AUSTIN, Texas -- A state Supreme Court ruling in favor of the Texas Alcoholic Beverage Commission could derail a plan by beverage and retail player Fomento Economico Mexicano SAB de CV (FEMSA), owner of the OXXO chain of convenience stores in Mexico, to expand into the United States.
In a 6-2 decision, the high court upheld the TABC’s denial of a retail permit to a foreign corporation whose parent company also holds a 20% ownership interest in a foreign brewer.
Monterrey, Mexico-based FEMSA operates in the beverage industry through Coca-Cola FEMSA, the largest franchise bottler of Coca-Cola products in the world, and through its ownership of the second-largest equity stake in Heineken. It also owns more than 15,400 OXXO c-stores and nearly 500 OXXO gas stations in Mexico and Central America.
Company executives have said they want to invest hundreds of millions of dollars to open as many as 900 OXXO c-stores in Texas, contingent upon changes to alcoholic beverage laws in the state that prohibit retailers of alcohol from being owned by firms with ties to the liquor industry.
"We have requested the appropriate governmental authorities for an authorization to sell alcoholic beverage products in small-format retail stores in Texas, [and] such [a] request is currently being reviewed by the courts of Texas,” FEMSA said in a 2015 statement. “We have also presented our arguments to legislative and executive bodies for them to consider an amendment to the law that would more clearly allow FEMSA Comercio to sell alcoholic beverages in Texas than present law.
“If these efforts are successful, and provided that the economic and regulatory environment permits it, FEMSA Comercio estimates that in the first 10 years, approximately $850 million could be invested by the company for the opening of 900 retail stores in Texas.”
In April, the Texas Supreme Court issued a ruling in Cadena Comercial USA Corp. dba OXXO v. Texas Alcoholic Beverage Commission, affirming lower court rulings in favor of the TABC and offering an opinion for the first time on the application of Texas’ “tied-house” law.
The Texas Alcoholic Beverage Code defines a tied house as “any overlapping ownership or other prohibited relationship between those engaged in the alcoholic beverage industry at different levels, that is, between a manufacturer and a wholesaler or retailer or between a wholesaler and a retailer, as the words ‘wholesaler,’ ‘retailer’ and ‘manufacturer’ are ordinarily used and understood.”
FEMSA formed Cadena Comercial USA Corp. to open and operate convenience stores in Texas, according to the Texas Supreme Court’s opinion, delivered by Justice Phil Johnson. In 2011, Cadena sought a retailer’s permit to sell beer and wine in its stores. Routine financial disclosures Cadena made during the application process revealed FEMSA’s ownership and its “significant” interest in Heineken and rejected Cadena’s application based on tied-house law, the opinion said.
Cadena argued that the application should have been granted because despite its interest in Heineken, it does not have the ability to manage or control Heineken, and that its connection to Heineken is too “remote.”
Cadena appealed to the district court, which upheld the ruling. It appealed again, and the court of appeals also upheld the ruling, maintaining that the company “has an interest in the business of a brewer [and that] broadly encompasses any commercial or economic interest that provides a stake in the financial performance of an entity engaged in the manufacture, distribution or sale of alcoholic beverages.”
Justice Don Willett delivered the dissenting opinion, saying, “I would reverse [the majority’s argument] and hold that FEMSA, Cadena’s far-removed parent, does not have an ‘interest’ in the business of a brewer within the meaning of [the law].”
The majority opinion also said that the dissenting opinion would undermine the separation between the tiers of the state’s alcohol-beverage system.