Why Can't McLane Distribute Alcohol in Texas?

Lawsuit seeks to rectify 'arbitrary, unreasonable' regulation, could also open the door for Mexican retailer

By 
Steve Holtz, Editor in Chief, CSP Daily News

no one share rule, texas

AUSTIN, Texas -- Distributor McLane Co. Inc. has joined with the Texas Association of Business in a lawsuit filed June 27 against the Texas Alcoholic Beverage Commission (TABC) in federal court to force the TABC to apply the Texas Alcoholic Beverage Code in a fair, consistent and legal manner.

While the issue initially focuses on McLane's effort to gain an alcohol wholesaler permit, it also could ease the path for Mexico's retail giant OXXO to gain a foothold in the United States.

"Our goal to is to provide retail more choices. Allowing us to offer the service we provide for thousands of items while adding wine and spirits keeps our customers responsive to consumer [needs]," Neftali Garcia, vice president, governmental affairs for McLane Co., told CSP Daily News. "Because of the TABC's misguided and arbitrary rule, the TABC is effectively keeping us from meeting those demands."

Citing recent examples of the TABC withholding permits from an OXXO convenience store in south Texas and Temple, Texas-based McLane Beverage Distribution Inc., the Texas Association of Business "was compelled to file the lawsuit based on the TABC’s arbitrary licensing practices" and specifically the state's One Share Rule, the group said.

The One Share Rule was enacted to preserve the three-tier distribution system meant to separate manufacturers, distributors and retailers. The One Share Rule bans even one overlapping share of stock ownership across tiers.

Specifically, the TABC will not approve McLane’s application for an alcohol wholesaler permit because McLane’s parent company—Berkshire Hathaway Inc.—owns a small percentage (about 2%) of Wal-Mart Stores Inc.’s stock, according to court documents accessed by CSP Daily News.

"Because Berkshire Hathaway owns McLane and a small percentage of Wal-Mart stock, the TABC’s One Share Rule dooms McLane’s permit application," the document says.

Typically, most alcohol distribution to convenience stores is done by wholesalers partnered with major beer brewers.

The lawsuit also invokes OXXO's Dallas-based Cadena Commercial USA Corp., the Mexican convenience-store retailer's U.S. venture. The retailer has two OXXO c-stores in operation in Texas, with plans for as many as 900. It has not, however, been allowed to sell alcohol because OXXO's parent company is FEMSA (Formento Economico Mexicano), which owns a 20% share in Amsterdam-based Heineken.

That ruling is under review by the Texas Supreme Court.

Ultimately, the Texas Association of Business would like to force the TABC to abandon its One Share Rule and enforce the three-tier distribution system "in a fair, consistent and legal manner," the group said.

"The One Share Rule is arbitrary, unreasonable and has no rational relationship to a legitimate governmental interest," the lawsuit says. "No logical connection exists between the state’s interest in preventing cross-influence or control of tiers of the system of alcohol distribution in Texas and the One Share Rule."

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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