Dear Client:
Many in the local beer industry have been mum on the just-passed modernization bill in Pennsylvania. Our sense is that’s largely political, because they’ll still have to operate within the new system’s rules. They may also still be lobbying for a few things.
But several sources have pointed out to us that beer — particularly craft — is among the casualties of this latest legislation. Most likely, high-end beer will lose space as grocery chains rush to put wine on the shelves when the law takes effect.
BACKGROUND. As our W&S publication outlined so expertly Friday, Pennsylvania is currently the second largest control state. Under current law, those seeking at-home consumption can only buy wine and spirits at the 600 or so state stores.
But beer retail is another story. On-premise venues with an Eating Place Malt Beverage (E) license commonly called “bottle shops” can sell two six-packs (of 16 oz cans) worth of beer to-go. If a consumer wants more than that, a privately owned “distributor” (more like a retailer than a wholesaler as we commonly know it) can sell 12-packs, 24-packs and 30-packs (but not six-packs).
But much of this will change on August 8, when HB 1690 is scheduled to go into effect.
CHANGES OFF-PREMISE. Currently only a select number of grocery stores (about 300 or so) in Pennsylvania sell beer and it’s usually because they have a restaurant (R) license and sell beer the same way bars and restaurants do. Under the new laws, those same grocery stores can add wine to the shelves, selling up to four bottles per person. The state will sell some 1,000 dormant R licenses at $2,500 a piece to make up for the loss in sales. Most likely, beer will lose space as grocery chains rush to put wine on the shelves in the next 60 days.
CRAFT TO GET LOST IN THE SHUFFLE? Norris, McLaughlin and Marcus attorney and Brewers of Pennsylvania counsel Ted Zeller III wrote a very detailed blog on the matter. He says that those four bottles of wine “R” licensees can now carry under new measure is the single most pertinent thing for brewers, who stand to get crowded out from shelves that can now carry wine.
“Clearly, current grocery stores and ‘bottle shops’ (six pack facilities which qualify as restaurants but are more retail in nature) will benefit from this law although it will have to make difficult decisions of which beer items are displaced by wine,” he wrote.
This is especially dangerous for craft considering their proliferate SKUs, AKA low-hanging fruit. “Certainly, craft brewers cannot be happy with this law as many will be displaced by wine on current shelving,” Ted wrote.
The space for these items, too, is tight: wine and beer is relegated to “limited sections of a grocery store dedicated to beer sales, with prepared foods and 30 seats,” wherein “many of these areas are landlocked or building locked so shelf space will be highly competitive.”
Moreover, “the number one retailer of beer which is the Pennsylvania distributor will experience less foot traffic which will also hurt breweries.”
WHOLESALERS? He also contends some beer wholesaler-facing bill provisions come at the expense of small brewers, too, who may stand to have wholesaler options dwindle. Under new law, importing distributors can now have up to four storage locations aside from their primary facility.
“This would permit the wholesaler to strategically place five locations around the Commonwealth of Pennsylvania. In light of the consolidation in the beer manufacturing industry which has seen two global brewers dominate more than 80% of the beer market; namely, ABI and MillerCoors, this new provision will certainly lead to more consolidation and could lead to the Commonwealth of Pennsylvania becoming a two wholesaler state,” as opposed to the some 150 wholesalers in the current “somewhat independent” system.
BUT: GAS STATIONS, FARMERS MARKET PRIVILEGES. Of course beer gets some “bones” in the deal: The new law also clarifies how gas stations can sell beer. Technically, selling alcohol in conjunction with gasoline is not allowed under the current liquor code. However, if the sale of beer is completely separate — with its own seating, entrance and cash register — then it can be sold on the same property as a gas station.
Breweries also do get “exposition permits” and farmers market permits, as some wineries have had.
Stay tuned.
BREWERS DEFLECT FROM COLORADO BREWERS GUILD TO FORM NEW TRADE GROUP, CRAFT BEER COLORADO
Some major members of the Colorado Brewers Guild have deflected to start their own group, Craft Beer Colorado. Its founding members include heavy hitters like Odell, Left Hand, New Belgium, Funkwerks and Renegade Brewing. The new group is currently 14 strong.
One the of largest reasons for the deflection, as we understand it, is consternation over whether A-B-owned brewers — i.e., Breckenridge — should be allowed as voting members, or at all, in the CBG.
The CBG’s Articles of Federation, some have told BBD, were created twenty years ago, and couldn’t have predicted the current situation of large brewer-owned craft breweries (particularly amid alleged strong-arm distribution and other tactics). So they actually allow A-B-owned breweries to be voting members, and attempts to amend the founding documents were confusing and difficult to change.
Some thought it would be easier to just start over with a new set of rules. “Twenty years later, it’s time to create the documents that match the intent of the organization,” Odell co-founder Wynne Odell told BBD.
“Other breweries that have joined Craft Beer Colorado include Oskar Blues, Epic Brewing, Great Divide Brewing, Bristol Brewing, Mountain Sun, Grimm Brothers, TRVE Brewing, Four Noses and Wibby,” Westword reported last week. It also noted that the CBG’s lobbying firm, Weist Capitol Group, is leaving to join Craft Beer Colorado, too.
Beyond the new articles of federation, Wynne said the new group aims to be “proactive rather than reactive” on pertinent regulatory and legislative initiatives.
Indeed, Friday we reported that Gov. John Hickenlooper signed the Colorado Beer Bill that will allow major retailers to carry full-strength beer in a phased manner over 20 years. Craft Beer Colorado is keeping its eye on that, too. (Despite the bill passage, some grocery chains may still run a ballot initiative that would allow full strength sales in grocery stores overnight.)
“We’re planning on working statutorily to make some changes within the context of this bill that will be beneficial to craft,” Wynne said. For one, there was a bill provision– that got pulled the last minute — prohibiting grocery stores from requiring suppliers to stock shelves.
“So we have the opportunity to work with our legislators to make sure that gets back in,” because in most states suppliers aren’t allowed to provide any sort of financial help to most retailers.
What more? Wynne points out the new organization has been in place for “all of a week.”
They’ll hammer out rules over the summer. Currently their organization is open to any independent craft brewer, which they’ll need to define. They also need to define their legislative agenda.
More in CBD.
ANDY THOMAS ON “THE HYPOCRISY ZONE”
CBA chief Andy Thomas opened last week’s Brewbound event to address “irony, inconsistency and authenticity in the golden age of craft.” It invoked a lot of the same themes he addressed at our own Beer Summit 2.5 years ago in Arizona.
Back then, he told our audience: “We label. We operate in cliques: ‘Are you a craft brewer? Do you do less than this amount of volume? Does your equity come from a certain place? Do you not use certain things to brew beer with?’ All the while we moan about losing consumers to wine and spirits. … The best days of the beer industry can be ahead of us … if we don’t stop them and get in the way,” said Andy, who had insisted “he’s not here to preach” but to rather start a discussion.
On stage yesterday, Andy said he’d pose questions, not conclusions, and promised he’s he’s “not taking shots.”
But he does believe we’ve entered a “hypocrisy zone.”
Indeed, many of our intra-industry hangups have endured. “Where are the double standards in our industry? Man, where do I start,” Andy said. He contends that “fizzy yellow beer” is now a hot craft style, more or less. But it’s “different” because it’s brewed… “in a place I’m not going to tell you about,” Andy panned, referencing craft brewers who aren’t always forthcoming about their contract or ancillary facilities besides the flagship locations.
But Millennials, whose 80 million ranks influence older generations as well, want brands that are trustworthy and transparent, Andy said. To wit, he showed a slide featuring a Kona label that included their Portland, Woodinville, Portsmouth and Memphis brewery locations.
He addressed the explosion in cider, hard root beers, FMBS (“my god they’ve got cocktail glasses on the cans”) and asked, “Is this innovative? Is this really beer?”
And he noted some top 10 millennial brands: Apple, Nike, Samsung, Sony, Microsoft, Target, Amazon, Coke. “Are these small, indie companies?” he prompted.
Which all begs an obvious question: “Are we having the debates we need to have or the convenient, populist ones?
BEER BRIEFS:
BEER + WINE + SPIRITS = 2017 SUMMITS. Have you signed up for the 2017 Beer Industry Summit in San Diego January 29-30? We’re doing something a little different next year, The Wine & Spirits Daily Summit will take place January 30-31 right after the Beer Industry Summit. Join us for both events and get special discount pricing! Check out all the details here and get signed up today!
Until tomorrow, Harry
“When a man tells you that he got rich through hard work, ask him: ‘Whose?'” – Don Marquis
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