AL­CO­HOL POL­I­TICK­ING

Mix­ing busi­ness with mea­sures

The Oklahoman (Sunday) - - FRONT PAGE - BY DAVID DISHMAN AND DAVE CATHEY Staff Writ­ers

Democ­racy, cap­i­tal­ism and an en­tire state’s his­tory’s worth of re­sis­tance to the al­co­hol in­dus­try col­lided in 2016 at vot­ing booths across Ok­la­homa.

Vot­ers over­whelm­ingly ap­proved a mea­sure to al­low stronger beer in gro­cery and con­ve­nience stores, and pro­vide liquor stores the abil­ity to re­frig­er­ate their prod­ucts. It ef­fec­tively elim­i­nated a need for “3.2” beer, which was sold for decades due to re­stric­tions on a prod­uct’s al­co­hol by

vol­ume sold by cer­tain re­tail­ers.

The mea­sure rode a wave of sup­port on the prom­ise of con­sumer con­ve­nience, while over­com­ing voices of dis­sent warn­ing of dam­age to lo­cally owned busi­nesses and po­ten­tially higher prices to con­sumers. It wasn’t the first time al­co­hol re­form in Ok­la­homa had been at­tempted, but it was the most dras­tic change in more than half-acen­tury.

A pas­sion for change

Stephanie Bice was elected to the state Se­nate in 2014 with as­pi­ra­tions of over­haul­ing Ok­la­homa liquor laws. Bice felt the laws cum­ber­some to the cus­tomer ex­pe­ri­ence — if she was cook­ing for her fam­ily or friends on a Sun­day, why shouldn’t she or any­one else be able to pur­chase a bot­tle of wine at a gro­cery store? Why shouldn’t liquor stores be able to re­frig­er­ate their prod­ucts, like many other states across the coun­try?

But Bice would need help from col­leagues like Clark Jol­ley, R-Edmond, and in­dus­try pro­fes­sion­als to achieve her goals. Bal­anc­ing mul­ti­ple in­ter­ests in an in­dus­try worth hun­dreds of mil­lions of dol­lars an­nu­ally was the only way to achieve al­co­hol re­form, and it was go­ing to take time.

“There’s a lot of play­ers, a lot of stake­hold­ers and a lot of dif­fer­ent as­pects of the in­dus­try that were im­pacted,” Bice said. “It was a huge un­der­tak­ing to get all of those stake­hold­ers en­gaged and to come to some sort of agree­ment in some way, shape or form.”

Cap­i­tal gains

Bice met with many in the in­dus­try, from pro­duc­ers to whole­salers to re­tail­ers, seek­ing sup­port from key play­ers along the way. Her work to win over these stake­hold­ers is ev­i­denced by the myr­iad busi­nesses and in­di­vid­u­als with ties to the in­dus­try who can be found in Bice’s cam­paign con­tri­bu­tion re­ports, in­clud­ing Ok­la­homa Beer Al­liance Pres­i­dent Lisette Barnes, Krebs Brew­ing Co. owner Zachary Prichard, the Wal­mart po­lit­i­cal ac­tion com­mit­tee, the Ok­la­homa Restau­rant As­so­ci­a­tion Po­lit­i­cal Ac­tion Cam­paign, the own­ers of Cen­tral Liquor and more.

Most in the gro­cery store and con­ve­nience store busi­ness were pro­po­nents of the mea­sure as it pre­sented a lu­cra­tive op­por­tu­nity, grant­ing en­try into the wine and strong beer mar­ket.

Liquor store own­ers were split on the is­sue, with some ex­cited for the prospect of sell­ing cold beer while oth­ers were wary of lost prof­its and in­creased com­pe­ti­tion for beer and wine.

Whole­salers, like Cen­tral Liquor, were also split on the legislation. Per­haps the least-pub­li­cized change made pos­si­ble by State Ques­tion 792 was an ad­just­ment to the dis­tri­bu­tion model within Ok­la­homa, which al­tered a mar­ket worth hun­dreds of mil­lions an­nu­ally and trig­gered a race to cap­ture mar­ket share. Bro­kers and whole­salers were granted the op­por­tu­nity to merge, and busi­ness is boom­ing in this new mid­dle tier.

Be­fore the law change, a hand­ful of bro­kers and whole­salers func­tioned sep­a­rately. Bro­kers fa­cil­i­tated deals be­tween beer, liquor and wine man­u­fac­tur­ers from across the coun­try and whole­salers within Ok­la­homa. By merg­ing the two tiers, these new firms are free to

per­form tasks of both bro­ker and whole­saler, while fight­ing for a share of the newly com­bined mar­ket.

The size of this new merged mar­ket is stag­ger­ing. Rick Naifeh, a bro­ker un­der the old sys­tem and owner of Ok­la­homa City­based Premium Wine and Spir­its, es­ti­mates busi­nesses in the mid­dle tier of the al­co­hol in­dus­try will be fight­ing for a piece of a $500 mil­lion pie. He plans to ex­pand his busi­ness by merg­ing with Thirst Wine Mer­chants to form Revo­lu­tion — a new whole­saler in the mar­ket.

How­ever, not ev­ery­one has the same abil­ity to self-ex­pand. Lim­its were writ­ten into the law re­quir­ing the firms in this mid­dle tier be par­tially owned by an Ok­la­homa busi­ness. Many al­ready are, but the two largest — RNDC and South­ern Glazer’s — are not.

RNDC and South­ern Glazer’s are both na­tional dis­trib­u­tors. The two com­pa­nies cu­mu­la­tively em­ploy tens of thou­sands of peo­ple and op­er­ate in dozens of states across the coun­try. Both com­pa­nies op­er­ated as bro­kers within Ok­la­homa be­fore the law change took place, but in order to ex­pand in the wake of State Ques­tion 792 they needed to merge with a lo­cal whole­saler. RNDC ul­ti­mately merged with Cen­tral, and South­ern Glazer’s joined with Tulsabased Jar­boe Sales Co.

“That made our de­ci­sion to go for­ward with them,” for­mer Cen­tral Liquor owner and part­ner Brad Naifeh told The Ok­la­homan in De­cem­ber, when the merger be­tween Cen­tral and RNDC was an­nounced.

Brad Naifeh died this sum­mer and while he was

a rel­a­tive of Rick Naifeh, Cen­tral Liquor and Premium Wine and Spir­its are op­er­ated sep­a­rately. Brad Naifeh’s whole­sale busi­ness was key to Repub­lic’s en­try into the mar­ket.

“You had to be an Ok­la­homa per­son to be a liquor whole­saler,” Brad Naifeh said. “When the law changed, we could take an out­side whole­saler.”

RNDC Re­gional Pres­i­dent Jay John­son said the re­la­tion­ship with the Naifeh fam­ily was a driv­ing fac­tor in the de­ci­sion to merge with Cen­tral Liquor.

“We’ve had a longterm re­la­tion­ship with the Naifeh fam­ily,” John­son said. “We know them, we trust them, they’re great cit­i­zens of Ok­la­homa. It’s a big, big plus for us to be part­ners with the Naifehs.”

This re­la­tion­ship leads oth­ers in the in­dus­try to be­lieve the in­clu­sion of this dis­tri­bu­tion change was in­cluded for the ben­e­fit of these larger firms.

“The way they wrote the law, in order for Repub­lic to come into the state they had to buy a whole­saler,” Vance Gre­gory said. “An Ok­la­homa whole­saler, and it just so hap­pens they’ve had this re­la­tion­ship (with Cen­tral) a long time.”

“This was def­i­nitely a plan,” Rick Naifeh said. “This didn’t just hap­pen.”

Gre­gory and Rick

Naifeh both es­ti­mate Repub­lic and South­ern Glazer’s now con­trol 80 per­cent of the dis­tri­bu­tion mar­ket. This would not have been pos­si­ble with­out a merger with Cen­tral and Jar­boe, which was only nec­es­sary be­cause of the legislation change.

“Peo­ple out­side the in­dus­try sadly did not fully ap­pre­ci­ate it,” Gre­gory said. “For bet­ter or worse, you can wave the con­sumer flag all you want, but none­the­less this is not be­ing driven by con­sumers. This is be­ing driven by cor­po­rate in­ter­ests and that still sticks in my craw, it re­ally does, and as a ci­ti­zen I don’t like it.”

In the name of con­sumer con­ve­nience

De­spite its rep­u­ta­tion as a con­ser­va­tive, Bi­ble­belt state — Ok­la­homa passed SQ 792 by an over­whelm­ing mar­gin, car­ry­ing 65 per­cent of the vote. Po­ten­tial merg­ers and ac­qui­si­tions were even­tual byprod­ucts of Ok­la­homa’s de­sire for con­ve­nient and ex­panded ac­cess to al­co­holic bev­er­ages.

This thirst will af­fect the in­dus­try, the econ­omy and the state of Ok­la­homa for years to come. But to what ex­tent, and to whose ben­e­fit re­mains to be seen.

Some small busi­nesses fear for their abil­ity to re­main prof­itable and open. Dis­trib­u­tors be­lieve the state will ex­pe­ri­ence an in­flux of prod­ucts for cus­tomers to se­lect in stores, and con­sumer prices are de­bated by those across the in­dus­try.

There’s a lot of play­ers, a lot of stake­hold­ers and a lot of dif­fer­ent as­pects of the in­dus­try that were im­pacted. It was a huge un­der­tak­ing to get all of those stake­hold­ers en­gaged and to come to some sort of agree­ment in some way, shape or form.” State Sen. Stephanie Bice

[PHOTO BY CHRIS LANDSBERGER, THE OK­LA­HOMAN]

Work con­tin­ues at Mid­west Wine & Spir­its in Mid­west City as the store gets ready for Mon­day – the first day gro­cery stores and liquor stores can sell full-strength, cold beer in Ok­la­homa.

State Sen. Stephanie Bice speaks about liquor legislation dur­ing a visit ear­lier this month to Stonecloud Brew­ing Co. in Ok­la­homa City.

[THE OK­LA­HOMAN AR­CHIVES]

Bradley Naifeh, a for­mer co-owner of Cen­tral Liquor Com­pany who died in June, is shown in this 2009 file photo in the ware­house at Cen­tral Liquor Co. in Ok­la­homa City.

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