SPECIAL REPORT:

Update on couple killed in area's second double homicide this month

OPINION: What’s really brewing in the beer industry


“You’re probably going to get fat.” These were some of the many words of warning handed out by Liquid Mechanics CEO Davin Helden during his talk on what it takes to start a craft brewery in the United States today. Other nuggets included: “My first suggestion is to hire a lawyer,” and “you will drain your savings accounts and 401(k)s” despite working 70 hours a week.

Helden — who proudly announced that he was finally off Medicaid now that his brewery had grown to a sufficient size such that he could afford health insurance — wasn’t the only person sounding a note of caution at this year’s Brewers Association Craft Brewers Conference. Numerous panel speakers cited the possibility that America’s craft-beer market is oversaturated. The Brewers Association’s chief economist, Bart Watson, told brewery owners to get used to slower growth trends, even though craft beer continues to expand its share of the beer market.

With the number of breweries in the United States now topping 5,000, competition has grown fierce. Brewers increasingly look for any advantage or leg-up they can find. From a policy perspective, this makes rational and market-friendly beer laws more important than ever, since the more time brewers spend trying to comply with frustrating laws and regulations, the less time they have to brew and to grow their brands.

When it comes to regulatory issues, the conference showed brewers are engaged. The numerous regulatory seminars were among the most well-attended sessions and featured extensive Q&A sessions in which brewers quizzed regulators on the detailed ins-and-outs of reporting requirements, tax filings and compliance issues.

MORE COMMENTARY: Is U.S. drug policy moving backward?

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.

READ THIS NOW: War cries drown out ‘America First’

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.



Reader Comments ...


Next Up in Opinion

Opinion: U.S. not as intolerant as we make it out to be

I don’t normally watch the GLAAD Media Awards. Not that there’s anything wrong with them. GLAAD, by the way, originally stood for “Gay & Lesbian Alliance Against Defamation” before the organization declared that GLAAD was its name and not an acronym. But I did see a video of Britney Spears’ acceptance of GLAAD’s...
Opinion: Educational fraud continues

Earlier this month, the 2017 National Assessment of Educational Progress, aka The Nation’s Report Card, was released. It’s not a pretty story. Only 37 percent of 12th-graders tested proficient or better in reading, and only 25 percent did so in math. Among black students, only 17 percent tested proficient or better in reading, and just...
Opinion: Remembering Barbara Bush, grieving mother

My mother and Barbara Bush were contemporaries. Despite coming from very different backgrounds — daughter of a Kansas farmer and daughter of a New York City businessman — they had a common experience, a very human link. It’s a sad connection that I suspect also has many a woman feeling fondly toward Bush, who died Tuesday at 92. Both...
Opinion: Paul Ryan is the ultimate party man

The mistake about Paul Ryan, the one that both friends and foes made over the years between his Obama-era ascent and his just-announced departure from the House speakership, was to imagine him as a potential protagonist for our politics, a lead actor in the drama of conservatism, a visionary or a villain poised to put his stamp upon the era. This Ryan-of-the-imagination...
Opinion: Foes of renewable energy increase risk of climate catastrophe

Peter Thiel, Facebook investor and Donald Trump supporter, is by all accounts a terrible person. He did, however, come up with one classic line about the disappointments of modern technology: “We wanted flying cars, instead we got 140 characters.” OK, now it’s 280, but who’s counting? The point of his quip was that while we&rsquo...
More Stories