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Oklahoma bill challenges alcohol distribution model

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Braxtun Brown, an OnCue clerk, arranges beer Oct. 1 inside the Beer Cave, where customers can select chilled brew at their business located at the northwest corner of the E 15th Street and Interstate 35 intersection in Edmond. [JIM BECKEL/THE OKLAHOMAN]
Braxtun Brown, an OnCue clerk, arranges beer Oct. 1 inside the Beer Cave, where customers can select chilled brew at their business located at the northwest corner of the E 15th Street and Interstate 35 intersection in Edmond. [JIM BECKEL/THE OKLAHOMAN]

Alcohol distribution is a point of contention — again.

Oklahomans voted to change a decades-old distribution model as part of sweeping changes to the state’s alcohol industry included in State Question 792.

Now, nearly six months since changes took effect in October, the Oklahoma State Legislature is considering a bill that would undo some of the changes.

Senate Bill 608 seeks to require the top grossing wine and spirit brands be offered equally to all wholesalers at the same price. This is not the current practice, but is similar to the practice in place before October when Oklahoma shifted from a four-tier to a three-tier distribution model.

Under the old model, producers of wine and spirits sold their products to brokers, who sold products to distributors, who in turn sold to retailers.

The three-tier system allowed for the merging of the middle two links in the chain.

Before the law change, brokers and wholesalers functioned separately. By merging the two tiers, these new firms are free to perform tasks of both broker and wholesaler, while fighting for a share of the newly combined market.

But there was a catch written into the law. These businesses merged in the newly formed middle tier must be partially owned by an Oklahoma business. Many already are, but the two largest — Republic National Distributing Co. and Southern Glazer's — are not.

RNDC and Southern Glazer's both are national distributors. The two companies cumulatively employ tens of thousands of people and operate in dozens of states throughout the country. Both companies operated as brokers within Oklahoma before the law change took place, but to expand in the wake of State Question 792, they each needed to merge with a local wholesaler. RNDC ultimately merged with Centra Liquor, and Southern Glazer's joined with Tulsa-based Jarboe Sales Co.

“You had to be an Oklahoma person to be a liquor wholesaler,” former Central Liquor owner and partner Brad Naifeh told The Oklahoman in December 2017, when the merger between Central and RNDC was announced.

Neither company has disclosed the financial details of the respective partnerships.

Jarboe Sales Co. co-owner J.B. Jarboe also declined to state the value of his company’s partnership with Southern Glazer’s.

Without these partnerships, RNDC and Southern Glazer’s would not be allowed to operate as distributors in the Oklahoma market, a market some in the industry estimate to be worth nearly a half-billion dollars annually.

State Question 792 also provided those in the middle tier the ability to exclusively deliver wine and spirit brands throughout the state. This exclusivity is being challenged by SB 608.

Boardwalk Distribution is struggling following the law changes. Owner Bryan Hendershot said voters didn’t realize how much this exclusivity would hurt some local companies.

“State Question 792 was sold to voters as a modernization of Oklahoma’s liquor laws, with the enticement of the sale of wine and strong beer in grocery stores,” Hendershot said. “The people of Oklahoma didn’t know this was going to happen.”

Hendershot estimates Boardwalk will lose $100 million in sales in the first year since the Oct. 1 implementation of the new law. The company also has been forced to lay off 30 employees.

Business is booming for others in the market. Jarboe said his company has added 125 jobs and now employs more than 400. The partnership with Southern Glazer’s has propelled the company to new levels of success.

“Southern Glazer’s could have picked Boardwalk just as easily as they picked us,” Jarboe said. “Southern Glazer’s visited with several different distributors before they picked us.”

David Dishman

Business Writer David Dishman has worked as a journalist in Oklahoma since 2014 covering business, education, local government, healthcare and more. He worked as a reporter in southeast Oklahoma before joining the business team at The Oklahoman in... Read more ›

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