This is my long over due follow up to the 3-Tier system introduction I posted back in April. I started off with an overview of the 3-tiers but now we’re going to dig into the top, and most exciting, tier. Breweries are were all the magic happens!
Besides being where the magic happens breweries are also the easiest tier to discuss because all they need to do is make beer. OK, so making beer can be very difficult but that’s far beyond the scope of the 3-tier system. For their role in the 3-tier system it really is just a matter of producing a product and making money off of it. Depending on the state there are a couple of ways that they can make that money. Some states allow breweries to sell their beer themselves out of the brewery, like Ohio’s tap rooms, or sell it themselves around their state, aka self distribute. That’s the less common route for breweries to make money. Most brewers depend on a third party to buy their product then sell it to every one else, to distribute the beer.
The upsides to signing with a distributor are that brewers get to focus on making the best beer they can, and that’s really all they need worry about. They make the beer and sell it to their distributor who takes it from there. Without a distributor brewers would need to find their own way into meeting bar or store owners and convincing them to carry their product. That also means that every bar would have 1 more account to deal with and keep track of. Distributors simplify the process of well… distribution.
Of course that’s a bit of over simplification as the breweries have to manage the relationship with the distributor and do plenty of marketing themselves. Also many distributors provide far more services then just selling beer. Like providing signage or having a rep pour at beer fests and storing all those kegs/cans till the retailers are ready for them
The alternative to that is self-distribution. Ohio, Indiana, and about 30 others states allow self-distribution. Cincinnati is currently home to 4 self-distributors: Listermann, Rhinegeist, Double Barrel (I think), and Cellar Dweller. I had the opportunity to discuss self-distribution recently with Cellar Dweller and Listermann. I also covered this topic with Scott LaFollette from Blank Slate Brewing Company who self-distributed for the first six months.
What everyone made clear was that self-distribution had some distinct advantages in a better overall view of the business, a better relationship with customers, and slightly higher margins. However all of that results in less time for them to focus on making beer or having to hire delivery people and buy trucks for them to drive.
Lastly all brewers I talked to had strong feelings about franchise law. In a vast over simplification franchise law means that 1 brewery is stuck with 1 distributor forever. If I can stick to my plan then this fall there will be a post on Learning About Beer: Franchise Law where I will break down this controversial subject. Also planned for late September or August will be the next tier, Distribution!
P.S. Many thanks to all the brewers who were willing to be interviewed about this.