At the end of 2012 I decided to set a goal for 2013 of digging into the 3 tier system and reporting back on what I learned. I came into this endeavor with a set of preconceived notions about the 3 tier system that are drastically different then what I feel now. Throughout the series of posts, I’ve tried to be as objective as possible and present the views of the people I interviewed. What follows are my thoughts on all those interviews and the 3 tier system as a whole.
This is my follow-up to the 3-Tier system introduction. I started off with an overview of the 3-tiers, but now we’re going to dig into the top, and most exciting, tier. Breweries are where all the magic happens!
Besides being where the magic happens breweries are also the easiest tier to discuss because all they need to do is make beer. OK, so making beer is difficult but that’s far beyond the scope of the 3-tier system. For their role in the 3-tier system, it really is just a matter of producing a product and making money from it. Depending on the local state laws, there are a couple of ways that they can make that money. Some states allow breweries to sell their beer themselves out of the brewery, like Ohio’s tap rooms. Other states allow them to sell it themselves around their state, aka self-distribute. Both of these are less common routes for breweries to make money. Most brewers depend on a third-party to buy their product then sell it to everyone else, to distribute the beer.
The Role of the Distributor
The upsides to signing with a distributor are that brewers get to focus on making the best beer they can. They make the beer and sell it to their distributor who takes it from there. Without a distributor, brewers would need to find their own way into meeting bar or store owners and convincing them to carry their product. That also means that every bar would have one more account to deal with and keep track of. In talking with store owners they prefer dealing with one company selling many products. Distributors simplify the process of well, distribution.
Of course, that’s a bit of an oversimplification as the breweries have to manage the relationship with the distributor and do plenty of marketing themselves. Also, many distributors provide far more services than just selling beer. Like providing signage or having a representative pour at beer fests and storing all those kegs/cans till the retailers are ready for them
The alternative to that is self-distribution. Ohio, Indiana, and about 30 others states allow self-distribution. I recently discussed self-distribution recently with Cellar Dweller and Listermann. I also covered this topic with Scott LaFollette from Blank Slate Brewing Company who self-distributed for the first six months.
What everyone made clear was that self-distribution had some distinct advantages in a better overall view of the business, a better relationship with customers and slightly higher margins. However, all of that results in less time for them to focus on making beer or having to hire delivery people and buy trucks for them to drive.
Lastly, all brewers I talked to had strong feelings about franchise law. In a vast oversimplification franchise law means that the brewery gets stuck with the distributor forever. If I can stick to my plan then this fall there will be a post on Learning About Beer: Franchise Law where I will break down this controversial subject. Also planned for late September or August will be the next tier, Distribution!
Many thanks to all the brewers who were interviewed about this.