Jim and Craig’s Hot Takes on Three Tier

Dear Client:

The Brewers Of Pennsylvania held their annual Meeting Of The Malts at a new venue, in Chocolate Town, Hershey PA, at the Hershey Lodge last week.

A highlight of the full evening was a Bar Stool to Bar Stool conversation on The Three Tier System featuring Boston Beer Co.’s Jim Koch and Craig Purser, chief of the National Beer Wholesalers Association.

Despite the sometimes heated rhetoric of franchise reform, Craig and Jim seemed to be more in agreement than anything else.

Jim observed, “It’s been an interesting relationship [with our distributors.] I’ve been doing this for 35 years now. When I started this thing, no wholesaler would take me. Everybody thought it was a dumb idea. [We had] no money and nobody ever heard of it… That was a great thing for me, because I learned what a wholesaler does. Honestly, brewers have the easy work! The day I got off that truck was my best day in the beer business. I had to deliver it, get paid for it and make all the sales calls. It gave me an appreciation that wholesalers do a lot of the hard work in this industry.

“We as craft brewers have to be aware that we have a very good regulatory framework here. We have orderly pricing procedures. We have wholesalers who enforce sensible marketing if brewers try to do a stupid crazy thing.” He tagged his remarks with, “no three tier, no craft beer! We are all stronger because of it.”

Then it was Craig’s turn. “In 1983-4, we were at an all-time low in the U.S. There were less than 50 [brewers]. Today there are  7,300. When you look at the regulatory framework in existence for 85 years, it started being built as soon as Prohibition was repealed. It has given rise to a wildly successful segment. There is hardly an industry in America that has met with that kind of success. I think when we talk about our differences,   that’s part of it. It’s the give, it’s the take. There’s disagreements but there’s also the agreements. We’ve given rise to this wildly successful group of new entrepreneurs.”

The conversation then moved to the proliferation of taproom and garage door breweries and how they affect the system.

WHAT ABOUT TAPROOM BREWERS? “I think [the rise in taproom brewers] is good for the industry,” Jim said. “They’re good for consumers. They’re good for their communities. As much as we love the regulatory framework and the rigidity of the three tier system, it has to be accepted. We wouldn’t exist if self-distribution wasn’t a right in Mass. We did not start with the three tier system. It gave us the ability to get going. But once we got going we had to give that over to wholesalers, because they’re better at it than we are.”

Craig agreed but pointed out, “This is a regulated industry.  It’s not like salty snacks or soft drinks. It’s a product that can bring people together.  We are a great source of enjoyment, it’s wonderful. But we also have a source of problems. It’s hard to believe that only 85 years ago it was illegal.”

So, “we want it to be available, but not too available. We want it to be affordable, but not too affordable. We want it to be part of our lives, but we don’t want it to run our lives. [In] some states you have license stacking dynamics where you have all kinds of retail establishments having really nothing to do with the brewer that produced that product.

“That’s part of the things that we need to think about. An evolution, as Jim pointed out, the way Boston Beer was run, allowing him self distribution. The vast majority of states allow self-distribution. Some have volume caps for very specific reasons.” But, should the largest brewers be able to self-distribute their products “with no restriction, no limitation, what would that do? When you have a large brewer controlling its distribution, that’s making it harder for everyone in this room. It’s very important to have options of scaled distribution.”

Jim’s take: “In Colorado they allowed big brewers to own distributors. If you wanted to sell your beer in the Denver area, which is like half the population of Colorado, and get yourself into the vast majority of the places that sell beer, you have two choices. You can sell it to AB/Inbev or you can sell it to Molson/MillerCoors. That’s it! And you have to give them your marketing plans. So we need an independent wholesale tier where all of us as brewers have an equal right to compete for the time and attention of a wholesaler and you don’t have that in Colorado. Do you think they’re going to give your beer a fair shake?”

Craig noted, “Self-distribution is very much the norm in Colorado. So a lot of their brewers are selling direct to retail, as part of their business plans. The problem is if they want to go 100 miles away across a mountain range…. Their choice is limited. Part of this discussion about our differences also includes some of our similarities.”

They then moved the discussion to the specter of e-commerce lurking in the wings.

E-COMMERCE NOT PRACTICAL FOR BEER?

Said Jim, “I don’t see [e-sales] as something we’d want to do. You’re delivering to somebody’s doorstep a 34 pound case of beer. And someone has to be there with ID to receive it. I don’t think it’s practical.”

Craig’s take: “The whole idea of direct-to-retail may sound great. But it’s detrimental to the three tier system. I’m not against all e-commerce with beer. If you’re ordering a food delivery online, I want beer (where legal) to be part of that basket.”

Until tomorrow,

Harry, Jenn, and Jordan

“No man has a good enough memory to be a successful liar.” -Abraham Lincoln

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