Craft beer cheaper without 3 tier system?

I don't think the Brewers would charge less than the current price of their beers on the shelf now. Why would they? Everyone wants to maximize profits. If they saw an opportunity to cut out the middle man, but charge the same, they would.

 

Brewers don't set the prices you see on the shelves. They already charge less than that.

 

If my cost goes down, the reason to cut my price is to gain share (the added share is worth more in profits noe, because my costs are lower) Now I won't end up gaining share if my competitors cut price in parallel. On the other hand I will lose share if they cut price and I do not. If we can all collaborate we will of course not cut price. But that is illegal (price fixing) We can hope to signal in the market not to cut price etc, but that is difficult when there are a very large number of competitors. There is an extensive economic literature on this, both theoretical and empirical. While as far as I know, there is no study in the craft beer context, I am skeptical that cutting costs out of the logistics system would not lower prices to consumers in the long term.

 

lets say breweries in ga suddenly found themselves able to self distribute

they find they could do it cheaper than the current setup

do they:

A: cut the price and pass the savings to the consumer

B: keep the price the same, and pocket the extra

?

 

Jess kidden

If we all agree that laws allowing self distribution are a positive thing (note though that even in states that allow it, there are many limits - I believe it is often limited to beers made in the state, and to breweries below a certain size - while I am an advocate of drinking local and small, let us not exaggerate the extent to which self distribution has under cut mandated three tier) then I am not sure what we are arguing about. The benefits of voluntary use of distributor is a different question, and many of the pro three tier comments above make no distinction between the issues. They appear to defend the three tier laws by citing the benefits of voluntary use of distributors.

 

For example my own state of Va allows self distribution but I believe only of Virginia beers. A West Virginia brewery cannot self distribute here. Nor can a West Virginia distibutor put together a truckload of WVA beers from different breweries and ship it 20 miles away Loudoun County. As far as I can tell, this is why you cannot now buy a WVA beer in Va (not enough volume to justify a distribution contract) but right across the line you can.

I guess there many anomalies like this.

 

Those breweries that self distribute and/or run their own on-site tap room and/or bottle sales, typically charge the going retail price so as not to undercut their retail base, thereby pissing the retailers off and significantly decreasing their motivation to carry that particula brewery's beers at all. So if they do sell it cheaper, they lose sales. Thus their own pricing structure when selling directly to the public (where state law allows that) quite often is the priceing set by the retail market place. (Similarly when selling a keg directly to a bar they will typically charge what a wholesale distributor would charage for much the same reason.)

So if GA went to self-distribution I'd expect the pricing structure to remain pretty much the same if the brewery wants to have any growth beyond self sales....

 

C. Raise the price to pay for the warehouse(s), trucks, and employees that they would have to raise financing for and pay interest on.

Case C is for a mid to large brewery. For a small one/two man operation it would be B.

 

Often, but not always - see AB's WOD's in at least 10-12 states, including states in which they have no breweries. I doubt you'd find many small craft brewers that do self-distribute in their own state who would want to distribute across state lines, but I imagine they would exist (say, NJ brewers who'd like to supply NYC or Phila bars).

I don't know about other states, but in the post-Repeal era Top 5 brewers like AB, Pabst and Ballantine all self-distributed in New Jersey (I blame SD as a contributing factor in the demise of the latter company), some NJ brewers distributed across the Hudson into NYC, and NY and PA brewers apparently distributed beer to retailers in NJ. (See the last 3 pages of the 1964 Official NJ Price Guide).

Industry sources (USBF) note that into the 1940s, half the beer sold in the US did not go through an independent distributor, but was supplied to the retail by the brewery or their "branches" - brewery owned, off-site distribution warehouses. And that was at a time when there were over 13,000 licensed wholesalers (4-5 times the number today).

I don't think that's the case or even the desired result of self-distribution. At this point, I see SD as a means of small breweries (certainly smaller in size than was the norm when the 3T laws were created) to get to market and, maybe even more to their advantage, it gives them a proven track record and financial/sales statistics to help them negotiate with distributors when they do choose to go that route (as most of them eventually do).

Well, I can't speak for the other posters, but I will say that my posts are not meant to defend mandatory 3T laws (just the opposite, I believe in self-distribution) but to explain the benefits of a wholesale distribution system and dispel some of the most outlandishness criticisms of it, as well as to note the actual history and development of beer distribution laws after Repeal.

The myth (ironically promulgated by both the NBWA and the various "anti-mandatory three tier" folks) that Three Tier is mandatory across the country, a direct creation of the Federal government via the 21st Amendment and the post-Repeal Federal Alcohol Administration Act and has remained unchanged since that period is just not even close to the truth. If one doesn't understand how the current system evolved, and by whom, it's going to be difficult to fix it.

 

Probably not. I'm not overly informed about the current status of beer distribution in either Great Britain or Mexico, but I do know smaller entrepreneurial wholesalers in the US are responsible for mostly damned good craft beer distribution stateside. Our "mandated three tier system", is archaic, a relic, a dinosaur in our midst, but if anyone opining here can tell me of a better way to get beer from one point to another, at mostly good and fair pricing, I have yet to read it, hear it, or see it here. In all honesty, smaller wholesalers benefit maybe more from the "three tier system", than larger outfits (Bud, Miller, etc). Some chant, "free market economics" is the best way to sort out beer distribution. Without a well thought out strategy in disassembling or dismantling "the three tier system", it just might end up as an utter disaster, rather like some well meant military intervention gone bad.

 

Good analysis!

Re the free market chant, there are some who argue that a free market and a unicorn have much in common.

http://www.standard.net/Business-La...nd-unicorn-have-lots-in-common-neither-exists

 

Great Raft in Shreveport LA charges just as much at the brewery as a retail account does.

 

As jmdrpi already stated, it is all about money in the politicians pocket.

Cheers!

 

I haven't taken Econ class in about 15 years, but doesn't government intervention and more hands in the pot typically make prices go down?

 

Yeah, looking at PA's Malt Beverage Tax site , it says the $0.01 per pint State tax hasn't increased since 1947.

1¢ in 1947 dollars would be roughly 11¢ in 2015 dollars by inflation, so I guess we shouldn't complain.

 

See this post just above. Unless the brewery has a sustainable business model only selling from their brewery (not likely), they still need retailers and wholesalers, and don't want to piss them off.

 

My guess is that most breweries want to charge close to what the market will bear. It's also true that lowing your price can lead people to think you have cheapen your product.

 

Are you saying you believe that's the case for pricing at all 3 tiers?

In the example of the national or regional grocery store chain - I have a hard time believing that they are setting individual margins for every beer brand, based on what they think the "perceived value" is. I think it's more likely they set X% margin over what they purchase beer from the wholesaler at.

At the brewery tier, you believe the only reason that the wholesale cost of a case of craft beer is more expensive than Budweiser is due to the "perceived value" to consumers? And not that their production/packaging/transportation/operations costs are higher per barrel, due to the fact that they produce anywhere from 100x to 10,000x less volume?

 

While I would like to have @jesskidden's knowledge of the industry, and the history of the industry, he wrote what you quoted, not me.