Warren Buffet’s Berkshire Hathaway company is currently hammering against the alcohol laws and regulations in the state of Texas, and to the casual observer, the situation might seem confusing. As a Texas-based company, we have a keen interest in the progress of this case, and aim to supply our local customers with some much-needed context.

In the wake of Prohibition in the United States, the federal government created the so-called Tied-House Laws to ensure that no single business entity would exert undue control over the alcoholic beverage market. These laws strictly prohibit any business that operates in one of the three tiers – production, distribution and retail – from owning a share in another. Berkshire Hathaway owns the Temple, Texas-based McLane Distribution company which delivers massive quantities of food products throughout the state. McLane wants to add alcoholic beverages to its product portfolio, but because that company also owns a stake in mega-retailer Wal-Mart, the Texas Alcoholic Beverage Commission has denied their application for a permit to distribute alcohol. McLane is currently appealing that decision, and while no final decision has been reached in court, it is worth exploring the pros and cons of a major player like Buffet moving into the Texas market.

On the one hand, many would argue that the Texas wine market is already saturated - in addition to Southern Glazer’s and Republic, two national conglomerates that control the lion’s share of business in the state, there are scores of smaller distributors that cater to restaurants and boutique retailers. For McLane to succeed in this competitive market, that company would have to offer well-known wine brands through an established local sales network - otherwise, who would want to work with them? However, given the fact that McLane is already one of the most efficient grocery distributors in Texas, they may be able to do just that - our sources tell us that the company has already approached several high-volume wine producers in California and elsewhere, offering extremely favorable terms and pricing. For established wineries that primarily rely on their own sales teams and simply have a need for efficient storage and logistics, these arrangements would clearly be quite attractive. That in turn could change the market by reducing costs for both merchants and consumers, which would benefit everyone - except, of course, the massive distributors who have a vested interest in maintaining the legal status quo and thwarting any real competitive challenge.

Some analysts believe that McLane will prevail in their challenge to Texas regulators, and their case may have broader ramifications for the Texas alcohol market as a whole. We will keep you updated as this fascinating story unfolds.