Mr. SCHULBERG. I know they have a right to do it but I suppose that economics motivates them too, unfortunately. Mr. MULTER. These advertisements will be received as exhibits. We won't make them a part of the record though. I think that would be too cumbersome. Is there anything else you would like to add, Mr. Schulberg? Mr. SCHULBERG. No, except to conclude that we respectfully urge that the subcommittee report favorably H.R. 2036 with the amendments we have offered. There is one other thing I would like to put in here. It is a statement by Mr. Holifield of California. Mr. MULTER. Yes. Mr. SCHULBERG. This is in a magazine, the May 1963 issue of MART magazine. He says this: In the men's wear industry in which I have spent 35 years, you operate on a 40-percent markup. This 40 percent is to take care of all your expenses. You pay union wages, fixed wages over which you have no control. You pay fixed prices for your utilities, your gas and your lights. You pay fixed prices for the freight on the products you handle. You pay fixed prices for your insurance. You pay fixed taxes which you have nothing to say about. All of these price fixed items of expense must come out of that 40-percent gross profit. You are lucky when at the end of $1 you get the last 5 cents of it as net profit before taxes. And then he goes on, just one more quote if I might from Mr. Holifield. He was talking about another bill which is now pending before another committee of the Congress. He says: This bill illuminates the difference between a standard of merchandising which is fair and honest and pays legitimate wages and provides legitimate working conditions and the slick operator on the manufacturing level who makes a piece of merchandise for a price, and the slick operator at the retail level who sells at a cutrate or use fraudulent and deceptive gimmicks. Does competition mean an absolute struggle between business entities without rules, without ethics, which is carried on ruthlessly until all opposition is destroyed? Does competition mean a struggle to the death in which ruinous price wars brings depressed markets and economic chaos to victor and vanquished? Does competition depend on price alone? Unlimited ruthless competition will end in the economic death of all contestants, but beneficial levels of competition can be maintained for the overall benefit of society if just and fair rules control the contest. I again want to thank the chairman for permitting me to be as verbose as I did get, and giving me the opportunity to express my opinions. I think that the chairman has answered Mr. Springer about the difference between the bill in Maryland and this bill and the intent, so I won't go into that. Mr. MULTER. Thank you very much, Mr. Schulberg. You are always very helpful and you have been helpful again. Mr. SCHULBERG. Thank you, sir. Mr. MULTER. Mr. Winakur. Is Mr. Winakur here? Mr. WINAKUR. Yes. Mr. MULTER. Will you come forward, sir? We are actually out of time. STATEMENT OF MILTON WINAKUR, PRESIDENT, RESTAURANT BEVERAGE ASSOCIATION Mr. WINAKUR. This is a very short statement. Mr. MULTER. I would like to conclude the public hearing this morning if we can. We are very happy to have you with us. Mr. WINAKUR. Mr. Chairman, gentlemen of the committee, I am Milton Winakur, owner and operator of the Crosstown Restaurant at 3102 Mount Pleasant Street, Washington, D.C. I appear here as president of the Restaurant Beverage Association of Washington, D.C., comprised of restaurants licensed to serve meals and alcoholic beverages for consumption on the premises in the District of Columbia. As it did last year in connection with H.R. 9808, our association gives its unqualified support to those features of H.R. 2036 as are applicable to the restaurant industry, especially those provisions which would 1. Require restaurants to derive a reasonable amount of their revenues from sale of food. 2. Permit the classification of champagne as a light wine. 3. Permit restaurants with class "C" licenses to extend credit to patrons on beverages as well as meals. 4. Remove restrictions in the present law which have resulted in restrictions on art shows and fashion shows in restaurants with ABC licenses. 5. Make possible regulations which would extend the time for service of drinks in restaurants beyond the hour of midnight on Saturdays. While we favor the rulemaking authority as set forth in section 5(b) of this bill; and while we have strong confidence in the impartiality of the present ABC Board, we believe it to be in the interest of the public and of the industry that the power to issue rules and regulations under the act remain with the Commissioners for the District of Columbia. We favor independent status for the ABC Board to the extent that the Commissioners should not have authority to dissolve the Board, which was created by an act of the Congress. We are pleased to note that H.R. 2036 incorporates a suggestion made last year by the Restaurant Beverage Association, namely, that an ABC licensee be afforded an appeal to the District of Columbia Commissioners in the event the Alcoholic Beverage Control Board should refuse to renew or reissue a license for an establishment already so licensed for the previous year. I think it might be well to take note of some significant developments since hearings were held last year on another omnibus ABC bill, H.R. 9808. At the time of last year's hearings here, there was pending in the U.S. Senate H.R. 7752, which subsequently passed the Senate and was signed into law by the President on or about June 1, 1962, making it possible for the first time since 1933 for a patron of a public restaurant here to be served a cocktail or highball while seated at a counter. Notwithstanding the apprehensions voiced in testimony of some witnesses on that bill, it is worthy of note that, after the House and Senate without a single dissenting vote, the service-at-the-bar law has not caused the slightest problem for the Police Department or any other enforce ment agency of the District. On the contrary, it has proved a long overdue accommodation to the public, who have received its enactment with the maturity we had predicted. We now favor the provision of the present bill which would extend such a concept to hotels as well as restaurants. Also, since hearings were held before this committee last year on H.R. 9808, following legal opinion of the Corporation Counsel for the District of Columbia, the Commissioners and the Alcoholic Beverage Control Board authorized the amendment of certain class "C" ABC licenses to include sidewalk cafe space, wherein patrons may drink licensed beverages in public view. Again, the public received this humanizing change in a spirit of moderation and maturity. The growing number of attractive sidewalk cafes here have won the warm and enthusiastic praise of our visitors from almost every State and foreign land. As a further development, in the summer of last year, the special committee of community and civic leaders appointed by the District Commissioners to study and make recommendations for needed changes in the ABC law and regulations, formalized its report and presented it to the Commissioners. That citizens committee, under the chairmanship of Isabell Gichner, recommended that the drinkingat-the-bar law passed in 1962 be further amended to include hotels. Other recommendations affecting the restaurant industry as contained in that committee's report are included in H.R. 2036 as well as in S. 852. Each of these three significant developments since last year's hearings on H.R. 9808 indicate that this community is genuinely and responsibly awakened to the need for substantial, commonsense updating of our alcoholic beverage control law. The changes which we support, and many others contained in H.R. 2036, are overdue, and will be received by the public with the same spirit of moderation and maturity with which the public last year received passage of the St Germain service-at-the-bar law and advent of sidewalk cafes. If there is still in the present bill (H.R. 2036) some provisions upon which a majority of this committee or of the House District Committee cannot reach agreement, we respectfully urge that steps be taken to report out a bill containing those important features of H.R. 2036, which shall win support of the majority of committee members. It is doubtful that the climate has ever been so favorable for updating the District of Columbia alcoholic beverage control law as it is this year. Respectfully submitted. Mr. MULTER. Thank you very much. Mr. Krash. STATEMENT OF ABE KRASH, ESQ., MISCELLANEOUS RETAIL LIQUOR DEALERS Mr. KRASH. I appreciate we are running out of time. I hope you will indulge me for 5 minutes. I ask leave of the chairman to have that statement reproduced in the record at this point. Rather than reading it, I would like to summarize it very briefly. Mr. MULTER. The complete statement will be made a part of the record together with the names and addresses of the retailers whom you represent. (The statement referred to follows:) RETAILERS REPRESENTED BY ABE KRASH Central Liquor Store, 518 Ninth Street NW., Washington, D.C. Clark's Liquors, 703 14th Street NW., Washington, D.C. Pearson's Liquor Annex, 2436 Wisconsin Avenue NW., Washington, D.C. Burka's, 3300 Wisconsin Avenue NW., Washington, D.C. Giant Liquor Store, 3504 Georgia Avenue NW., Washington, D.C. Rex Liquor Store, 5319 Wisconsin Avenue NW., Washington, D.C. Ace Beverages, 2446 18th Street NW., Washington, D.C. MacArthur Liquors, 4881 MacArthur Boulevard NW., Washington, D.C. Eagle Wine & Liquor, 3345 M Street NW., Washington, D.C. STATEMENT BY ABE KRASH ON H.R. 2036 Mr. Chairman and members of the subcommittee, I am an attorney engaged in private practice in the District and a member of the law firm of Arnold, Fortas & Porter. I am appearing in behalf of a number of independent retail liquor dealers who do business in the District.1 My colleague, Judge Thurman Arnold, testified before this committee a year ago in connection with H.R. 9808, the predecessor to the present bill. To avoid needlessly burdening the record, I should like to incorporate Judge Arnold's testimony by reference, and I shall confine my remarks this morning to certain changes made in H.R. 9808 by the bill presently before the subcommittee, H.R. 2036. We are deeply concerned by two sections in the present bill: (i) Subsection 5 of section 11 (page 20 of the bill, lines 4 to 17) which requires suppliers located outside the District to secure a wholesaler's license; (ii) Section 38 which forbids a retailer from making sales below cost. I specifically wish to comment upon subsection (b) (i) which defines cost as the net invoice cost plus "(C) a markup to cover the cost of doing business." I. DISCUSSION WITH RESPECT TO SUBSECTION 11 (5) I shall first discuss subsection 5 of section 11. In order to appreciate the true implications of this paragraph, it is necessary to bear in mind the system of distribution of alcoholic beverages in the District. There are some 16 licensed wholesale distributors located in the District who sell to 388 package stores and to other licensees, such as restaurants and hotels. Each of these wholesalers is the exclusive distributor in the District of the particular brands he handles. No other wholesaler-with negligible exceptions-handles the same brands. If the retailer wants these brandsand they are indispensable to any successful retail operation-the retailer is required to buy them from the wholesaler. The retailer is not permitted by the ABC Board to buy a brand from a supplier located outside the District if a local wholesaler handles that particular brand. In short, each wholesaler has a monopoly in the District over the brands he handles. It is common in the trade to distinguish between nationally advertised brands and private label or house brands, which are not widely advertised. The local wholesalers distribute all of the nationally advertised brands sold in the District. The private label brands, on the other hand, are obtained by the retailer for the most part from out-of-town suppliers. A retailer who wishes to purchase products from a supplier located outside the District obtains a permit from the 1 A list of the retailers I represent has been furnished to the clerk of the committee. They are: Central Liquor Store; Clark's Liquors; Pearson's Liquor Annex; Burka's; Giant Liquor Store; Rex Liquor Store; Ace Beverages; MacArthur Liquors; B-Z Liquor Mart; Eagle Wine & Liquor. ABC Board, which is usually issued as a routine matter. The retailer may purchase whisky in bulk from a distillery or rectifier located in Kentucky or Indiana and the distillery will bottle the whisky for the retailer under the retailer's house label. Since the cost of these products does not include the cost of national advertising, the retailer can sell them for a low price and still make a profit. These private label products are equal in quality to the nationally advertised brands, and they frequently are a real bargain for the consumer. The District is famous as an area where a great variety of fine imported vintage wines can be purchased at a reasonable price. It should be noted that this business was developed by imaginative, enterprising retail merchants-not by the wholesalers. These wines are frequently purchased by the retailer directly from the wineries in France, Germany, Italy, or Spain, or from brokers and importers. These purchases are usually made by the retailers in relatively small lots and from a great many different suppliers. A substantial percentage of the fine vintage wines presently sold in the District are obtained by the retailers directly from these out-of-town resources. These suppliers seldom sell to more than one or two of the local retailers. The nationally advertised brands constitute the overwhelming share of the sales made in this market. In 1962, approximately 90 percent of all the alcoholic beverages sold in the District were the nationally advertised brands handled by the local wholesalers. Figures maintained by the District Revenue Division show that for the first 6 months of fiscal 1962, the total taxes on spirits was $2,853,000, and only $317,000 represented the taxes on purchases by permit from out-of-town suppliers; in other words, only about 11 percent of the spirits sold in the District originated with out-of-town suppliers. Although the quantity of private label sales is relatively small, these products are highly significant to the consuming public. Private label brands furnish the only competition to the monopoly wholesalers; they act as a brake on price increases of the nationally advertised brands; and they insure local consumers a much greater variety of products, particularly fine vintage wines. H.R. 2036, in its present form, could have a very drastic effect on the competition presently provided by private label brands. Subsection 5 of section 11 creates a new class of wholesalers' license for the District. It authorizes the issuance of a license to a person who sells beverages in a place outside the District for resale in the District. A supplier of this type is required to register with the Commissioners and to pay a $250 license fee. The bill is ambiguous, but if enacted in its present form it may be argued that a local retailer cannot buy except from a wholesaler who is licensed under the act. In other words, a District of Columbia retailer could not buy from a winery in France unless that winery had a District of Columbia class C wholesale license. If this interpretation of the bill were upheld, private label products would virtually disappear from the local market. This is true simply because it would be economically prohibitive for an out-of-town supplier to pay a $250 tax when his sales to the local retailer may amount-as they not infrequently do to only 15 or 20 cases of merchandise worth $1,000 or less. By the same token, it would be economically prohibitive for the local retailer to purchase the license for the out-of-town supplier, since the additional cost would make the retail price of the merchandise prohibitively high. As a practical matter, retailers would be required to clear their private label brands through one of the local wholesalers. The wholesalers, of course, would insist on the payment of several dollars for each case imported. The price to the consumer would necessarily increase. I have assumed that the local wholesaler would bring in the merchandise if they were asked to do so by the retailer but there is no assurance that they would do so. On the contrary, the wholesalers, who already handle a line of nationally advertised brands, would have very little interest in helping the retailer import a competitive line of private label brands. There is no way to force the wholesaler to bring in these products. And so the retailers and consumers in the District would be completely at the mercy of the monopoly wholesalers. These wholesalers who already control 90 percent of the local market would then control 100 percent. This is not mere speculation, as experience in Baltimore some years ago demonstrated. I am informed that retailers there were required to clear out-oftown purchases through local wholesalers, and that the wholesalers simply refused to clear any such merchandise. thus closing the door for some years on out-of-town purchases. |