03 Sunday Nov 2013
Posted in Quotes
“American craft brewers promote the Nation’s spirit of independence through a renaissance in hand crafted beers like those … produced here by the Nation’s founding fathers, including George Washington and Thomas Jefferson, for the enjoyment of the citizenry.”
—The U.S. House of Representatives, Resolution 753, June 6, 2006
29 Thursday Aug 2013
Posted in News
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We mentioned this topic about a year ago with the coming reform to Michigan’s control of alcohol, specifically regarding distribution of beer and the brewing industry. We rather expected a more public debate, but the negotiations and lobbying have actually been of the “back room” variety and news has been rather difficult to come by. MLive recently published a very nice summary of progress.
Obviously, these latest proposals are watered down from the original set of recommendations, but it’s still a step in the right direction for the state’s brewing industry. That Michigan’s brewing industry is rapidly expanding is no surprise to anyone, but there is a severe bottle neck in the barrelage limitations and ownership restrictions for the established producers and access to distribution for the wee little fellows, who are just starting up.
Hopefully, this agreement proves to be a win-win for all involved.
Entrepreneurs, such as Barfly Ventures (HopCat GR, HopCat Lansing, Grand Rapids Brewing Company, Stella’s Lounge, etc.), can continue to expand, with jobs and investment in their communities.
In additions, new small ventures and nano-breweries – who may have difficulty getting distribution or wholesaler “attention” in many markets – can choose to handle it themselves for a time. It removes a cost from distribution companies, who no longer have to “build” tiny brands within a clogged inventory, and it allows small brewers to learn an appreciation for the job distributors do. We eagerly await the actual proposal and terms on this final issue, as this had previously been a “line in the sand” for the Wholesalers Association. It makes sense, however, for these small brewers, who lack ad budgets, salesmen or name recognition, to bear the cost & effort of establishing their brands on their own behalf, rather than relying on a wholesalers and their sales staff, who may be indifferent to an unprofitable brand representing a fraction of a percent in sales.
We’ll toast progress and look for even more growth in Michigan beer going forward.
UPDATE (10/31/13): Continued progress is being made, according to MLive, on liquor reform, including self-distribution for the “little guys” we mentioned above: LINK
25 Monday Feb 2013
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I intended to post this update a couple weeks from now, as we spent a little time on the subject of “reform” last July when the State of Michigan issued a number of recommendations for changes that would change the ways beer producers, retailers and wholesalers function within the state.
Here’s a little further detail on some of the major points from the perspective of the craft brewer at the time: LINK
We have it on good word that negotiations are still ongoing in Lansing as lobbyists on both sides of the issue are peddling their influence.
In fact, a bill has now been proposed. You’re going to hear a TON about this going forward…and there will be some spilled beer as a result.
While there is much noise in the above-linked article regarding the “gas station” provision – something that’s already common practice in many states (and I find the “public safety” arguments to be complete bunk, coming from a trade group trying to maintain their turf) – other issues are more relavant to the craft industry. One of the big issues, of course, is self-distribution for small brewers. While I certainly understand the arguments on both sides of the issue, having worked all three tiers in the past, I wonder if perhaps this is an issue that can be a “win-win.”
Distributors or wholesalers want to maintain their control, of course, and the potential revenues that come with mandatory distribution, but let’s face it: in the modern market in most areas of the state, there are only a handful of wholesalers, and most of them have literally THOUSANDS (if not hundreds of thousands) of SKUs to try and manage. Consolidation is making this an even bigger problem. It is impossible for them and their staffs to give attention to all of them, despite their best efforts, and it’s the small players who usually slip through the cracks, particularly if they don’t have much name recognition in the market.
Brewers (opens .pdf), on the other hand, want the attention and freedom that come with self-distribution, but let’s also face it: many or most of them have little to no understanding of the costs and efforts involved to build and maintain a distribution network and the retailer relationships that go along with it. Having worked in the middle tier in the past, let me tell you, the hours are long, often thankless, and it ain’t always easy.
I’m guessing that this piece of reform would accomplish two things:
1. It would eliminate the expense and hassle of “building small brands” from wholesalers and allow them to concentrate more resources on brands that have some volume. The job isn’t getting any easier for startups as it’s no longer “special” to be local. You need to be local, have a good product and some following. These things take time and are not always present in new breweries entering the market, often undercapitalized, and are sometimes busy learning from mistakes.
2. It would build an appreciation among small brewers for the difficulties faced in distribution. I’d bet most small brewers would be eager to pass along distribution responsibility for their brands as they grow beyond a few core accounts. After all, brewers are typically in the “beer business,” not in the logistics and sales business. Who wants to spend money on trucks, warehouse space and sales guys when you can be making beer? Who wants to spend 18 and 20 hour days meeting retailers, repairing trucks, loading and unloading trucks, in strategy meetings, making sales calls, fixing draft problems, stocking shelves, dealing with returns, and doing promotions in far off retailers instead of being in the brewery making beer and talking to customers?
Bottom line, I would argue, is the current system was created nearly 80 years ago as the nation passed the 21st Amendment to address issues that are no longer present and current conditions can fairly be said to warrant some reforms. While the system has done some things well, let’s not forget that it was reform in the mid-80’s – specifically, the creation of the brewpub and microbrew licenses – that opened the doors to this tremendous new craft beer industry in the state.
Personally, I would urge the wholesalers to look at this as a positive. It can reduce costs and eliminate small volume SKUs that are not as profitable while creating true partnerships with those producers who do use and appreciate a distribution partnership. Hopefully, these new changes can be fair for all the parties involved and continue to shepherd a growing industry in the Great Lakes State for decades into the future.
17 Sunday Feb 2013
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Talk about being stuck in the stone ages – no pun intended from yesterday’s post…
Alabama actually has a fight on their hands to finally legalize homebrewing, a safe, legitimate activity that most Americans have enjoyed freely since 1979.
I find the quote from Joe Godfrey, chief opposition leader and head of the Alabama Citizens Action Program, or ALCAP, most disturbing. You can read the full quote on the link above, but in part he says, “I’ve never met an alcoholic that started out saying, ‘I’m going to become an alcoholic.’ They start out socially drinking. They start out homebrewing and tasting.”
My response can be summed up thusly:
You, sir, are an idiot.
Memo to Joe: It’s already legal to buy beer, wine & spirits throughtout the great state of Alabama! In fact, that’d be radically easier and (at least initially) much cheaper than buying homebrew equipment, only to wait weeks to bottle, then secondarily ferment, so you can get hammered on your own beer.
A quick review of consumption and sales statistics would also back the arguement that homebrewers and craft drinkers consume LESS than drinkers of typical commerial beers, but don’t let facts and logic interfere with your “faith” that all homebrewers are future alcoholics.
Speaking of faith, is Joe aware that Jesus and all the Disciples drank wine? Or that the organized church was responsible for maintaining the brewing arts throughout the Middle Ages and into modern Europe? Or that the Pilgrims landed in Plymouth because they were out of beer?
Bottom line is this: whether you care about homebrewing or some other issue, this is about basic rights to live free and enjoy your own legal activities in your own home, whether or not your neighbor would do the same. The next Prohibition may be something YOU enjoy, like french fries or an extra large Coke.
For more on the fight, click HERE for the actual bills and to lend support.
14 Friday Dec 2012
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Thanks to homebrew legend Charlie Papizan, we noticed this little article from the Economist regarding the South Korean beer market:
Much of the difficulty in the market is due to a strangling regulatory environment, which is created and perpetuated, of course, by the market’s largest players – often claiming such rules “protect” consumers when they actually stifle competition.
I can remember when Florida only allowed beer to be sold in 12 ounce bottles – obstensively to avoid “consumer confusion” – but also very effective at restricting import and craft brewers from entering the market. Other states have similar examples, including Pennsylvania’s “brand registration” rules, Michigan’s Christmas Day Prohibition, and Kansas’ ban on Sunday sales or anything over 3.2% in a grocery stores…all very effective at impeding craft beer sales. In fact, there are many reasons to fear the concentration of the American beer market in the hands of one or two huge corporation (see the full report linked from HERE) and/or retailers – the linked report is a worthy read if you have time.
We’ve warned about this sort of thing happening in this country and elsewhere and continue to encourage folks to support their local purveyors of beverage and edible, who use authentic ingredients and support their communities, and support legislative efforts to encourage local beer (and food) production.
06 Saturday Oct 2012
Posted in Noted
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It’s only a matter of time before one of these cases is “won.” That verdict – absolving individuals of responsibility – will be the beginning of the end for the industry as it’s now known. Maybe that’s a good thing, maybe it isn’t. Regardless, it shouldn’t be for a court or nanny state to decice, in our view.
When they came for cigarettes, no one cared if they didn’t smoke. When they mandated seatbelts, people said it was for their own safety. They came after fatty goods, foie gras, hot coffee, football helmets, Hooters and a ton of other products and services that affect small groups of people. Now, they’re after fast food, Big Gulps (which finally has some people pissed off)…and, in the aforementioned case, licensed retailers selling legal products.
The lawyers & politicians are after money and notoriety, of course, but the price to the public is steep, despite their protests that restrictive laws & regulations and punitive lawsuits “protect” the public. In some cases, they do…but they also make some great products and services unavailable that responsible adults should be able to enjoy or access.
15 Sunday Jul 2012
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“I think this would be a good time for a beer.”
– Franklin D. Roosevelt, upon signing the Cullen Harrison Act on March 22, 1933, amending the 18th Amendment and effectively ending Prohibition.
The 21st Amendment, repealing the 18th and enacting a patchwork of state regulation, was passed on December 5, 1933.
09 Monday Jul 2012
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This is a fight that is just starting to warm up in Michigan.
As some in the industry may have noted, one of current Michigan Governor Rick Snyder‘s goals has been to increase “business efficiency” through various taskforces designed to reduce red tape and make life easier for commerce. Called the “Office of Regulatory Reinvention,” they have addressed numerous areas of government and business regulation over the past couple years – for better or worse, depending largely on your political views.
Well, they just released a list of Committee recommendations (summary) regarding this state’s Liquor Control system, which governs the beer industry in the state, among other things. (The entire list of recommendations is HERE.) While there are many items worthy of discussion, a few proposals stand out. Specifically for the craft beer fan, it contains some bombs for the state’s “three tier” system.
As many people are aware, Michigan is one of the strictest three tier states in terms of alcohol distribution. Producers (breweries/wineries), wholesalers/distributors (middlemen) and retailers (bars/convenience stores/retailers/taverns) are all separate entities according to current regulation and ALL beer sales (aside from brewpub and microbrewery on-premise sales) MUST go through the three tiers. Cross-ownership is not allowed. In other words, a brewery cannot own any part of a bar or distributor and cannot self-distributed. A distributor cannot own a store or produce product. A tavern bartender cannot work for a distributor. You get the idea.
This video illustrates the argument on one side:
A number of political and industry lobbies have noted the Committee’s recommendations, including the Michigan Brewer’s Guild, libertarian think tank Mackinac Center (with multiple resources listed), media, and, of course, the wholesalers.
One of the most interesting recommendations is to allow self distribution or at least end “exclusive” Wholesaler contracts/territories for small brewers (under 30,000 Bbl, which would be every Michigan brewery except Bells, Founders & perhaps New Holland).
This would effectively diminish the power and control – and expense – of the middle tier, the wholesalers. Expect to see a TON of rhetoric on this one, as one side will argue for business “business freedom” from archaic laws along with “reduced expenses,” while the other will argue for “public safety,” “protecting minors,” and a continuation of a system that has (arguably) “served well.”
To briefly summarize this particular issue relative to the consumer, one of the biggest challenges for a small brewer is distribution. Many people in Michigan may not realize that a producer (brewery) enters into an exclusive territorial contract with a wholesaler or distributor that is relatively unbreakable. A brewery is unable to change or switch distributors regardless of how that wholesaler performs for them (…actually, they must leave a market for a full year to sever a relationship with a distributor under current Michigan regulations, unless a distributor releases them or sells their rights to a competitor, which is pretty much the same thing). In end effect, a producer in a poor distributor relationship is stuck…unable to end their agreement or move to another distribution partner in that territory if they are dissatisfied for whatever reason – even if that wholesaler “sits” on their product and doesn’t sell, support, or move it.
As one can imagine, this has lead to some difficult situations where a brewery has NO options aside from “stay with the current distributor” or essentially “go out of business” in that territory.
In some regions, there are only a handful of wholesalers to serve an entire market and these few wholesalers are stretched pretty thin with a huge catalogue that is virtually impossible to fully service, particularly for little guys and small brands, as a wholesaler’s “bread” is often buttered by large brands that move quickly with little effort.
In addition, there is a significant markup in consumer costs with this additonal tier. To use an example (based on reality) of “ABC Brewery,” who sells a keg of their finest pale ale to the “XYZ Wholesaler” for $60. The wholesaler will turn around and sell this keg to a bar or convenience store for $110, even if that retailer is located down the street from the brewery. That store may then sell the keg to a customer for $150 retail. The breweries will get in on it, too, because ABC Brewery will sell the same keg to a customer at the brewery for the same price as the store, to avoid undercutting the store and taking the full retail price for themselves.
Beer festivals are often subject to this arrangement. Often, beer selections are limited to those carried by the distributors involved in the event. When you attend a beer festival, most breweries have paid the festival a fee for their table or space. They sell their beer to the distributor, who sells it to the (often non-profit) festival – who are purchasing the beer with proceeds from the table fees. The wholesaler gets paid their full cut, but the brewery has “paid for” their own beer to be sold and the festival relies on entrance or drink tokens to make their money. Regardless, the patrons have their choices limited to the breweries who are willing to pay and the distributors who participate.
To be fair, if breweries were allowed to self-distribute, they would absorb some of those distribution costs (additional employees, equipment, vehicles, storage space, etc.) and pass these costs on to their retailers. While many wholesalers do a very nice job and try very hard to support their many craft brands and do so very efficiently, there are certainly cases, such as cited in the Saugatuck example in the above video, where inefficiencies exist and a cost savings can be realized.
It seems to me, that the essential part of this potential change is the give the small guy the ability to “opt out” or change distribution partners if they wish – or at least with a more reasonable 30 day notice, etc. – and allow them to avoid or seek alternatives – such as multiple distributors in a given territory – to unfavorable wholesaler relationships. This will force distributors, who in some cases may take their small vendors for granted, to pay attention to those brands and service those they wish to keep – like most of “business,” you need to do a good job to keep your job.
As a benefit to the middle tier, it allows wholesalers to avoid some of the major time, effort and expense it takes to “build a brand” that may be unknown in a market as the good ones DO put major investment into brands that may or may not pan out over time. If little guys had self-distribution, they could take on that effort and expense themselves before seeking distributor assistance in a marketplace. It may also give brewers a better understanding of the difficulties faced by their distribution partners in a competitive marketplace. It is often the wholesalers and their sales staff who have the relationships with stores, bars and restaurants that earn new guys shelf space, tap handlese and new accounts. The value of those wholesaler-retailer relationships is significant.
Bottom line is that there is probably some room for reasonable reform here. It will be very interesting to see how these proposals are debated and ultimately adopted. The results of which WILL influence the choices and variety consumers are ultimately allowed to enjoy at their favorite bar, retailer or beer festival.
23 Saturday Jun 2012
Posted in History
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Ironically, the 16th Amendment (income tax), 17th Amendment (direct election of Senators), 18th Amendment (Prohibition) and 19th were all mutual goals of the Temperence & Suffrage Movements.12 Tuesday Jun 2012
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Speaking of “Political Dinosaurs,” how on Earth does this group get any coverage, much less be taken seriously?? Have they not been thoroughly discredited by history?
I’m quite sure that this “news” mention will actually generate some interest in their group.
As lesson #1, I offer the following:
“So convinced were they that alcohol was the cause of virtually all crime that, on the eve of Prohibition, some towns actually sold their jails.” –
Anti-Saloon League of America. Anti-Saloon League of America Yearbook. Westerville, Ohio: American Issue Press, 1920, p. 8. Cited by Mulford, Harold A. Alcohol and Alcoholism in Iowa, 1965. Iowa City, IA: University of Iowa, 1965, p. 9.
For more tidbits on the complete nonsense of the Temperence movement, and specifically the WCTU, there’s some further reading here. Suffice it to say, there was more “emotion,” than “science” behind the movement.
