Minnesota Budget Battle Hits Beer

MINNEAPOLIS ( TheStreet) -- Minnesota's government shutdown is tapping into beer sales and signaling last call for some bars' beer-buying abilities, but is it really a crisis?

MolsonCoors' ( TAP) MillerCoors division would say yes. The state's budget battle resulted in a July 1 government shutdown, a complete breakdown in negotiations between Republicans and Democrats and a mess for MillerCoors, since a delay in the renewal of its brand label registration may force the beer giant to pull its 39 brands from the state until its sales and distribution agreements or even the budget standoff are sorted out.
Minnesota's government shutdown is tapping into beer sales and signaling last call for some bars' beer-buying abilities. Political troubles in other states have also been trouble for beer makers.

That's assuming they'll have a place to sell it. About 300 bars, restaurants and stores are watching their beer supplies dwindle after the government shutdown scuttled their opportunity to renew a $20 "buyer's card" that allows them to replenish their beer and other alcohol supplies. Once July ends, that list of nearly dry bars will be up to 425. That's little more than 4% of the 10,000 establishments in the Minnesota Licensed Beverage Association selling beer and liquor throughout the state, but it's enough to get the MLBA's attention.

Bars and taverns are already in trouble across America. The National Restaurant Association notes that bar numbers declined by 282 last year and by 910 locations in the past two years. Softening bar sales reduced bars from 25% of all beer sales just a few years ago to 20% last year, according to the Beer Institute.

To prevent its bars from joining those ranks, the MLBA has been petitioning the skeletal post-shutdown government to fund the part-time clerical staff necessary to process buyer's card renewals. In the middle of beer sales' summer peak, when the Treasury Department's Alcohol and Tobacco Tax and Trade Department says beer production ratchets up to an annual high of more than 18 million barrels per month and topped out at more than 18.5 million barrels last June, some establishments just can't wait that long.

"If your buyer's card expires without renewal you cannot purchase from a wholesaler," MLBA Executive Director Frank Ball said in a statement to the group's members. "If a wholesaler is willing to sell to you illegally, you should not be tempted."

MillerCoors has just as much reason to be in crisis mode. The warm spring and summer months produced more than $4.1 billion of the company's net sales last year and 55% of its total net sales. Meanwhile, MillerCoors' U.S. production dropped 3% and its share of the U.S. market slid from 29.5% to 28.9%. Losing an entire state is not what MillerCoors needs right now, especially with Anheuser-Busch Inbev ( BUD) still holding 48% of the U.S. market and the craft beer industry growing 11% by volume and 12% by revenue last year; Samuel Adams maker Boston Beer Co. ( SAM) alone grew 11.8%. Even imports hit hard by the recession are heating up again, including Diageo-Guinness ( DEO) shipments increasing 4% last year.

MillerCoors isn't going to let Minnesota slip away so easily. MillerCoors spokesman Julian Green says the company filed all brand licensing paperwork with Minnesota and paid to renew 39 brand registrations by the required date of June 13. He added that the company was told by the state that it overpaid by $210 and sent a new check which was received June 27 -- three days before the government shutdown. The state wants MillerCoors to pull its product, but the company has informed its distributors and retailers that they should continue to sell the brands, including Fosters, Killian's Irish Red, Leinenkugel's, Peroni, Icehous and Keystone Light, as usual.

"At no time were we informed our renewal forms were filed in error or would not be processed by June 30 due to overpayment," Green says. "We believe it is unfortunate that we and other state licensees are being impacted by the state shutdown when we followed all applicable laws."

MillerCoors and the bars of Minnesota have plenty of company when it comes to confronting a regional beer crisis. Craft brewers in Wisconsin were skunked by Gov. Scott Walker last month when he signed a state budget that restricts brewers from obtaining a wholesaler's license and, by extension, independently distributing their beer or even doing so through a brewpub. The bill was designed to protect hometown Milwaukee-bred Miller and MillerCoors from being engulfed by Anheuser-Busch-bought distributors, but ended up severely hindering the business of Wisconsin craft brewers such as New Glarus, Minhas Craft and Capital.

The measure faced opposition from a bipartisan group of roughly 30 Democratic and Republican state lawmakers. Small brewers and brewers guilds in states including Pennsylvania and Massachusetts have voiced opposition to similar plans in recent years, with their protests taking on greater urgency after Anheuser-Busch InBev bought the Craft Brewer's Alliance's ( HOOK) Goose Island Brewery earlier this year; equity firm North American breweries bought up craft brewers including Vermont-based Magic Hat and Portland, Ore.-based MacTarnahan's; and former Skyy Vodka executives bought 115-year-old San Francisco brewer Anchor Brewing last summer.

-- Written by Jason Notte in Boston.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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