And that language, since it is definite and clear and would apply to invoice cost plus freight, would be the same thing to everybody, and, it seems to us, would be preferable to the present language.

We therefore suggest its substitution.

Mr. MULTER. All right, Mr. Bindeman. The argument made against this provision, whether they label it "price stabilization" or "price fixing" or what have you, the argument made against it was, in part, that since there have been no bankruptcies in the District of Columbia by retail licensees, and since retail licensees put such a tremendous price upon their goodwill, which comes to them solely because they do have a license which gives them a quasi-monopoly, that therefore the argument is fallacious that selling under costs may lead to bankruptcy.

Does that not, however, lead to the other assumption, which is almost conclusive: If selling under cost does not lead to bankruptcy, and then people who are advertising their product as being less than cost are perpetrating a fraud on the public, because either they are not selling at less than cost or they would go into bankruptcy? And if they are advertising they are selling at less than cost and not doing it, they are perpetrating a fraud on the public.

Mr. BINDEMAN. It is an undesirable situation. Certainly we have seen advertisements of merchandise offered for sale and to the retail public at a price much less than we pay for it.

Now, we do not understand it. And I say this is astonishing, as I have said in my statement. But there it is. And certainly this is not healthy, because it leads to all kinds of things, including bankruptcies.

Mr. MULTER. It also leads to the business of using the so-called loss leader to bring the customer into the place. He may be standing in line waiting for the store to open but the minute he goes in, the retailer tells him: We are all out of that now. That happens repeatedly on these loss leaders, does it not?

Mr. BINDEMAN. Or he may get switched over to some other item by some high-pressure salesman.

Mr. MULTER. That is right. And he will sell it to him at a much higher cost.

Mr. BINDEMAN. That is right.

Mr. MULTER. But this is not a price-fixing bill.

Mr. BINDEMAN. It is an unhealthy practice, I would say, sir.

Mr. MULTER. Any questions?

Mr. HUDDLESTON. No, sir.

Mr. SCHWENGEL. No questions.

Mr. MULTER. Thank you very much, Mr. Bindeman.

Mr. BINDEMAN. Thank you, sir.

Mr. MULTER. It is now 6 minutes to 12. I suggest if there are any other witnesses present who would like to file their statements, we will receive them and make them part of the record.

Mr. Upham, would you like to file your statement?

Mr. UPHAM. Yes, Mr. Chairman.

We were represented last session on H.R. 9808, and our position is substantially the same.

Mr. MULTER. Yes. Well, then the statement will be made part of the record.

(The full statement of Mr. Bindeman follows:)

My name is J. E. Bindeman. I am an attorney at law and I represent Major Liquor Stores which is a voluntary trade association of approximately 100 retail liquor dealers in the District of Columbia. Most of our members own small stores and we believe that our membership is composed of typical small retail liquor dealers in the District of Columbia.

There are two major aspects of H.R. 2036 about which I would like to testify.

The first one concerns the present solicitor system and the attempt to change that system by section 11, subsection 5, and section 11, subsection 12. These sections woudl change the existing rules with respect to solicitors and allow them to solicit orders only on behalf of wholesalers licensed under the act. We strongly oppose any change in the present solicitor system.

The system whereby retail liquor dealers purchase their merchandise is unusual. Under present laws, a retailer cannot purchase his regular merchandise from the cheapest source available. The law compels every retailer to purchase a brand sold in the District of Columbia only through the local wholesaler handling it. In any other business a retailer may purchase his merchandise from the cheapest source possible. But the law of the District of Columbia does not permit that freedom of choice. Each wholesaler who sells a brand in Washington has a monopoly on that brand, and every retailer who wants to buy that merchandise must purchase it only from such wholesaler at the price set by that wholesaler.

You will see that this monopoly could very easily be abused by the setting of unnaturally high prices. But when the original Alcohol Beverage Control Act was passed in 1934, Congress provided against that abuse by building a safeguard into the law. That safeguard is the existing solicitor system. The present law permits out-of-town distributors to sell merchandise through their authorized agents-the solicitors. These solicitors offer for sale merchandise comparable in quality to brands sold in the District but less in price. The merchandise is usually top-grade whisky packaged according to the wishes of the retailer and known as "private brands." The sale of private brands is in the public interest. In the first place, the savings in price effected by the retailers are passed on to the consumer, who gets a bargain in good merchandise at reasonable prices. Secondly, the solicitor system acts as an effective brake on excessive wholesale prices for merchandise in the District of Columbia. For the wholesaler knows that he has to meet this competition and therefore cannot set unnaturally high prices.

It is understandable that local wholesale interests would want to do away with this effective competition, but any change in the present system would encourage monopoly and take money out of the pockets of consumers.

We believe very strongly that any legislation which tampers with the solicitor system is contrary to the public interest.

It is not a justification in support of the proposed change to say that another section of the proposed bill (sec. 11, subsec. 5) permits the solicitors' suppliers to come into the District of Columbia and qualify as a wholesaler. Some of the solicitors' suppliers may in fact do so, but others may not do so, since it involves becoming subject to the laws of the District of Columbia. And to the extent that even one supplier does not choose to come into the District of Columbia and register and obtain a license, to that extent the solicitor's source of supply will be diminished and again to that extent, the public interest will be adversely affected. Moreover, I call to your attention that the bill does not require supplies of class A wholesalers to come into the District of Columbia and obtain a license.

There is no reason to tamper with the present solicitor system. It works very well for retailers and it works very well for the consuming public. We urge that you eliminate these two sections of the bill which will alter the present solicitor system, and reinstate the present section relating to solicitors.

We are in favor of the principle behind proposed section 38 which would prohibit sales at less than cost. We favor this principle because it would eliminate cutrate loss leaders and bring some order out of an extreme situation. My clients are astonished by the fact that various stores sell merchandise below their invoice cost. This, it seems to us, can only lead to bankruptcy. We therefore strongly urge the adoption of a section which would prohibit sales at less than cost.

But we call your attention to the language of section 38(b) (1) which defines "cost" as the invoice costs plus freight, plus "a markup to cover the cost of doing business." That language would place our small member stores at a serious disadvantage. For the unit cost of doing business of the large stores must be much less than the unit cost of the small stores. This section would permit the larger store to sell at a lesser price than the small store. The bill permits us to meet that price, but only at an economic loss to such small stores. That would simply repeat the present situation.

We would prefer that a definite sum be established by the bill as "the cost of doing business." The bill considered by the Congress last year (H.R. 9808, 87th Cong., 2d sess.) placed 6 percent of the total cost as "the cost of doing business." That language would seem to be preferable to the present language and we suggest its substitution.

Mr. MULTER. The next witness is Mr. F. Bourne Upham, of Baltimore, Md., representing various Maryland breweries; and their names are in the statement.

Mr. UPHAM. That is right. The five Maryland breweries which do business in the District, sir.

Mr. MULTER. Yes. We will make the statement part of the record. Mr. UPHAM. Thank you, sir.

STATEMENT OF F. BOURNE UPHAM III, REPRESENTING THE NATIONAL BREWING CO., OF BALTIMORE; THE AMERICAN BREWERY, OF BALTIMORE; THE GLOBE BREWING CO., OF BALTIMORE; THE QUEEN CITY BREWING CO., AND THE CUMBERLAND BREWING CO., OF CUMBERLAND, MD.

Mr. UPHAM. Chairman Multer and members of the subcommittee, my name is F. Bourne Upham III.

I am here representing the National Brewing Co., of Baltimore; the American Brewery of Baltimore; the Globe Brewing Co., of Baltimore; the Queen City Brewing Co. and the Cumberland Brewing Co., both of Cumberland, Md. These are the Maryland-owned breweries selling their product in the District of Columbia.

I wish to express the opposition of the aforementioned breweries to that portion of section 18 of H.R. 2036 relating to the permissible dollar limit on the value of point-of-sale material which may be given to a retail licensee by a manufacturer or wholesaler of beer. I would like to add that we take no stand on the merits of the balance of the provisions of H.R. 2036 though we are interested in any legislation which will work for the betterment of our industry.

This proposed revision of the District of Columbia Alcoholic Beverage Control Act would raise the dollar value "gift or service" permitted under the so-called "tied house" sections of the law by 50 percent. The current law sets the permissible limit on the value of point-of-sale material placed on the premises of an alcoholic beverage licensee by a brewer, distiller, or wholesaler at $10. The proposed revision would raise this limit to $15. We believe any increase in the amount of the value of "gifts or service" to a retail licensee would simply add another cost to an already burdensome cost picture for the brewing industry and would intensify the pressure for a price increase an increase which obviously would bring no benefit to the

consumer.

We firmly believe that promotional material can effectively be executed with taste and dignty within the present $10 limit. We are not

convinced that larger or brighter signs or displays will increase the demand for beer. While it is true, that in general, costs of materials which could be used in the creation of point-of-sale pieces might have increased since the establishment of the original $10 limit, it is equally true that during that period entirely new materials and processes have been developed, particularly in the field of plastics, which have taken the place of the more expensive materials.

It is our contention that the increase of the permissible limit of "gifts or service" from $10 to $15 is going to be reflected in the widespread use of lighted, moving signs which will be the antithesis of dignity. I would like to point out also that over and above the esthetics of higher priced signs, an increase in the permissible value of pointof-sale pieces will certainly put the small- and medium-sized breweries at a considerable competitive disadvantage with the national breweries. The national breweries, because of the number of outlets for their product, already are able to purchase this type of material in large volume and thus produce an item with a unit cost of $10 which considerably surpasses anything the small brewery can produce with a similar unit cost.

There has been considerable mortality among the small- and medium-sized breweries in the past 10 years, and I point out to you that there are good sound economic reasons why the small- and mediumsized breweries should be given a opportunity to survive. I might add that the neighboring State of Virginia permits no point of sale to be supplied by a brewer or wholesaler at all, while Maryland has a limit of $5 per piece.

In summary, I would like to point out that the proposed 50-percent increase in the dollar value of the gift or service provision of the law would certainly increase the cost of doing business; and, perhaps ultimately result in pressures for a price increase.

We believe that it would lead to the use of more gaudy lighted signs. I am sure gentlemen that such a situation would be diametrically opposed to the wishes of this subcommittee in their desires to revise the District of Columbia Alcoholic Beverage Control Act.

Mr. MULTER. Does any other witness care to file his statement and have it made a part of the record in full?

STATEMENT OF KARL MILLER, CHAIRMAN OF THE ABC COMMITTEE OF THE RESTAURANT ASSOCIATION OF METROPOLITAN WASHINGTON

Mr. MILLER. I am Karl Miller, from the Restaurant Association of Metropolitan Washington. I would like to file this report.

Mr. MULTER. Yes, sir. Mr. Karl Miller, chairman of the ABC committee of the Restaurant Association of Metropolitan Washing

ton.

Your statement will be made a part of the record, too.

I think you filed a statement last year, or your association did? Mr. MILLER. Yes, sir; I did.

Mr. MULTER. And it is to the same effect?

Mr. MILLER. Just about, sir.

Mr. MULTER. Thank you, sir. That will be made part of the record.

(The prepared statement of Mr. Miller follows:)

STATEMENT OF THE RESTAURANT ASSOCIATION OF METROPOLITAN WASHINGTON Mr. Chairman and members of the committee, my name is Karl Miller, a partner in the 823 Restaurant, 823 15th Street NW., and chairman of the ABC committee of the Restaurant Association of Metropolitan Washington. I operate under class C ABC license and represent our association membership which includes nearly every prominent restaurant in the area. We are here to support

all the sections of H.R. 2036 which affect the restaurant industry.

I would like to comment just briefly on only a few parts of the proposed bill. First is the definition of the words "restaurant and hotel." We like the new definition of the terms. However, we suggest that the word "substantial" be substituted in place of the word "reasonable." We feel that a substantial amount of food should be sold in the class C restaurants. This has been our recommendation in all our previous statements on this matter.

Secondly, we are strongly in favor of section 31 on page 57 of the proposed bill. This section will allow a restaurant with a Retail Class C license to extend credit to its customers for the purchase of mixed drinks, etc. This eliminates the present unfair discrimination that now allows credit card holders to charge them. The changing credit systems of our economy have now encompassed our industry to a very great extent. The credit card business has become a major factor in our sales and is absorbing 5 to 7 percent of each charged sale. This is much too high and takes most, if not all, profit from the sale. Furthermore, this 5 to 7 percent of sales is money lost to our city, since the credit card companies are located elsewhere.

The restaurants in District of Columbia would like the privilege of charging mixed drinks to those customers who they, themselves, decide are good credit risks.

We feel this change in the law will not produce any detrimental effect upon our industry or the public.

We feel that if a man can charge his drink merely because he paid $5 to become a member of a credit card club, then another man who does not wish to become a member of the credit card club should have the same privilege without having to keep a deposit at each restaurant where he may want to have a cocktail before luncheon or dinner. Also, a restaurant which may not be a member of a credit card system should be able to extend credit to its customers. We heartily endorse the entire section 11(8) and especially the inclusion of the hotels in this section. They were inadvertenly not included at this time the present legislation was passed and we feel very definitely that they have a right to be included.

We favor the new wording in section 7(b) which states, starting on line 5, that the Board "prescribe the hours during which alcoholic beverages may be sold and prohibit the sale of any and all alcoholic beverages on such days as the Board determines necessary in the public interest."

We further support the appeals section of this bill.

I thank you for extending me the courtesy of appearing before this committee. Mr. MULTER. Does any other witness desire to file his statement and make it part of the record?

Yes, sir?

STATEMENT OF ARNOLD SHAW, COUNSEL FOR MILTON S.
KRONHEIM & CO., INC., WASHINGTON, D.C.

Mr. SHAW. Mr. Chairman, my name is Arnold Shaw. I represent the Milton S. Kronheim & Co., Inc., wholesale distributors for the District of Columbia.

We did not file a statement last year, and there was nobody to testify for the Kronheim Co. last year. I would like to file a statement at this time.

Mr. MULTER. Your statement will be made a part of the record. And this is Mr. Arnold Shaw?