Time to shed a tier for beer? Part II
This documentary is of a Michael Moore genre depicting the David and Goliath battle brewing over the difficulty of small brewers finding distribution for their products as well as shelf and tap space in retail outlets.
It was written, directed and produced by Anat Baron, former General Manager of Mike’s Hard Lemonade. The story followed several brewing entrepreneurs including Rhonda Kallman, founder of The New Century Brewing Company, who is currently marketing a caffeinated beer called Moon Shot which is being contract manufactured by F.X. Matt Brewing Co. Ms Kallman previously worked with Jim Koch in the founding of Boston Beer Company and, fittingly, Jim also plays a roll in the movie. Sam Calagione, the Founder and President of Dogfish Head Brewing Company also stars in the film.
All of these individuals took part in the Chicago panel discussion along with two writers, Todd Alstrom (Beer Advocate magazine) and Maureen Ogle (author of Ambitious Brew: The Story of American Beer). Charlie Papazian, President of the Brewers Association, also participated in the panel discussion, which was led by Ben Stein, actor and television personality.
The film drew attention to the difficulties small brewers face in trying to obtain distribution and shelf space in a market dominated by three mega brewers. And it showed tactics used by the big breweries to try to capture some of the specialty beer market.
An example filmed was a micro sounding brewery by the name of Green Valley Brewing Company that sells a beer named Stone Mill Organic Pale Ale. The beer is actually made and distributed by Anheuser-Busch from their Fairfield, California, brewery. The average consumer is none the wiser.
The story also highlighted times the large brewers have targeted successful micro brands with competing products in the small brewery’s market area. The small breweries do not have the size or capital to match the price discounts and heavy advertising of the large breweries.
This theme continued throughout the film: that there is no level playing field for small brewers in a market whose distribution system is dominated by two mega breweries while the largest of the remaining breweries have barely a 0.5 percent market share.
The producer of the film, Ms Anat, hopes that the documentary will start a national conversation about what is going on in the brewing industry in America. She does not recommend a definitive model to replace the current system, only the hope that craft brewers will find a way to get their products to market and that the consumer is given the opportunity to freely choose for themselves which beers they may purchase at the retail level.
For whom the bell tolls, or not
Chicago is a large and sophisticated market for beer. Then why is it that some of the fastest growing and most successful craft brands within several hundred miles of Chicago are not sold in that market? The answer has much to do with the state’s franchise laws. Approximately thirty of the fifty states have similar laws, which were designed to protect wholesalers from the large brewers, yet end up giving great strength to distributors.
There are two local breweries that distribute in the Chicago area: Two Brothers and Goose Island. The two brothers, Jim and Jason Ebel started a small brewery but had trouble getting distribution. Their solution was for Jim to give up his interest in the brewery and start his own distributorship, Windy City Distribution. This was not without problems for most stores and bars did not take them seriously for several years.
Goose Island, whose brewer Greg Hall, stated that “We’re in the beer business, we’re not in the delivery business” took the route of selling a minority interest to Widmer Brewing. As noted earlier, Widmer had already sold a stake to Anheuser-Busch so now Goose Island also enjoys national distribution due to that ownership interest.
For others it has not been so easy. Bell’s Brewery, across the lake in Michigan, is a very successful Midwestern brewery. It got off to a good start in Michigan, which is not a franchise law state, by self-distributing for the first four years. As the brewery grew it expanded into the Chicago area which became its fourth largest market. But did we say that franchise laws favour the distributor? Bell’s distributor, owned by National Wine and Spirits, decided to sell the distribution rights for Bell’s brands to Chicago Beverage Systems, a Miller Distributor. Larry Bell, the founder and owner, did not believe that the new distributor had the motivation to sell all of his brands but he had no control over the situation. He ended up leaving the Chicago market because he did not have the right to question the sale of his brand’s distribution rights. After a two-year-period, he finally did come to an agreement and his brands are once again available in Chicago.
New Glarus is another successful small brewer north of Chicago in southern Wisconsin. They had a distributor in northern Illinois, River City Wine and Spirits, who was bought out by Southern Wine and Spirits. The new owner stated that they did not intend to distribute New Glarus’ brands but would not give up the rights to do unless they were paid USD 20,000, a large sum for a small brewery. The brewer’s only other option was to pull out of the state of Illinois. And that they did. This was certainly no benefit to either the brewer or the consumers who wanted to buy those products.
Chicago does have specialty distributors but it is hard for them to keep up with the distributors working for the big three brewers. Salesmen for the powerful distributors often control what goes on limited shelf and tap space so it is even more difficult for a new distributor to gain a foothold. Also, Illinois law will not let brewers self-distribute, even in small quantities, so it’s nearly impossible for a start-up to build a name here. ”It’s a catch-22” says Paul Gatza, director of the national Brewers Association. “You can’t get to market if you don’t already exist.”
And that is the crux of the problem. The three-tier system was designed to keep big brewers from having undue power over the market. But the current system only moves this power to distributors leaving start-up competition and the consumer worse off. Accommodations need to be made.
