Sunday, August 23, 2009

Action Needed! Michigan Liquor Control?s Price Freeze - Bad for Business

August 23rd, 2009

Friends of New Holland Brewing and Artisan Spirits,
We must bring to your attention a “ruling” that the Liquor Control has just quietly announced. They have frozen any price increases for an undetermined length of time. Their rationale (which we have heard directly from MLCC staff) is that given the current state of the economy any further increases could impact the amount of smuggling that might occur into Michigan.

New Holland discovered this ruling because we are currently in the process of registering our Dutchess Vodka, scheduled for release into state-wide distribution on October 1st. Dutchess has been registered with the state previously, but only for in-house transfers, never being assigned to the A.D.A. (Authorized Distribution Agent.) In other words, it has only been sold to consumers from our building, so its price does not cover the associated costs with selling it into the trade. Costs such as freight, inventory carrying costs, sales and marketing, reformulation, and packaging/labeling improvements all need to be accounted for. Preparing for distribution, we submitted a price revision to address this change, only to be denied, due to a previously unannounced price-freeze.

We believe their position is both flawed and short-sighted. It is unfair, bad for business and will cost the State jobs. There are a few important points we’d like to make in asking for your support on this issue.
1) State –controlled liquor distribution should not be allowed to arbitrarily freeze or fix pricing from independent producers.
2) Supplier’s pricing does not affect smuggling. The difference between the retail price-point for a given product in MI versus the same product in an outlying state is the State of Michigan’s profit margin and excise tax. If Michigan believes it needs to be more competitive versus other states, it should evaluate its markup, rather than manipulate distillers. In fact, most Michigan producers have very minimal out-state business, if any at all, so their price in Michigan would not have any impact on border markets or smuggling of lower priced goods into the state.
3) Economic troubles are not directly related to perceived higher prices. A successful product or product launch at a higher price point means higher margins for the state, and all businesses related to the sale; delivery agents and the retailers that successfully build these brands.
4) This ruling prevents the Michigan distribution launch of New Holland’s Dutchess Vodka. Without an exception to or elimination of this price freeze, New Holland cannot afford to sell their Dutchess Vodka into Michigan distribution. It was scheduled for an October release, as October-December is the strongest quarter for spirit sales, industry-wide. This ruling will limit consumer choice by keeping Dutchess and other premium products from Michigan retailers and consumers. It will remove potential profit from three-tiers of business as well as the State of Michigan. In fact, it forces us to replace those potential sales by considering distribution of Dutchess to other states where our margin is intact; contrary to the intention of limiting smuggling or supporting Michigan businesses.

The Commission has set a hearing date for Tuesday, August 25 in Lansing at 12:00pm. If you do not support arbitrary price-control on spirits, and if you support the launch of Dutchess vodka, we urge you to write the commission now and ask them to reconsider. Of course, we ask that you remain polite and professional in your request. Their contact information is: Chairwomen Nida Samona contact info: PH. (517) 322-1353 FAX (517) 322-5188

Thanks for your support.

New Holland Brewing Company & Artisan Spirits

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