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Mr. WACHTEL. But sometimes we would put 10 cents worth of crackers in a dollar tin, and we had to get the mark-up on the dollar tin container or go broke.

Mr. Buck. Here you have a tax of $2 a quart, Federal tax. When you mark-up your whiskies 10, 15, 20 percent, whatever it might be, you not only get interest on the money you have invested in taxes, but you take a very considerable profit.

Mr. WACHTEL. We are entitled to do it, as a matter of fact.

Mr. Buck. I am not talking about what you are entitled to do. I say you do as a matter of practice.

Mr. WACHTEL. Definitely. May I point out in raw materials, you buy on credit. When you put grain into whisky you don't necessarily pay in cash in advance as you do in taxes.

Mr. BUCK. And your conclusions are that the industry would go broke if it had to mark its goods on cost of production, as other industries do.

Mr. WACHTEL. I think the history proves it.
Mr. Buck. Do you know of any parallel ?

Mr. WACHTEL. I know a great many people in the industry are not prosperous and are not able to make expenses and are probably going to have to fold up.

Mr. Buck. As a matter of fact, the largest item upon which you take a mark-up in this business is tax, isn't it?

Mr. WACHTEL. That is true.
Mr. BUCK. Tax exceeds the cost of product.
Mr. WACHTEL. That is right.

Mr. BUCK. And it is your life-blood. You not only get the tax and 6-percent interest in return, but you get your tax plus 20 or 30 or 40 percent, whatever the mark-up is.

Mr. WACHTEL. I think that would be approved by any economist; it is good business. Mr. BUCK. I am not talking about whether it is good or bad busi

I am trying to get the functioning of the system. Mr. WACHTEL. That is true.

Mr. O'CONNELL. May I ask a question? In fair-trade States I understood you to say sometime ago that in your contracts or in your arrangement with retailers you suggest what the resale price will be. That isn't exactly the word, is it?

Mr. WACHTEL. In those cases the wholesaler sometimes has the contract with the retailer and sometimes we have it ourselves direct; and we inform the wholesaler what the suggested resale price is or the fixed resale price.

Mr. O'CONNELL. But the effect, insofar as the retailer goes, is that he is required to sell according to the resale price fixed by your company?

Mr. WACHTEL. Definitely.

Mr. O'CONNELL. And I understood you also to say that the theory of that is that where you have, as you put it, an intelligent group of retailers, they need the protection which your company, and apparently only your company, is in a position to give them; is that right?

Mr. WACHTEL. I hope no retailer will hold it against me, but it is

ness.

true.

Mr. O'CONNELL. I take it that is the position of your company, that in the absence of this paternalistic interest your company takes over the retail field, the unintelligent retailers, at least, would go broke.

Mr. WACHTEL. And he thanks us for it.
Mr. O'CONNELL. The unintelligent thanks you for it?
Mr. WACHTEL. Yes, sir.
Mr. O'CONNELL. And the intelligent ones, too?

Mr. WACHTEL. The intelligent sometimes like to have the extreme privilege of cutting prices without anybody else having the same privilege.

Mr. O'CONNELL. The intelligent like to cut prices?

Mr. WACHTEL. Providing nobody else could do it, just that fellow himself.

Mr. O'CONNELL. That is rather difficult to follow.
Mr. WACHTEL. I am afraid it is.

Mr. BERGE. Do you think that conditions could be frozen so that the unintelligent could be kept in business regardless of his efficiency?

Mr. WACHTEL. He renders a service, he is a fellow neighbor. I don't know whether you drink. Let's say I want him as a convenience and if he were not in business, it might be inconvenient for me to get my whisky conveniently if I wanted it. Mr. BERGE. I don't see that that answers the question. Mr. WACHTEL. It keeps a lot of people employed.

Mr. BERGE. He might be a fine fellow and the neighborhood might want to keep him in business, but I suppose if enough people felt that way about it, they would keep him in business by patronizing him. I don't see that your answer was really responsive to the question.

Mr. WACHTEL. They do it as a matter of convenience. It is convenient for them to do so; they are not very much concerned whether he is intelligent or not. He is there when we need him.

Mr. BERGE. I understand your answer to be that that system should keep the unintelligent and inefficient in business.

Mr. WACHTEL. It would be an awful holocaust if we did it in all business.

Mr. BERGE. The competitive system is on the theory that the most efficient man can get the better break in profit, and so forth. However, that is neither here nor there.

Mr. Buck. Mr. Wachtel, in the merchandising of whisky, what would

you say were the two most important factors? Mr. WACHTEL. In the merchandising of whisky? I think prob- x ably one of the most important factors is the education of your sales force and the wholesaler's sales force.

Mr. BUCK. You wouldn't say that brands and advertising were? Mr. WACHTEL. Not in our case. Mr. Buck. You think you could sell as much whisky without advertising ?

Mr. WACHTEL. Oh, no. You asked me the most important. Advertising is very important, so are brand names. In our case we have made our brand names.

Mr. BUCK. As a matter of fact, it requires considerable resources to develop consumer demand for a particular brand of whisky.

Mr. WACHTEL. Not always. There are many sectional brands that have done very well in their sectional markets.

Mr. BUCK. I am talking about national distribution.
Mr. WACHTEL. National distribution, definitely.

Mr. Buck. In other words, it is impossible to get into the national market on any considerable scale without being able to carry on a very expensive advertising program.

Mr. WACHTEL. That is true.

Mr. BUCK. And the technic is first to select a brand that might catch, so to speak, in advertising, and then spend a tremendous amount of money on the popularizing of that brand name.

Mr. WACHTEL. It could be done in other ways. It could be done by taking one State at a time and letting your profits carry you along until you were able to cover all States; that is a long-drawnout process.

Mr. Buck. But in order to get into the national market for distribution you must create that consumer demand, and that requires great capital.

Mr. WACHTEL. Yes.
Mr. BUCK. That is the way you have developed ?

Mr. WACHTEL. Calvert has been developed sectionally rather thar nationally over a period of 412 years.

Mr. BUCK. It now has a national distribution? ?
Mr. WACHTEL. Yes, sir.

Mr. BUCK. A small company with no capital to spare in that respect would find it difficult in competing on a national scale, don't

Mr. WACHTEL. He would find it difficult to compete on a national scale provided he tried to do it all at one time.

Mr. BUCK. That is all.
Mr. WACHTEL. Thank you. Thank you, Senator.
Mr. BUCK. Mr. Tunney.

you think?

TESTIMONY OF GENE TUNNEY, CHAIRMAN OF THE BOARD, AMERI

CAN DISTILLING CO., NEW YORK, N. Y. The CHAIRMAN. Do you solemnly swear, in the testimony you are about to give, to tell the truth, the whole truth, and nothing but the truth, so help you God?

Mr. TUNNEY. I do.

Mr. Buck. Mr. Tunney, will you state your name and business connection, please, sir?

Mr. TUNNEY. Gene Tunney, chairman of the board of the American Distilling Co.

Mr. Buck. The American Distilling Co. is engaged in the manufacture and distribution of whisky in the United States?

Mr. TUNNEY. Yes, sir.
Mr. BUCK. I believe you have no foreign subsidiaries.
Mr. TUNNEY. None.
Mr. BUCK. How long have you been engaged in the business?

Mr. TUNNEY. Actually as chairman of the board 15 months. I have been a member of the board of the American Distilling Co. and American Commercial Alcohol since 1935.

Mr. BUCK. As a member of the company you are acquainted with the problems in respect to the distribution and sales of the product?

Mr. TUNNEY. A good many of the problems; yes, sir.

Mr. BUCK. I would like to ask you this question: Do you find any difficulty in obtaining wholesalers to handle your whisky in the United States ?

Mr. TUNNEY. Well, yes and no. Some places they have got a complete line and other places they are willing to take a new line on. On the whole, I think it is about 50–50, as I have described it.

CORPORATE ORGANIZATION OF AMERICAN DISTILLING CO.

The CHAIRMAN. Mr. Buck, before you proceed, may I ask Mr. Tunney, in what State is your company chartered?

Mr. TUNNEY. The American Commercial Alcohol owns wholly the American Distilling Co. The American Distilling is a Delaware company.

The CHAIRMAN. American Commercial Alcohol was chartered by what State?

Mr. TUNNEY. Delaware, I believe-Maryland.
The CHAIRMAN. And the American Distilling Co.?
Mr. TUNNEY. The distilling company the same.
The CHAIRMAN. When were they chartered, respectively?

Mr. TUNNEY. The American Commercial Alcohol was chartered in 1928, the American Distilling Co. in 1933.

The CHAIRMAN. Are there any other subsidiaries?

Mr. TUNNEY. The American Distilling is a subsidiary of the American Commercial Alcohol.

The CHAIRMAN. Yes; but are there any others?

Mr. TUNNEY. Not of the American Distilling. There are others of the American Commercial Alcohol. The CHAIRMAN. What are they?

Mr. TUNNEY. Noxon and Kessler Chemical Co. Noxon is a wax and floor polish that the American Commercial Alcohol makes.

The CHAIRMAN. You don't sell the floor polish except through that company?

Mr. TUNNEY. They tell me occasionally they get mixed up. [Laughter.]

Mr. BUCK. That may be a hang-over from prohibition.

Mr. Davis. Mr. Tunney, did your Commercial Alcohol Co. start from scratch or did it buy out other alcohol companies ?

Mr. TUNNEY. It was organized in 1928 by a group who bought out three companies, three commercial alcohol companies. One was the S. M. Mayer Co. in Gretna, La. Another was the David Berg, of

X Х Philadelphia, Pa., owned wholly by Philip Publica. The other was the American Distilling. Co. in Pekin, Ill., and subsequently we took on in 1929, I think it is now the American Distilling Co. of California), what was, I think, the Walter Buck Commercial Alcohol Co. He is, anyway, the president of it.

Mr. DAVIS. They were all engaged in the manufacture of commercial alcohol?

Mr. TUNNEY, Commercial alcohol.

Mr. Davis. You didn't buy out the interests which Mr. Porter described as his company having sold?

Mr. TUNNEY. No.
The CHAIRMAN. Proceed, Mr. Buck.

Mr. Buck. Mr. Tunney, do you experience some difficulty in marketing your brands generally in respect to wholesalers where they may be already handling brands of other companies that are highly advertised, and so forth, and as a consequence they refuse to take on your brands for distribution?

Mr. TUNNEY. Sometimes that would be to the disadvantage of a wholesaler. If he has a complete line he might not want to take on—in most cases they never do want to take on another line of articles that are not nationally advertised, but this business is terrifically competitive, and we find that on the whole we get wholesalers in 'most every State. Of course, we can't in some cases get the cream of the State; the best fellows usually, or sometimes, are already tied up with other houses.

EXTENSION OF CREDIT TO WHOLESALERS

Mr. BUCK. What are factors that enter into that situation? Is credit sometimes a factor?

Mr. TUNNEY. I would say, on the whole—this is merely my opinion, now; I don't say this with any authority—that is about 100 percent, in my opinon, the factor.

Mr. BUCK. In other words, if the distiller is large enough to, in effect, subsidize the wholesaler as to stocks, and so forth, and carry him over a long period of time, that is one status. If you are not sufficiently financed to grant these tremendous and long credits, that is another and different factor that might exist.

Mr. TUNNEY. Yes, sir.

Mr. BUCK. That does have an effect on your ability to obtain general and free use of wholesaling facilities?

Mr. TUNNEY. Well, that is true; but, on the other hand, I imagine if our company were in a position to extend the credit that is necessary, we would probably do it. I don't know. I am not certain, but I think that is the trouble-rather, it isn't the trouble altogether; the condition is prevalent in all industry in America or any part of the world. Fellows that are big and can afford to get the best go out and do it. The fellows that are not so big and can't afford to get the best, they have to do the best they can. And I think it is just our hard luck-I mean, our company—that we are not in a position to extend these vast credits. Maybe we'd do it, and maybe we wouldn't; but we have-oh, I don't know; we haven't any definite opinion one way or the other on that, only that we know that to have capital naturally means that you get a good deal many more distributors. If you can throw three or four or five hundred thousand dollars' worth of merchandise into a fellow's store and he doesn't put anything down on it but pays as he can, well, you are going to get rid of a good deal more merchandise than if you can only give a prospective customer five or ten thousand dollars credit.

Mr. BUCK. That is a point. Then it is a question of bigness and ability to finance through and through the distribution system on a national scale.

Mr. TUNNEY. Well, there are, however, small companies that are doing extremely well, well managed, and they don't extend great

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