May, 2004
Shedding Tiers
What would you do if you woke up tomorrow and found out that every
road in the country was gone?
Interstates, two-lanes, boulevards, alleys, and avenues, all
suddenly, inexplicably gone, replaced with rolling, grassy, open lands.
There is suddenly no way for you to quickly get from your home to
your work, to the market, to the bank, and no way for them to get to
you. There is no effective postal or delivery system; those delivery
trucks are not off-road vehicles.
You’ve still got utilities, and your neighbor can get you to
the grocery store in his SUV (that you laughed at just last week,
admit it), so you limp along through the weekend, still wondering what
the heck happened to those roads...and how the next load of milk’s
going to get to the store.
Monday, things are a little better, but still weird. The
interstates are back and the big trucks are rolling again; 10-4,
good buddy! But that’s all. So if you live near an exit you can get
all the food and drink and stuff you need...as long as it’s food,
drink, and stuff that’s made near another exit. Lucky you, you’re
only a mile from an exit. You take to eating a lot of frozen and
canned food, big brands...the same stuff everyone on the interstate
gets.
But it’s a lot cheaper than it used to be. Transport is
simpler: pick it up, drive it to the exit, drop it off, no more 50
stores in every town of 20,000. Now there’s ONE store, a really BIG
store. It’s cheaper for the store, too: no more advertising, and they
can hammer the producers on price, because where else are they going
to sell their stuff? Some smaller producers and stores eventually cobble
together delivery systems from rail lines and off-road vehicles, helicopters
and even blimps, but it takes months, and costs a lot more. Most of
the smaller producers and stores go out of business before this comes
along. Mmmm, so what...more Spam and canned peas, please!
What the hell am I blathering about? Obviously, I’m not
really talking about some weird sci-fi movie where the roads disappear.
I’m talking about the impending end of the three-tier system,
that legal set-up of channels that bring beer from the brewers to you.
It’s coming, and I may be wrong, but I don’t think you’re
going to like it.
It is consistent state law in the U.S., surprisingly consistent
state law, that mandates a separation between producer and retailer of
fermented and distilled beverages – booze – in the form of a layer
– or tier – of wholesalers. First tier: brewers. Second
tier: wholesalers. Third tier: retailers, either bars/restaurants or
package stores, or as we say in the trade, on or off-premise. With a few
small exceptions (like brewpubs and small brewery self-distribution),
brewers must sell to wholesalers, retailers must buy from
wholesalers.
The big producers and the big retailers don’t like this,
because they know they could be doing business on their own and saving
all that markup money. Many small producers don’t like this, because onerous
state laws put the wholesalers in the driver’s seat in contracts
with producers. Most consumers don’t like this, because they feel the three-tier
system is strangling their access to any beer or wine they want.
All those bad feelings (and arguably bad law) are driving this
issue to court. This constitutional issue (and the enormous sums of
money involved) will drive this to the Supreme Court, where I
expect the three-tier system to be broken like a beer bottle in a
barfight.
I see hard times for wholesalers, and a LOT of people out of
work. But you’ll be happy, because now you can get Midnight Sun
Sockeye Red IPA delivered direct to your door! Sure. And every single
damn little brewery in the country is going to spend the money to
set up a whole direct shipping department and wait for your one
stinking order...sure, they will.
Okay, maybe the direct shipping thing won’t work. But
specialty wholesalers will fill the gap! Sure, they will. In the big
markets, where there will be enough demand to support small specialty
stores...which is pretty much where there’s a good supply now, anyway.
Specialty wholesalers have a pretty short average lifespan these
days, anyway, because it’s hard, constant work, and there’s
not a lot of money to be made. A few survive; most go under or get
bought. That’s simple facts.
I’m not optimistic about the end of three-tier. I think that
when three-tier goes under, a lot of small producers are going to go
down with it, because they won’t be able to get their beer to
market. If the big chains – and I mean supermarket chains, too,
not just discount houses – have a chance to sell just the big
brands at the prices they want, they will; it makes sense for them.
A lot of opportunities are going to shrink up or close entirely.
What to do? Some suggestions to small brewers. Re-double your
efforts in your local market. Remember, if three-tier goes away, you will
get self-distribution even if you don’t have it now; be ready for it
with strong local sales you can easily support. Strengthen your ties
with your consumers, and support any small specialty wholesalers you’re
in with.
Some suggestions to small wholesalers. Hang on. You may well
be sitting pretty if you can hang on and provide the kind of service
that makes you valuable to both retailer and producer. Think about
expanding your offerings: one-stop shopping for the gourmet store, with
fine beer, wine, cheese, local produce or meats.
Some suggestions to you, the consumer. Speak up! Everyone who’s
talking about this issue is missing the point that this is a four-tier
system: producer, wholesaler, retailer, consumer. You have a very
important stake in this as well, and you need to look out for your
interests. If you don’t see a beer at your local store that you would
like to see there, ask. If you don’t see a beer at your local
bar you’d like to see there, ask. If you can’t figure out
your state’s laws on booze, get your legislator’s e-mail address and
ask!
And if your local brewery is a good one, and needs help, stand
up and be counted. You never know when you might have to take your
kid’s wagon down to the brewery to pick up a case or two for the
weekend...if the roads suddenly disappear.
