Can there be craft beer equity?
I’m working to think about craft beer at this time in history, and all my analogies feel as if they’re coming from the French Revolution. On a recent podcast I mentioned that I was interested in hearing why beer distributors tend to get painted in such a negative light. After all, I reasoned, I’m sure their perspective on things isn’t exclusively anti-brewer. It was as if I said “The poor ain’t so bad.” The internet responded with a barrage of stories about distributor malfeasance, anti-competitive practice and general dickishness.
Since then, though, looking around at craft beer culture, there is something very mid-revolution about it. If the last decade has been the Reign of Terror this is the Thermidorian Reaction. Having seized a chunk of power and held it convincingly, the revolutionaries now are trying to figure out what the new beer landscape should look like. Unfortunately, there only is the old power structure to work on as a model, which results in naturally occurring conflicts. I want to start looking at the one with wholesale distributors.
A brief history of distribution
The brewers used to be able to hold saloons hostage. The Budweiser bar sold only Bud, the Miller only Miller, etc. It had the same implications for beer in the late 1800s that it has for pharmacies today. No Walgreens can be on a corner without a Rite Aid across the street. Saloon owners operated on a tiny margin. To try and widen that margin many expanded into selling cheap booze and allowing gambling, prostitution, etc. to gain a financial and competitive edge. It was one of the big factors in the culture of degeneracy that led to Prohibition. Distributors were invented to solve anti-competitiveness in the market, but it was a project doomed to failure.
Throughout the middle of the 20th century, the beer barons killed, maimed or acquired most of the independent breweries that remained after Prohibition. Then they went after the distributors. A big beer company could, at will, change distributors. So if, say, Bud couldn’t get a good contract from a distribution company, it could pull all its brands and crush the distributor. To that end, distributors sought protection and were able to get some. New laws made it harder (but certainly not impossible) for big breweries to extort distributors. Increasingly independent distributors aligned themselves with national brands as beers like Bud and Miller competed for distributors as they formerly competed for bars. Since there were so few brewers, though, nobody cared. Until they did.
What is ‘fair?’
Wholesalers have different powers in different states, but what is clear is that, as with any other business, distributors cannot see how giving up power is in their best interest. Objectively, relinquishing power never is. There is a lot of talk about equity when it comes to the brewer/distributor relationship, but”equity” is a pretty subjective term when livelihoods are on the line. This is what’s at the heart of the underlying tension between brewers and distributors. Of course, this is what legislation is for, to arbitrate equity where it can, or where there is a will for compromise.
From the perspective of breweries, it isn’t fair that distributors can cancel a contract at will, but brewers must give six months notice and pay a penalty if they want to end a contract. Distributors point to the bad deals they’ve endured at the hands of big beer and respectfully disagree. They also say it is a rule they rarely enforce.
Distributors think that it is unfair for a brewer to be able to sell more than 2,000 barrels of beer from their taproom. If they want to sell more than that, brewers have to buy it from the distributor. For their part, brewers think they should be able to sell as much of their own product as they want.
As it stands now, brewers who make fewer than 22,500 barrels per year can self-distribute a maximum of 3,000 barrels before having to sign with a distributor or start their own distribution company. This seems reasonable to distributors, since self-distribution of small brands can be cumbersome, but leaves mid sized breweries in an odd expansion limbo.
Tied up in all of these issues is the explicit and implicit graft that comes with greasing the wheels of capitalism often referred to as “Pay to Play.” Beyond even that, these disagreements are way more complex than I’ve laid out here. Over the next few weeks I’ll be looking more closely at each of these issues and, with any luck, bringing them a little clarity. We haven’t even begun rethinking our national relationship with beer.
Although I’m a member of the Reform on Tap Task Force in Maryland that is taking up issues surrounding craft beer in that state, I’m speaking for myself as a beer writer here. For more info on the Reform on Tap project click here, they are on Facebook as well.
Originally published at stateofthebeer.com on June 27, 2017.