.
The quota system has been attacked because some license holders have obtained licenses for financial speculative purposes. Because licenses are in demand with limited supply, the value of those licenses on the open market have become exorbitant. The IBWDA believes that efforts to reform the liquor licensing system should focus on ending the speculative market NOT dismantling the population-based quota system.