I was reading another thread today about a small brewery here in Michigan, and the owner was talking about how they only sell on-site because Michigan has the RIDICULOUS 3 tier distribution requirement. What is the purpose of not allowing small breweries to self distribute? I have heard that it was origionally to prevent monopolies somehow, but it seems to me it actually promotes monopolies by favoring the huge corporate breweries that produce enough to afford distribution. Isn't our country supposed to be based on a FREE MARKET ECONOMY? The three tier system pretty much makes it impossible to distribute your product unless you are a gigantic operation that makes a ton of beer. Not only do distributors have huge minimum production requirements for what they'll distribute, but you also have to sell a lot of beer to be able to make money after the distributor takes their cut. I understand that alcohol is a heavily regulated business, but why is it that it is O.K. for a big brewery to sell tons of beer, but not O.K. for a tiny operation to sell a litttle bit of beer? With the distribution requirements, that basically means that for all intents and purposes, operating a small brewery(I'm talking brewery, not brew pub) is illegal. It just seems to go against everything that the American economy is supposed to be. It is a dream of mine to open a small, local production brewery at some point in the future. The sad thing is that I will have to move to a state that allows self distribution to do so. With Michigan's economy in the state that it is, they should be trying to make it as easy as possible for small businesses to start up (and bring tax revenue to the state). But apparently they would rather our beer drinking residents send their dollars to Missouri and Wisconsin (Anheuser-Busch and Miller). Bell's brewery here in Kalamazoo is one of the great microbrewery success stories. And guess what? Under today's laws they never would have opened. They were able to get going back in the 80's because Michigan allowed self distribution back then. Sorry for the long rant, I just can't for the life of me figure out what the 3 tier system is supposed to accomplish, other than protecting the interests of big brewing companies.
What is the point of the three-tier distribution system?
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I believe you answered your own question...
And anyone who thinks this is a free market economy doesn't know the meaning of the term.
And anyone who thinks this is a free market economy doesn't know the meaning of the term.
Watch Beer Wars if you haven't!
so it is just to protect the interests of big brewing companies? How can laws that favor big business over small be legal? Even if it's not true, they have to at least have some sort of rationalization for why they say distributors are necessary. What would the official government response be if asked why?
To me, a free market economy should mean that as long as what you make is legal, you are licensed to make it, and you pay taxes on your sales, you should be able to sell it however and wherever you see fit (within reason, obviously - you can't sell to minors and whatnot). To me, requiring you to go through an established distributor and pay them a cut is like having to pay the mafia for "protection".
ReverseApacheMaster
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After prohibition the big breweries saw that they had a unique opportunity to control their market shares and lobbied to create the three tier distribution system because it would prevent new breweries from popping up since the large brewers had an oligopoly on the distributors and could prevent them from carrying small brewery products. They could prevent breweries from operating brewpubs and selling direct to retailers or the public. Now they own the distributors and use that to their advantage.
This is the effect of a "free market" -- power and wealth is consolidated until businesses have the power to buy government protection from competitors by giving perks and campaign contributions in exchange for favorable legislation. Then those same legislatures create subsidies and tax breaks for the same businesses. If you were to "hit the reset" on government regulation by wiping it all out, all these regulations would reappear and those regulations intended to protect public health and safety would not. Large businesses don't want free markets, they want markets regulated in their favor with heavy subsidies to protect their market share and profits.
I think I just found my answer. In a thread by Revvy I found this quote:
"The National Beer Wholesalers Association maintains the nation's 3rd largest political action committee. Since 2000, they have donated 15.4 MILLION dollars to candidates for federal office."
So there you have it. The distribution lobby has poured money into maintaining such laws. But I'm still curious as to what the "official" reasoning is. I mean, they can't just come out and say "it is so our friends in the beer distribution lobby can keep making money at consumers' expense".
"The National Beer Wholesalers Association maintains the nation's 3rd largest political action committee. Since 2000, they have donated 15.4 MILLION dollars to candidates for federal office."
So there you have it. The distribution lobby has poured money into maintaining such laws. But I'm still curious as to what the "official" reasoning is. I mean, they can't just come out and say "it is so our friends in the beer distribution lobby can keep making money at consumers' expense".
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I'm sure the response would be to protect the consumer from "dangers" of under regulated goods. Similar to the usda crackdown on the Amish selling raw milk...
You're probably right. The thing is, it's not like beer from a large brewery is any safer or more regulated than that of a small brewery. The actual brewery operations are not the part of the business that is tightly controlled - just the sales and distribution part. So between a large brewery and a tiny one, the only difference is that the large brewery makes enough beer to be able to afford paying the distributor's cut and the small one doesn't. What a racket. Maybe my dream of opening a brewery should be replaced by opening a distribution company!(but then again, I bet they have plenty of laws in place to make it tough to get into that business as well)
ReverseApacheMaster
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You'd get some sort of flimsy explanation like it prevents a return to a pre-prohibition distribution problem, it ensures fair distribution, the system works so there's no reason to change it, etc. The official excuse is pretty worthless if you can understand the underlying basis.
ReverseApacheMaster
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Milk is one of the reasons we have food regulations. We've lived for nearly 100 years without having to worry about the quality, sanitation, or content of "milk" at the store. When you go to the store you get Grade A milk -- it's 100% dairy cow milk that meets sanitation requirements, fat requirements, labeling requirements, etc. You don't have to try to figure out what you're being sold. If you go back 100 years or so, before regulation, milk was scandalous. When you bought milk it might be rotten. It might be impure. It might be cow milk mixed with milk from other animals. It might not have been stored at cool temperatures. Maybe worst of all, it might not even be animal milk at all. There was a time when "milk" producers would mix coconut oil (or other forms of oil) with water and a little bit of fat (and not always milk fat) and sell it as milk. In places like Wisconsin the cities would require the local grocers to only sell local milk, which often meant people had no choice but to buy what would be Grade B or C milk.
I might agree that the Amish are likely selling real milk and have taken proper care of it but not every dairy farmer has the same ethical standards.
+1
I believe people should have a right to purchase from a local diary farmer who's been inspected and certified, but I wouldn't want unregulated milk to be sold in stores. It's actually very dangerous.
But if you know your supplier and want to take the slight risk inherent in raw milk, then I think you should have the right to.
The 3 tier system was supposed to protect the consumer from monopolies, which is has, to some extent. But it was easily turned into a strong-arm business for the huge beer industry. It would be very easy to sign in laws to create a level playing field, but the first candidate to do so would lose the huge amount of money that the big breweries give to campaigns, and the vote might not make it due to the big $$ they give to politicians.
The answer is what is happening: a slow progression towards a fair system for smaller breweries. They actually have an advantage in some ways to a large brewer. Of course, not in distribution, but even some distributors are offering craft beers in defiance of the large brewer's demands.
While I share your frustration in general with the system, your info just isn't correct about distributors. I work for a distributor and we have done all we can to court small breweries into distribution. The fact is, they just don't want to or have the ability to. It takes a lot of money invested in Cooperage (Kegs) to get your beer across the state and if your just staying in your immediate market then whats the point, just go to the brewpub. We signed a deal with Rochester Mills/MIllking over a year ago and have yet to receive any product from Rochester although we have gotten Mill King Brix and Axle in cans and kegs.
One thing I really hate about Michigan law is that once a brewery is signed with a Distributor, they are stuck there. A distributor would have to not distribute your product for like 3 years before they'd be forced to give up the rights. Which also plays into breweries decisions to not distribute. They really only have a few options.
Go with Imperial (Covers whole state) who overall does a good job but has a huge portfolio just because of their coverage. They'd risk taking a backseat to energy put into Shorts beer dinners etc...
Go with a more localized independant like Kent Beverage (mostly West side of the state and some north) and risk sitting behind Bells/Founders/DarkHorse etc....
Or choose the ABInbev/Miller route and then your in 6-10 distributors to reach the whole state and you know what their typical main focus is.
If I owned a brewery and was looking to expand to distribution, I would honestly go with the ABINBEV route..... You'd be their #1 priority when it comes to craft beer and they do get some sweet backing from the mother corp.
AB used to have a rating system for distributors that was based on the percentage of AB brands to non Ab brands and whatever level you fell into determined the amount of money you received for various things like promo items, advertising dollars etc.... Thats pretty much done with now as AB knows they are losing grip on that end of sales. Its kind of funny that they are slowly bleeding and still refuse to make a decent attempt at an AB branded true craft.
Michigan is actually one of the better states at being fair to small breweries. Their are tons of michigan only laws in place to limit what a distributor can do. For example, if you have a promo night at a bar and supply the staff with Tshirts to advertise, you have to get the Tshirts back at the end of the promo which had to be cleared before hand by the state. Up until 6 months ago a salesman could go into the bar and purchase ONE drink to sample to customers. No, hey let me get your table a round etc.... That just recently switched to $100 per night (in 1 bar or 10 bars, $100 total) split however you want between merchandise or beer. In other states they have teams of chicks running rampant through bars giving tons of **** away and buying beers. So who gets the most taps in those states??? Whoever brings them the most ****.
I could care less if big breweries were allowed to give free stuff away all day every day - to the increasingly educated beer drinking population, that doesn't change the fact that they are selling an inferior product. The type of person who drinks or sells a certain beer because of a t-shirt is not the market craft brewers are after. What craft brewers deserve is to have their products available to those bars and stores who know enough to care about quality and variety, without it being a requirement that your production is huge enough to still make money while paying a big cut to a middleman. Bostsr20, you made a comment that small breweries don't want to make the investment in cooperage, etc. that goes with distribution. My point is, they shouldn't be forced to make that huge investment. If they want to hand deliver one case at a time to a few stores to get their beer out there for people to try, they should be able to do that. With requiring distributors, it makes starting slow and small not a realistic option for a production brewery. Instead, brewers have to pretend to have a restaurant just so they can have a place to sell their beer in some form. But the fact is that most beer is bought in a grocery or liquor store. There are a lot of people out there who would buy the beer of a small brewery in a store that wouldn't necessarily bother coming to the taproom. The thing that made me the most angry when watching the movie "Beer Wars" was when a brewer was talking about the fact that they were getting calls and emails all the time from people wanting their beer. They had beer to sell people, and people wanted to buy that beer. But because of three-tier bullsh*t they couldn't get that beer to those customers who wanted it. They have to sit around until the almighty distributor chooses to put their beer in more stores.
Your still not understanding. There is NOOOOOO limit on the size or quanitity that a brewery needs to produce to be able to distribute. They certainly can at ANY time they want. Its cheaper to buy kegs than it is to bottle, they just have to buy kegs.....
For example, Oddside Ales in Grand Haven has a 40 gallon brew setup, they distribute through Imperial..... Don't take everything in Beer wars as 100% fact, a lot of it IS propaganda but believe me, I'm on the same side of the fence as you are.
It really is a benefit to small breweries for the state to have caps on what distributors can give away. Whether you like to believe it or not, bar owners fawn over distributors that give them ****. I've been around distribution a while and Michigan is as fair as it gets for small breweries.
But yeah, I agree breweries should be able to self distribute just like wineries and cideries can. Its an unfair advantage for them but its not like small breweries completely have their hands tied. They just get gouged a little more (which is BS).
Not sure what your "pretend to be a restaurant: has to do with 3 tiered system... Its easier to run and operate (cheaper) that is beer only. Food only adds another complexity and agency that can shut you down. It sucks, but every aspect of a produced good is regulated these days. Social Security sucks too but its not worth complaining about because nothing will change, you have to pay it. This system will never go away.
I did not know that. Very encouraging. Do you know what kind of cut the distributor generally gets? I just assumed that most distributors wouldn't bother with breweries that only produce a small amount, and even if they would it wouldn't be worth it unless you made enough beer to still make money while paying them a cut. In a business where very few new breweries make much (if any) money for the first few years, self distribution would make it so much easier to get going.
I am referring to states that won't let you have an establishment that serves beer without also serving food. There are a lot of "brew pubs" where you can tell that the restaurant aspect is an afterthought, just tacked on to make them legal. I bet there are a lot of small brew pubs that would distribute if they could afford to pay a distributor, but since they can't they have to open a restaurant to be able to have a place to sell their beer.
And I'd be willing to bet that the distributors lobbyists are hard at work trying to change the laws in the few states that do allow self distribution. Question: in the states that don't require distributors, has it always been that way there? Or have some states just changed the laws in recent years to start allowing self distribution? I am curious as to whether the trend is towards more states getting rid of the three-tier system, or towards more states implementing it.
BetterSense
Well-Known Member
You can pretty much replace "brewery" and "distribution company" in this statement with any other business, and it would still hold. The American dream died a death of a thousand cuts somehow over the last century.
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