Battle Brewing over Craft Beer and Spirits Distribution

by | Jul 31, 2018 | Wine & Spirits

Reading Time: 4 minutes

There is a battle brewing that pits producers of craft beer and spirits against distributors and bar owners. Brewers and distillers usually work in partnership with their distributors and retailers, of course. But they also compete against them when they open tasting rooms and sell directly to consumers.

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Distributors do not like being cut out of the action, nor do bar owners. So both sides are stepping up their lobbying efforts to influence alcohol beverage laws in many states. Let’s look at some of the factors that are in play.

Tap rooms driving growth

The once-explosive growth in craft beer sales is slowing, according to the Beer Institute, while tap rooms account for the biggest area of growth. Craft beer volumes increased 1.6% in 2017, the slowest growth in at least 10 years. That modest increase was driven entirely by direct sales, usually through tasting rooms and brew pubs. Direct sales grew 24.2%, accounting for one in 12 craft beers sold in the United States.

Craft breweries like selling directly to consumers because the brewers control the product’s freshness and do not have to fight for shelf space in stores. Tasting rooms also allow brewers to build their brand through the visitor’s experience. In addition, there is some evidence that breweries with taprooms grow more quickly that those that do not offer a space for people to taste their beers.

Craft distilling is following beer’s trend. The craft distilling industry has more than tripled since 2007, according to the American Craft Spirits Association. Craft distilleries now operate in all 50 states, with many offering tours, tastings, and on-premise sales. Recently, craft breweries including Dogfish Head (Delaware), Rogue (Oregon), Ballast Point (California), and Cisco (Massachusetts) have begun distilling spirits as well. Then there are hybrid brewery/distilleries, including Maplewood (Illinois), Ranger Creek (Texas), and Warfield (Idaho).

Tapping into trends

Approximately 9% of U.S. bar traffic now moves through brewery taprooms and brewpubs, according to data from MillerCoors cited in the Wall Street Journal. In San Diego and Denver, it is 35%. The appeal of tasting rooms taps into trending customer preferences, including:

  • Local – Just as consumers seek out local produce and other foods, they are embracing locally produced brews, wines, and spirits. Some tap room experiences are hyper-local. For instance, Rogue makes a gin with botanicals grown at the brewery. Many small breweries root themselves in communities by sponsoring civic events, races, and organizations.
  • Variety – Craft beer drinkers love variety and experimentation. Fewer beer drinkers are brand-loyal. Tap rooms offer opportunities to try small-batch, experimental brews that are not available anywhere else; quirkiness and exclusivity add to the appeal. For distributors, all this makes predicting trends and inventory even trickier.
  • Authenticity – Small breweries and distilleries are run by artisans with a passion for their craft and an emphasis on quality over quantity. They ooze the authenticity that their customers crave. Consumers can see, hear, and smell the product’s creation and talk about it with both the expert producers and other enthusiasts.

Changing laws

While small brewers and distillers are eager to capitalize on these trends, many distributors and bar owners are concerned that tap and tasting rooms are cutting into their sales. In response, the two sides are lobbying lawmakers over exceptions to the three-tiered system that keeps production, distribution and retailing of alcohol separate in many states.

It is hard to predict the outcome of these state-by-state efforts, but, in general, tasting room regulations are loosening gradually. In Virginia, 14 new alcohol beverage control laws took effect on July 1, 2018, including one allowing distilleries to expand their on-premises drink menus. In Maryland, lawmakers recently voted against a bill to eliminate limits on taproom sales but soon will consider one to raise the limits. Craft breweries in Texas are lobbying for permission to sell beer to go, which is already permitted for brewpubs, distilleries, and wineries. And New Jersey lawmakers are weighing whether to scrap the requirement that taproom visitors take a tour before tasting or buying alcohol.

Answering to the consumer

Ultimately, all three tiers of the alcohol beverage system answer to the consumer. This scramble for drinkers’ dollars will be decided by the drinkers themselves. Brewers, distillers, distributors, and retailers each must work to discern what consumers want and how to give it to them efficiently and profitably. In this very dynamic market, access to useful information is increasingly important for success. Robust, real-time information can inform accurate insights into pricing, inventory, sales, and partnerships for each player in the three tiers – leading to consumers getting precisely the drink they want, when and where they want it. Let’s raise a glass to that!

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