Under Siege: Don't Let a Good System Sink

In NBWA President & CEO Craig Purser's most recent ABL Insider column, he discusses the importance of the U.S. three-tier regulatory system and warns against unecessary state law changes. Purser notes, "Each state needs to proceed carefully when considering laws that would allow brewers, distributors or retailers privileges outside of their tier. It is each tier’s independence that has contributed to the U.S. beer industry’s current success."

Media Contact: Kathleen Joyce

kjoyce@nbwa.org; (800) 300-6417

Columns| Mar. 3, 2015

BY: Craig Purser, NBWA President & CEO

By all measurable accounts, it appears to be smooth sailing for the U.S. beer industry. More than 3,000 breweries are operating across the country. At least one new brewery is opening every day. Continued, double-digit volume growth by small upstart breweries makes the U.S. beer market a dynamic and competitive industry. Thanks to an independent beer distribution system, American consumers have access to more choice and variety than any country in the world.

However, bubbling beneath the surface, there are some industry players who are seeking changes at the state and federal level that would poke holes in today’s successful system - changes that could sink the whole ship.

Brewers of all sizes have voiced their support for the independent, three-tier distribution system that operates in the U.S. today.

MillerCoors’ Tom Long has observed, “How else could hundreds of new brewers come on line every year? The sheer reach of the U.S. three-tier system, the independence of the distributor tier and the positive economics for all players driven by national scale brands is an invaluable asset that we should all work to protect and promote.”

Mystery Brewing Company’s Erik Lars Myers has said, “If we didn’t have a three-tier system, we wouldn’t have a craft industry. The only reason we have a craft industry now is because those guys were able to get into a three-tier system that wasn’t tied down by large corporations.” And Lagunitas founder Tony Magee told an audience at NBWA’s Annual Convention, “There is nothing wrong with the system that exists.”

The Boston Consulting Group called today’s system “freely competitive”- driven by consumer choice. It said, “Despite fears that small brewers can’t compete against the scale and reach of large, mass-market brewers, the opposite has proved to be true… Ironically, small brewers’ ability to reach more drinkers has been enabled by the open U.S. beer-distribution system — a system that was once thought to lock out smaller players.”

The report concluded, “Regulators of the beer industry, which is one of the most highly regulated industries in the U.S., should recognize that the marketplace is working. And they should be skeptical of complaints (legal and otherwise) that the marketplace favors only large players.”

Yet, there are some in the industry who are making those complaints.

All industries evolve and undergo change. That’s exactly why today’s state legislatures can - and do - change state alcohol laws if needed. But it’s important to recognize that not all change is good, and not all change is progress. Change can be unnecessary and even detrimental.

Each state needs to proceed carefully when considering laws that would allow brewers, distributors or retailers privileges outside of their tier. It is each tier’s independence that has contributed to the U.S. beer industry’s current success. What may appear to be a small exemption or carve-out aimed at economic growth for one segment of the industry can often negatively impact other industry participants, the public and the system as a whole.

While many states may allow breweries with a tasting room to sample their beers, they should not be given the same privileges as established on-premise retailers who have spent years building responsible businesses, paid for costly liquor licenses and insurance requirements and followed other regulatory restrictions that govern the American Beverage Licensees membership. And just because products are available in new formats, those products still should be sold through an independent distribution system.

A majority of states have allowed brewers who produce up to a certain amount to self-distribute their products to retailers in order to help them get established. But such allowances are limited in order to maintain a level playing field and the benefits of an independent distribution system. Whether breweries are permitted to self-distribute their product to retailers, own an entire distributorship or are seeking exemptions from the laws that govern the supplier/distributor contract, changes made in the name of growth could ultimately result in the exact opposite. That is why several states are now working to close loopholes in their laws that allow for larger brewers to control distribution through branch operations.

Policymakers need only look to America’s neighbor to the south, Mexico, to see what can happen without a three-tier system. There are no real choices for retailers or consumers outside the FEMSA or Modelo brands. That is something policymakers should consider before poking holes at the American system that is working so well.

As Joni Mitchell sang, “You don’t know what you’ve got ‘til it’s gone.”

Independent distributors and licensed retailers must unite our strengths to ensure that the independent, three-tier system and America’s thriving beer industry remains strong for years to come.

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National Beer Wholesalers Association President & CEO Craig Purser provides industry commentary each quarter for ABL Insider, a publication of American Beverage Licensees (ABL), a national trade association for retail alcohol beverage license holders across the United States. Each column provides insight on issues of concern to beer distributors, their retail partners and others in the alcohol beverage industry. To learn more about ABL Insider, please visit http://ablusa.org/news/abl-insider.

OR: Hopworks Urban Brewery Expands Distribution to Alaska and Hawaii

Portland's Hopworks Urban Brewery announced it has added three new fermentation tanks to expand its brewing capacity to 22,000 barrels annually. Starting in March, Hopworks beer will be available in leading taphouses, grocery stores and markets in Alaska and Hawaii. K&L Distributors Inc. was selected to bring Hopworks beer to accounts in Anchorage, Fairbanks and the surrounding area. In Hawaii, Hopworks is partnering with Craft Northwest Distributors for accounts on Oahu.

TN: Closing Loophole Protects Beer Sellers and Consumers

In an op-ed for The Tennessean, DET Distributing President Fred Dettwiller and BountyBev President Kurt Strickmaker write: "International beer conglomerates want to come in and monopolize our three-tier system, which would put Tennessee jobs and businesses at risk while eliminating competition and consumer choice in the marketplace ... The good news is that Tennessee legislators can easily prevent this from happening by closing a loophole in Tennessee law to maintain competition and choice."

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