However, the most dramatic moments involved discussions about the three-tiered alcohol-distribution system and the relationship between brewers, wholesalers and retailers. Although most brewers I talked to at the conference were quick declare their support for wholesalers — many of whom they count as friends — it’s clearer than ever that the antiquated three-tier system needs to be revamped.
The three-tiered structure — a vestige of the post-Prohibition 1930s — mandates that producers, wholesalers and retailers remain separate legal entities. In many instances, it forces brewers to contract with wholesalers when selling their beer. Those coerced middleman relationships are almost wholly unique to the alcohol industry. Unsurprisingly, this model has had trouble fitting into a modern marketplace rife with brewery-owned taprooms and brew pubs.
Despite the fact that this antiquated legal structure no longer coheres with modern realities of the beer market, wholesalers remain committed to the model because it grants them de facto monopoly power over beer distribution within their geographical regions. In defending the three-tiered system, wholesalers invoke a parade of horribles they claim would ensue were the system scrapped and brewers allowed to sell straight to customers and retailers.
But as was pointed out, the District of Columbia’s legal structure functions well despite avoiding many facets of the three-tiered system. Unlike in most states, retailers in the District can import beer straight from producers. D.C. also lacks restrictive franchise laws that lock brewers into bad contracts with wholesalers.
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Perhaps the biggest looming threat to the three-tiered system is the proliferation of on-premise taprooms. Most breweries sell close to one-third of their beer on site, which makes these sales a significant part of their business models. Right on cue, increasing resistance has cropped up among wholesalers and retailers leery of any efforts by brewers to sell their brews directly to consumers.
One panelist even likened the taproom battle to a coming Cold War, pitting wholesalers and retailers against brewers in state legislatures across the country — as was recently seen in Maryland when brewers sought to raise the on-premises sales cap.
Whether states will enact reforms to allow breweries to sell more of their beer directly to consumers remains to be seen, but the presentations at the Craft Brewers Conference demonstrated that the three-tiered system is struggling to keep up with the realities of the modern beer world. Sooner or later, change is coming.
When referring to the beer industry near the end of one of his panels, one wholesaler quipped, “It’s a regulated industry, not a free market.” Maybe so, but the trend seems to be toward more freedom. In today’s hypercompetitive beer market, hard-working brewers may just start demanding it.
C. Jarrett Dieterle edits R Street’s DrinksReform.org website, which tracks and analyzes alcohol laws from around the country. He wrote this for InsideSources.com.