Brewers make push to sell directly to customers amid slowing sales growth
By Saabira Chaudhuri
June 2, 2018
Small brewers are squaring off against distributors and bar owners in a fight for drinkers as craft beer’s once-explosive growth cools.
Craft-beer volumes grew just 1.6% last year, according to trade association the Beer Institute, the slowest growth in at least 10 years.
Growth is being driven entirely by direct sales from brewers to customers, mainly through taprooms and brewpubs. Direct sales last year grew 24.2%-accounting for one in 12 craft beers sold-while the remainder of craft-beer sales declined, according to the Beer Institute.
Small brewers are eager to capitalize on the trend-selling direct makes for higher margins-but many distributors and bar owners are feeling shortchanged.
In response, the two sides are waging a lobbying war across the U.S. over exceptions to the post-prohibition “three-tier system” that keeps the production, distribution and retailing of alcohol separate in many states.
“Taprooms have always met some resistance from distributors and retailers, but resistance has lately become much greater,” said Marc Sorini, a lawyer who advises brewers at McDermott Will & Emery.
The scramble for drinkers’ dollars has gained urgency as beer continues to lose share to wine and spirits amid demographic shifts and changing consumer behavior.
Austin Evans, a 27-year-old insurance professional based in Austin, Texas, likes drinking at taprooms and brewpubs because he occasionally gets to try small-batch, experimental brews. “It’s one of the biggest perks,” he said.
Definitions differ by state but broadly taprooms refer to the locations in a producing brewery where consumers can buy its beer while brewpubs are restaurants that also have their own breweries and serve beer.
Roughly 9% of bar traffic across the U.S. now moves through brewery taprooms and brewpubs, according to data from MillerCoors. In Denver and San Diego, the figure is 35%.
Bars are losing traffic to tasting rooms across the U.S.
Craft-beer bar chain Flying Saucer Draught Emporium closed its Austin location after 10 years in January. It blamed declining sales on a 2013 law ushering in an exception to the three-tier system to allow breweries to sell up to 5,000 barrels of beer a year for drinking on site.
“The Texas beer industry was introduced to topsy-turvy legislation, which has harmed our Austin Saucer significantly, as well as hundreds of retailers across the state,” said Shannon Wynne, the chain’s co-owner.
Mr. Wynne said the additional competition dragged sales down by 20% over the past three years in Austin. Sales have declined at Flying Saucers across Texas.
But the Texas Craft Brewers Guild doesn’t think the 2013 law went far enough. The trade association is lobbying for breweries to be allowed to sell beer to go, something wineries, distilleries and brewpubs are already permitted to do.
Earlier this year it started a political-action committee that aims to counter Texas’ powerful beer distributors, who want the existing law prohibiting the sale of beer to go to be maintained.
“We fully support the three-tier system, but in Texas, it has been manipulated for years by the middle tier, the distributors, in order to make the system work most favorably for them,” said Charles Vallhonrat, executive director of the guild, pointing to years of lobbying and political donations. Texas, he said, is the only state in which craft breweries aren’t allowed to sell beer to go.
Tom Spilman, executive vice president of the Wholesale Beer Distributors of Texas, denied the allegation that distributors manipulate the system and noted that they have both “won and lost on issues at the Texas Legislature.” Changing the law, he said, will hurt sales for retailers and wholesalers, while adding another exception to the three-tier model.
“The more carve outs you make for a system the weaker it becomes,” he said.
In New Jersey, the issue has split the beer industry. The original brewers association is lobbying to scrap a requirement forcing taproom visitors to take a tour before they buy or taste alcohol. It also is behind a bill proposing breweries be allowed to serve food that has rankled the restaurant industry.
“Just stay in your lane,” said Marilou Halvorsen, president of the New Jersey Restaurant & Hospitality Association.
Fed up with the focus on taprooms, larger New Jersey craft brewers that depend mainly on distributors for sales in March set up their own trade association to concentrate on issues like tax and production.
“Tasting rooms became the focus of a lot of people at the association,” said Gene Muller, a founding member of the new trade body. “It became a one-trick pony.”
In Alaska, a bill aimed at overhauling the state’s alcohol laws was killed in May because of a dispute about an amendment proposing to slash the amounts booze makers can sell to consumers.
“Some bar owners claim we are taking their dollars, but most of the bars saying this are older and haven’t changed their business model to keep up with the younger generation,” said Ryan Makinster, director of the Brewers Guild of Alaska. “It’s dollars that would never have been spent there anywhere.”
In Maryland, a bill to scrap limits on taproom sales was voted down earlier this year, while another from the state’s brewers association to raise limits has faced intense opposition from retailers and distributors.
“We all play in the market, we all answer to a consumer,” said Kevin Atticks, executive director of the Brewers Association of Maryland. “It’s not up to us to dictate where a customer buys their product.”