That beer in your hand has been on quite a journey. It was lovingly made, bottled/canned/kegged, then shipped to your mouth through a well established system of distribution that's been the norm in this country, for good or bad, since the early 1930's. Interested in this journey? Read on Enthusiasts!
(fair warning...this topic can get opinionated quickly in modern craft brewing. We'll try out best to remain objective on this page)
Before we get into the nitty-gritty, we can take a minute to define the three tiers around the current system:
This is anyone who actually makes or supplies the beer, including:
Breweries and Importers
A result of post-prohibition era legislation to encourage fair market practices, distributors get your beer from the breweries and importers to the places you buy or consume it. You know those big trucks you see driving around with beer brands plastered to the outside? That's a distributor.
This is where you, the brew enthusiast, get your beer. A retailer can be a bar, restaurant, grocery store, package store, or anywhere you buy the beer.
A brief background:
When this system was introduced into the alcoholic beverage industry right after the repeal of Prohibition (Amendment #21, or as we call it, "the greatest of all constitutional amendments"), it was done with good intentions. It was meant to promote fair market practices, and by and large left the regulation of the alcoholic beverage industry up to each state. As we mentioned above, and for better or for worse, this system has stayed in place for almost 100 years, and it governs the majority of beer distribution in this country. Laws around distribution and consumption of alcohol are notoriously complex and hilariously different from state-to-state.
We are generalizing terribly right now, but in a nutshell, the three-tier system was put in place to prevent suppliers from selling directly to retailers, or acting as both the supplier and retailer at the same time. Notable modern exceptions include brewpubs and certain breweries that are allowed to self-distribute. At this point, we're not talking about trying/purchasing samples, growlers, and packaged beer directly from breweries (after a brew-tour for instance). This is a different rule, and it really varies state-by-state.
Why shouldn't suppliers be allowed to act as retailers? In pre-prohibition era times, It led to unfair and manipulative practices amongst breweries and their retailers, often giving breweries full control to put their product exclusively on the shelves of a bar or store, and preventing fair competition from other suppliers or breweries. When this three-tier system was introduced, the idea was to stick an independent middle man in between suppliers and retailers, and allow all players to compete on a relatively level playing field. This has, for the most part, been effective.
More on that in a minute.
As it exists right now in 2017.
- Breweries make the beer. They put the beer into a container of some kind. Usually it's a can, bottle, or keg.
- Distributors buy the beer from the breweries. The breweries ship it directly to their distributor. Distributors have huge warehouses full of products they sell.
- Retailers buy the beer from the distributors. The distributors have a sales team that sells the beer to the bars, restaurants, and stores.
- You buy the beer from the retailers. When you go to the pub for a pint, or go to to the store to get a 6-pack, you purchase this beer.
That basically it. It's a good, and antiquated, system. Some would argue that it's still the most efficient way to get the beer to the consumer, and some would say that it's a cost-prohibitive relic with a blatant disregard for the modern beer economy.
How do breweries choose their distributors?
A distributor is a key partnership for most breweries. Even if the brewery is allowed to self-distribute (and some states allow this), most of the time the expense becomes cost-prohibitive once the brewery reaches a certain size and output. In today's system, most distributorships are focused around a specific major brand (AB, Miller/Coors, Etc), with smaller craft brands rounding out their portfolio of offerings. These distributors will focus primarily on selling their major brands first, as this is their cash cow. Distributors often have close relationships with beer buyers at most of their retail accounts, and therefore it pays to work with them closely to make sure your beer is being sold correctly.
Some distributors don't operate on the the "major brand" house model. Some distributors eschew this and focus solely on regional and local craft breweries in their selling portfolio. These distributors can be very effective for craft breweries if they have the right market penetration and knowledge on how to sell great craft beer! Bounty Beverage, out of Nashville, TN (see video) is a great example of a distributor who only sells craft beer. They can focus on all their craft brands and see that they are all sold equitably.
It pays to remember that quite a few U.S breweries are forced to use a distributor because of their state's laws. Some of them don't want a distributor acting as a middle man between their products and their customers. It's a sensitive subject for breweries, distributors, and politicians, all of whom want a slice of the proverbial pie.
Conversely, a lot of breweries rely on their distributors heavily. As mentioned in the video above, a large majority of these breweries are cash-poor, and cannot afford the salesforce and market representation that their distributor can provide. In a lot of critical ways, the brewery and distributor partnership is beneficial to everyone involved in the beer supply chain. Here are the summarized arguments:
- The current three tier system encourages a fair and open marketplace. Instead of tying breweries directly to their customers, this system conveniently inserts a middle man that allows all breweries to work on an open and equal playing field. The consumer gets more products to choose from, and everyone wins (theoretically).
- Breweries need their distributors to move their beer efficiently. As we said, breweries might not have the resources to handle the sales and distribution efforts themselves.
- It's the cheapest way to do it. Even though the distributor is taking a slice of the profits and raising the final price, this system actually controls costs through free-market enterprise and competition.
- It's an archaic systems that increases costs to the final consumer. Each additional step in distribution adds a layer of pricing to the final product. Beer would be cheaper without the three tiers.
- It's corrupt and still controlled by the largest domestic producers of beer. Contrary to the idea that it promotes fair practices, this system rewards unfair practices like pay-to-play, and doesn't represent the small craft brewery effectively.
- It's nearly impossible to acquire adequate mind-share with a distributor when your brand represents such a small profit for them. Breweries do have to work really hard in order to enter and grow in a market, and without distributors effectively backstopping their efforts, it's an enormous uphill battle.
- It's shouldn't be mandated. State law shouldn't stop a small business from reaching a consumer if they're capable of doing it without a distributor.
Do both sides have an axe to grind? Yes. Is anyone 100% correct? Probably not!