Change to Wisconsin beer distribution law will hurt small brewers. Or will it?

From thebeerfriends.com

The Wisconsin Legislature’s Joint Finance Committee recently approved a measure that would change the way that state handles beer distribution. Among several other things, the bill would change the licensing procedure for distribution from a municipally issued licence with a maximum cost of $25 a pop to a state issued license with a $2,500 maximum. It would create a new brewer permit, which would allow breweries with a capacity of less than 300,000 barrels annually (that’s just about everybody) to self distribute without a separate license, as well as sell at one off premises location owned by the brewery. In the current situation, breweries in Wisconsin can hold a brewing permit, a retail permit, and a wholesaler’s permit. This allows them to sell, on their own premises, as well as at brewery owned restaurants and bars (up to 2) not only their own product, but other beer and liquor as they choose and to distribute not only their own product, but that of other brewers. Under the proposed bill, no brewery, or person who owns a brewery may hold a separate distributor’s license, nor hold a separate retail permit. Here’s a draft copy of the motion:http://www.tyranena.com/Motion414.pdf

Supporters of the bill, which include the Wisconsin Grocers Association, the Wisconsin Beer Distributors Association, the Tavern League of Wisconsin, and MillerCoors, LLC, claim this measure, which would become law as an add on to the state budget, is necessary to prevent large brewers, and specifically Anheuser-Busch from buying up wholesale distributors in the state and creating “brewery branches”.  These supporters say that fifteen states are facing the threat of brewery branches, and that Louisiana, Nebraska, and Illinois have already passed similar laws.

While it is generally accepted that the bill would prevent A-B from gaining a footing in the distribution market, many small breweries in Wisconsin claim that it would also do great harm to their businesses. According to the Pearl Street Brewing Facebook site, http://www.facebook.com/notes/pearl-street-brewery/budget-bill-to-damage-wisconsins-small-brewers/218339011518888

“Every small brewer uses their wholesale license today to sell to a few customers. Many brewers sell (with their wholesale license) to special events/festivals with permission from the wholesaler that has the assigned territory from the brewer because the wholesaler does not want to haul beer out to weekend festivals etc. This proposal requires 25 or more customers, making start up of self-distribution nearly impossible. It would also not be possible for small brewery to get started by selling to a small local grocery store chain with 5-6 stores. This is often the only way to get started.

Small brewers often look to wholesalers as a source of capital. Many times wholesalers have funds to invest, and a local brewery can be a good place to do so. Many small breweries see this investment as a way to gain market share with the wholesaler. Today, Wisconsin wholesalers can and do invest in both in-state and out-of-state small breweries. This proposal unfairly discriminates against WI small breweries by eliminating this potential source of capital while allowing wholesalers to invest in out-of-state breweries whose brands they carry.

Small brewers can currently own two restaurants, and some small Wisconsin breweries do. This proposal eliminates the ability to own a restaurant with a liquor license.”

Jeff Hamilton, President of Sprecher Brewing Company, and the Wisconsin Brewers Guild told the Milwaukee Business Journal, ” It’s hedging against future competition,” and goes on to say that “It’s limiting our business model…the current system is working just fine.”  http://www.bizjournals.com/milwaukee/news/2011/06/02/bill-preventing-brewers-from-owning.html

Mr. Hamilton and the Guild tell us that it is far more efficient to distribute through a separate wholesaler, but as the number of distributors in the state has declined, largely through consolidation, it has been increasingly difficult to find shelf space for small brewers. In order to counter that trend, several smaller brewers in Wisconsin had considered opening their own distribution company. Under the proposed measure, that would be illegal.

Supporters counter with statements to the effect that problems for smaller brewers were not the intent of the legislation. Indeed, Nehl Horton, government affairs officer for MillerCoors said “I don’t know of anyone that has bent over backwards as much as we have to laud the work of craft brewers.”

However, Mr. Horton also said that the intent of the measure is to protect the three-tier system, and that brewers in Wisconsin need to decide whether they want to be brewers, or brewers, wholesalers and retailers. It seems to me that, given the uproar from many of the craft brewers that I’ve seen, they’ve chosen the second option. Here’s a link to WAOW TV in Central Wisconsin’s story about the issue: http://www.waow.com/global/video/popup/pop_playerLaunch.asp?vt1=v&clipFormat=flv&clipId1=5909999&at1=News&h1=Brewers guild angry over Walker’s budget&flvUri=&partnerclipid=

Brewers Association

I admit, after doing quite a bit of research on this issue, I’m not really sure where I fall on this. I can certainly see the benefits of preventing any big brewer’s attempts to take over a market by dominating the distribution process. That being said, the little guys seem to have a point. Is it really fair to completely alter the conditions under which they have done business, and expected to be able to continue to do business, without so much as a consultation? Is MillerCoors really acting to head off competition from the craft beer brewers in the future? After all, the biggest growth in American beer sales right now seems to be from the craft sector. Then again, is it such a huge blow to craft brewing? The conditions that would exist under the new proposal don’t seem all that different from those under which our own Iowa brewers are operating now. I’m interested to know what you think. Please, share your thoughts in the comment section.

As I said, I’ve done quite a bit of reading on this issue, and I would be remiss if I didn’t mention the sites and blogs that were of great help in the writing of this post. I did cite some of them above, but they’re worth another mention. Thanks to: the Wisconsin Positive Business Alliance http://positivebusiness.co/news/stop-millercoors-tapping-out-local-breweries, the (Milwaukee) Business Journal http://www.bizjournals.com/milwaukee/news/2011/06/02/bill-preventing-brewers-from-owning.html, Beverage World http://www.beverageworld.com/index.php?option=com_content&view=article&id=39259:bill-to-limit-brewers-ownership-of-distributors-stirs-worries&catid=3:daily-headlines&Itemid=173, The Brookston Beer Bulletin http://brookstonbeerbulletin.com/wisconsin-legislature-attacks-craft-brewers/, WAOW.com http://www.waow.com/story/14824191/brewers-guild-angry-over-walkers-budget-and-affect-on-micro-breweries, the Milwaukee Journal Sentinel http://www.jsonline.mobi/more/business/122991428.htm, and the always invaluable Beer Advocate http://beeradvocate.com/forum/read/3813001.

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About Sean

Sean Courtney (manager/bartender) has been with El Bait Shop for more than four years. He's been a part of the Central Iowa restaurant scene for longer than he cares to admit. He enjoys Pale Ales, Stouts, holding hands, long walks on the beach, growing facial hair, run on sentences, and sarcasm.
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