{"id":5532,"date":"2012-02-21T09:04:36","date_gmt":"2012-02-21T15:04:36","guid":{"rendered":"http:\/\/www.guysdrinkingbeer.com\/?p=5532"},"modified":"2018-02-06T14:25:05","modified_gmt":"2018-02-06T20:25:05","slug":"a-distribution-consultants-take-on-you-me-the-people-who-brew-the-beer-we-love","status":"publish","type":"post","link":"https:\/\/www.guysdrinkingbeer.com\/a-distribution-consultants-take-on-you-me-the-people-who-brew-the-beer-we-love\/","title":{"rendered":"A Distribution Consultants Take On You, Me & The People Who Brew The Beer We Love"},"content":{"rendered":"

This is a guest post, of sorts, from John Conlin.<\/em><\/p>\n

John runs Conlin Beverage Consulting<\/a>. We wrote about him<\/a> – and a few other things beer and distributor related – a couple of weeks ago after he and I were among a handful of presenters at the Associated Beer Distributors of Illinois’ annual meeting in Chicago.<\/em><\/p>\n

I say it’s a guest post of sorts because John emailed it me yesterday and told me I could post it to the site – unedited<\/strong>. It seems he made the rounds with it. He is also a “guest poster” on beernews<\/a> and our good friends over at Aleheads<\/a>. We’ll bite on this as well and post it – allowing his thoughts a day or so to marinade before we post some thoughts of our own.<\/em><\/p>\n

Until then…<\/em><\/p>\n

Tough Love For Craft Brewers<\/p>\n

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photo courtesy Conlin Beverage Consulting Inc<\/p><\/div>\n

Since I have a knack for stating the obvious, let me state that craft beers\/brewers are the prettiest girl at the dance\u2026 and they know it.\u00a0 My blog has recently been discovered by a number of craft beer and craft brewer web sites\u2026 places like the Craft Brewers Association (https:\/\/brewersassociation.org<\/a> )… And BeerNews (https:\/\/beernews.org<\/a>)… And Guys Drinking Beer (www.guysdrinkingbeer.com<\/a>), got to love that name, says it all\u2026 and then there is Aleheads (https:\/\/aleheads.com<\/a> )…<\/p>\n

After my Who\u2019s Your Buddy post, which can be found here<\/a>, I noted a lot of visits from this place called Aleheads.\u00a0 If you recall my Who\u2019s Your Buddy post suggested that MillerCoors fully embrace the craft beer world, using their strength and \u201ctheir\u201d distributors to help this market flourish.<\/p>\n

I must admit I hadn\u2019t heard of Aleheads before but I don\u2019t generally visit beer geek websites (and I truly say beer geek as a compliment).\u00a0 But please do go to these sites and you\u2019ll find many more great craft beer sites to visit \u2026.\u00a0 I went to Aleheads to see what was up and lo and behold there was an article with my lovely picture under the headline \u201cAll Hail the Conlin\u201d<\/em><\/strong>\u00a0 It was a pretty good article \u2013 with a title like that how could it be anything but?\u00a0 \ud83d\ude09\u00a0 Here is the link to the Alehead post, https:\/\/aleheads.com\/2012\/01\/06\/all-hail-the-conlin\/#more-13546<\/a><\/p>\n

And for beer distributors it is rather insightful on what even dedicated beer fans know (or don\u2019t know) about beer distributors and this industry<\/span>\u2026 I have to admit I sent the link to that article to a few friends and most thought I had written the thing!\u00a0 It\u2019s the title-thing\u2026 my friends know me and my ego.\u00a0 I have henceforth requested all who communicate with me begin their speech with a hearty \u201cAll Hail the Conlin\u201d but have found compliance is very poor, to say the least.<\/p>\n

Well back to these craft beer drinkers and brewers.\u00a0 I communicated with a few of these folks and thought I\u2019d directed a post more to them\u2026 to give them at least my take on the history of the beer business and why they have the opportunity to exist.\u00a0 That last part might have more than a few thinking what does that mean?\u00a0 Opportunity to exist?\u00a0 Some probably believe this market opportunity just popped up, like most do, and not the result of an industry structure set up long ago.<\/p>\n

Well Sherman, let\u2019s take the Way Back Machine and see what things were like about 100 years ago in this country regarding beer and alcohol.\u00a0 In a word, things were bad \ud83d\ude09\u00a0 Not from a consumption viewpoint, consumption was rocking and rolling.\u00a0 That was the problem\u2026 there were many excesses prior to Prohibition\u2026 many.\u00a0 Ken Burns in his three part piece on Prohibition called this a Nation of Drunkards… you can watch his film on your computer at this link https:\/\/www.pbs.org\/kenburns\/prohibition\/watch-video\/#id=2082675582<\/a>\u00a0\u00a0 Pretty good stuff if you can ignore his liberal worldview\u2026 I know, I can\u2019t keep off my political soapbox \ud83d\ude09<\/p>\n

Anyhow, prior to Prohibition most bars\/taverns were what are called \u201ctied houses\u201d\u2026 a tied house was a tavern or bar that was partially or totally owned by the local brewer (pretty much all brewers were local then, and there were A LOT of them).\u00a0 In a tied house you could only purchase that specific brewer\u2019s products.\u00a0 Tough luck if you and your buddy liked different beers, you wouldn\u2019t be drinking together at the same tavern\u2026 it wasn\u2019t possible.<\/p>\n

Competition for customers was fierce and the brewers found owning the individual taverns helped them in their search for customers.\u00a0 Showing the law of unintended consequences cannot be fought, some cities raised the cost of a liquor license in the hope of stamping out what they considered were too many bars.\u00a0 This move just pushed the retailers even further in the tied house direction.\u00a0 This took many forms\u2026they sold to \u201ctheir\u201d taverns on extended credit terms, provided the equipment and supplies, sometimes charging low or no interest, often paying rebates for pushing their brand or carrying it exclusively. \u00a0\u00a0Or they took the whole enchilada and owned the place outright.\u00a0 The focus being on maximizing sales\u2026 period.\u00a0 Things like gambling and whore houses on the second floor were initially introduced as draws to sell more product.<\/p>\n

Now these tied houses weren\u2019t the only reason for \u201cA Nation of Drunkards\u201d, but they certainly did contribute to the problems\u2026 and these problems contributed to that failed experiment call Prohibition.\u00a0 As it became quite evident that Prohibition was a pretty bad idea, many ideas were considered\u2026 the people had clearly spoken and they prefer legal alcohol\u2026 but what to do to ensure the pre-prohibition excesses don\u2019t again raise their ugly head?<\/p>\n

As a political solution the 21st Amendment to the Constitution was passed.\u00a0 This amendment repealed Prohibition and also gave states the authority to regulate the production, importation, distribution, sale and consumption of alcohol beverages within their own borders.\u00a0 Yeah for state\u2019s rights!!<\/p>\n

Another facet of this solution was the introduction of a regulatory system known as the three-tier system.\u00a0 It takes its name from the regulatory feature it implemented, three separate and independent \u201ctiers\u201d which would be responsible for the production, distribution, and retail sale of alcohol.\u00a0 Thus one tier is the brewer who manufactures the product.\u00a0 Another tier is the independent distributors who warehouse and sell the product to retailers.\u00a0 And the last tier those licensed retailers who sell the product to the consumer\u2026 both on-premise (where the product is consumed on site) and off-premise (where the product is taken home for consumption).<\/p>\n

Tied houses would no longer exist in this new world.\u00a0 And right there is the reason EVERY craft brewer and craft beer drinker should on a daily basis salute the three-tier system.\u00a0 For without the three tier system, those brewers would not exist and therefore neither would their succulent craft beers.\u00a0 Read this paragraph three times\u2026 if not for the three tier system, you folks would never have had the opportunity to exist.<\/span><\/strong><\/p>\n

Think of an alternative world where the three tier system never took hold and tied houses ruled the marketplace\u2026 assuming retail establishments matched market share, AB (now ABI) would own and operate about 50% of all bars, taverns, and restaurants in the country.\u00a0 Is that freaking scary or what?!<\/p>\n

Other major brewers would own the rest (there probably never would have been a MillerCoors organization).\u00a0 In this world of tied houses, where would the vibrant, exciting craft beer business be?\u00a0 It wouldn\u2019t.\u00a0 Sure a small local brewery might open and operate a bar or tavern here or there but there is no way<\/span><\/strong> they could get beyond that\u2026 state-wide coverage?\u00a0 Not going to happen.\u00a0 Broader distribution than that?\u00a0 Dream on.<\/p>\n

It is very important that one understands and appreciates that the laws and regulations introduced to further separate the tiers were all to your<\/span><\/strong> advantage.\u00a0 In many states credit sales are not allowed\u2026 nor are consignment sales (pay me once you sell it)\u2026 brewers or distributors owning retail accounts is not allowed\u2026 the brewer or distributor can\u2019t give \u201canything of value\u201d to the retailer.<\/p>\n

Assuming a small brewer could overcome the weight of the tied houses (and they couldn\u2019t have), what of the impact of these other laws.\u00a0 Hey Mr. Retailer, you need a draft system?\u00a0 I\u2019ll give you one if you only sell my product.\u00a0 Hey Mr. Retailer, you want generous credit terms, no problemo\u2026 but of course we\u2019d want you to focus solely on our products.\u00a0 Need a new coat of paint or a new bar or free advertising on the radio or TV or Internet (or glassware or signs or lighting or\u2026), again no problemo\u2026 but there\u2019s that thing about those competitive beers you sell.<\/p>\n

How would you like to be an undercapitalized small brewer (and all small businesses are undercapitalized) trying to compete against this.\u00a0 It wouldn\u2019t be a problem because you couldn\u2019t<\/span><\/strong> compete against it.\u00a0 The existence of almost every one of these laws is the reason you have the opportunity to exist. <\/span><\/strong>\u00a0\u00a0That is a cold, hard fact.<\/p>\n

Now anyone who reads my posts knows that my political beliefs lean towards conservative\/libertarian.\u00a0 When I first started working in this industry I somewhat scoffed at this system\u2026 I\u2019m a small government, individual freedom type guy.\u00a0 But even in my libertarian heart I have found that it works pretty darn well\u2026 I might mess with it around the edges but in general I can\u2019t think of a better system to accomplish the goals of society in preventing pre-prohibition excesses.\u00a0 In addition it is a great method to ensure taxes are paid (in the real world this was one of the factors which pushed some reluctant politicians towards supporting the 21st<\/sup> amendment) and to ensure product quality and consumer safety.<\/p>\n

And from the craft brewers and craft drinkers perspective, it prepared the soil so you could flourish.\u00a0 Not to beat a dead horse, but without all this the odds of you all existing today is next to nothing.\u00a0 The major brewers would control everything and you would never have had the opportunity to be anything more than a brew pub\u2026 and even that would have been tough.<\/p>\n

So what do craft brewers attempt to do the minute they enter this industry?\u00a0 They attempt to seek exemptions from the laws which made their existence possible.<\/p>\n