How the three-tier system holds back BMC

Discussion in 'Beer News' started by DaveAnderson, Nov 15, 2012.

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  1. cestlavie

    cestlavie Initiate (0) Oct 27, 2011 New York

    I wonder where I get my info from? :wink:
     
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  2. Crusader

    Crusader Pooh-Bah (1,651) Feb 4, 2011 Sweden
    Pooh-Bah Society

    I would think that the shift from on-premise making up the majority of beer sales to off-premise taking over that spot would have benefitted the large national breweries even with the tied house system intact. The small and regional breweries would have had to compete with the national breweries on store shelves. The tied houses might have provided them with a more secure market for their products, but it might have stunted their growth at the same time since they would have had to divide their attention, and resources between on-premise and off-premise. If they outright owned their establishments I imagine that there would be some costs involved with upkeep and labor costs, and if they only had contracts with establishments, what's to keep a large brewer from giving the owners a better offer? The UK and Germany might offer counter arguments to this line of reasoning though, but the underlying factors which enabled the survival of a large number of small brewers in those two countries may differ from those of the US over the same period. There are plenty of examples from across Europe where consolidation was achieved, even without the existance of a three tier system or something similar to it.
     
  3. Soxfan45

    Soxfan45 Initiate (0) Jun 28, 2013 Connecticut

    the trucks that bring the beer to the distributor are NOT owned by the distributor. The trucks that bring beer to the local stores are owned by the distributor ( almost all distributors are family owned NOT brewery owned). The family I work for is NOT a evil cooperate monster . They are a GREAT family that is very loyal to there 50 employees. I have been there 17 years and the turnover in my company has been very small. We sell both AB/INBEV and craft brews ( local and national). We are very focused on all craft brews and are looking to bring more in.
     
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  4. rgordon

    rgordon Pooh-Bah (2,677) Apr 26, 2012 North Carolina
    Pooh-Bah Society

    I was able to start up a small wholesale operation in the early 2000s that was largely beer-centric, right there amidst the big BMC guys and did quite well indeed. The 3 tier system was no detriment to business whatsoever. In fact, many customers welcomed small wholesalers with new brands and ideas. To a large extent these small wholesalers created an environment for the re-explosion of well distributed craft beers from around the world. This trend continues to grow and I see a marked change in general consumer acceptance of really local beers, and really a greater appreciation for GOOD beer in general.
     
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  5. ONovoMexicano

    ONovoMexicano Initiate (0) Jun 14, 2012 New Mexico

    Not sure if others have been following this with the same interest, but Tesla's challenges with New Jersey (and potential move to New Mexico) have been fascinating to me. It seems that the fundamental issue is very similar to the three-tier system in the beer and alcohol industry. Essentially, folks are arguing that independent retailers benefit the consumer when buying a car because they can shop around and benefit from the increased competition that independent dealers offer. Here's a link:

    http://www.nytimes.com/2014/03/18/b..._th_20140318&nl=todaysheadlines&nlid=55538549

    Is a three-tier system actually common than most of us beer-loving opponents of the concept realize? And would our collective awareness of its existence in other industries make it easier for us to accept it? OR, with internet access, apps, and other modernities, has technology made the old safeguards (separation of producers and retailers, for instance) obsolete?

    I know this post is about more than just beer, but I hope the mods will give a pass because beer is still part of the discussion.

    Thanks.
     
  6. drtth

    drtth Initiate (0) Nov 25, 2007 Pennsylvania
    In Memoriam

    :slight_smile: Seems the Mods thought your thread/post fit in nicely with this thread.

    I think you raise an important point and that the functional equivalent of the three tier system for alcohol is pretty common in other areas as well. The big difference appears to be the laws involved in dealing with a controlled substance vs. a strictly commercial product. Seems to me like lots of the arguments in this thread basically ignore the fact that alcoholic beverages are regulated in entirely different ways than most any other commercial product.
     
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  7. tozerm

    tozerm Initiate (0) Jul 1, 2005 Washington

    Again... jesskidden dropping knowledge... you kids in the back of the room pay attention.
     
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  8. tozerm

    tozerm Initiate (0) Jul 1, 2005 Washington

    Yes it is more common than you realize. The key component about "the three tier system" is LOGISTICS, not the inane laws of a particular state. You simply cannot have every manufacturer of a product selling directly to every consumer of that product. Think about it, you have a plant making a product in a given area, if the manufacturer is going to sell each widget it makes, directly to a consumer.. how are they physically going to deliver the widget? At some point, say anything more than a 30 minute drive away, customers will see a distinct imbalance in the cost/perceived value ratio and quit consuming that widget. The manufacturer may say "hey we'll mail you the widget." That might expand their distribution area a bit, but as costs increase the further you go out.. the cost/perceived value ratio gets out of whack again. So now the manufacturer decides to open a storefront in an area farther away from the plant to sell directly to the consumers there. Now you have staffing costs, a storefront to pay for, etc. Hopefully you see the progression here.
     
  9. ONovoMexicano

    ONovoMexicano Initiate (0) Jun 14, 2012 New Mexico

    An Op-ed from Bk Brewery founder and president Steve Hindy regarding beer distribution laws:

    http://www.nytimes.com/2014/03/30/opinion/sunday/free-craft-beer.html?_r=0

    Doesn't seem like he's advocating for doing away with the system entirely, but more arguing for more self-distribution privileges in every state and an easier way to get out of distribution contracts.

    How do people feel about his approach and his goals?
     
  10. HRamz3

    HRamz3 Initiate (0) Feb 9, 2010 Pitcairn
    Deactivated

    I'm adding "hate three tier system" to my list of things I'm done with.

    1) Favorite Whalezzz?
    2) Watching my carb intake
    3) Hate three tier system
    4) Who makes the best ball-wax?
     
  11. rgordon

    rgordon Pooh-Bah (2,677) Apr 26, 2012 North Carolina
    Pooh-Bah Society

    Being disturbed by the "three tier system" is like being disturbed by the congress, the judiciary, and an executive. This stuff is written into our business and social culture, passed down through families. Big contributors for sure, and also a number of these outfits do a damned good job. Undoing current beer and wine distribution methods would not approach the level of issues about health care laws, but it might well be a close second. I contend that enormous room yet exists for small, smart wholesale operations to work well beneath the radar.
     
  12. t8000shx

    t8000shx Zealot (588) Mar 2, 2004 New York
    Trader

    And in response to Steve Hindy:

    http://www.nytimes.com/2014/04/05/o...c=edit_tnt_20140404&nlid=19007929&tntemail0=y

    I don't care what side of the issue you're on, but that is an utterly abysmally written retort. If the distributors as a collective care to communicate their value, they might want to give this thread a read through and take notes - as opposed to allowing their chief bureaucrat post his stream-of-consciousness propaganda to the New York Times.
     
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  13. jesskidden

    jesskidden Grand Pooh-Bah (3,071) Aug 10, 2005 New Jersey
    Pooh-Bah Society Trader

    So, does anyone know specifically what Brooklyn's Hindy means in the NYT story by:
    The Beer Insitute's Brewers Almanac, citing the BLS's - Quarterly Census of Employment and Wages, lists the number of beer distributors at 2,039 (in 2011), while the NBWA claims they represent 3,300 beer distributors. Now Hindy says less than a thousand.

    Perhaps he's counting the large, multi-state, multi-distributor companies like Reyes, L. Knife and Sons, Ben E. Keith as "one" company? He probable considers the several dozen AB and MC owned houses as not "viable" - yet, IIRC, the Coors-owned house in Denver carries non-MC-owned "craft" breweries' beer.

    And even subtracting those brewery-owned wholesalers, that would not bring the totals down by over a thousand. I'd guess Brooklyn is carried by a number of indiependently-owned Miller and/or Coors, and AB houses (their website no longer lists their distributors, just their state reps), so I doubt he considered them as not "viable".
     
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  14. TongoRad

    TongoRad Grand Pooh-Bah (3,848) Jun 3, 2004 New Jersey
    Pooh-Bah Society Trader

    Too true. All he says in response to Hindy, really, is:
    which is incredibly weaselly in a lawyerly sort of way. And he never even specifically addresses the small brewer 'cutout', which is the whole point.
     
  15. tozerm

    tozerm Initiate (0) Jul 1, 2005 Washington

    You are on the right track I'm sure. "Viable" is the operative word and only he could clearly define what that means. My guess is "viable" in his mind means that the distributor is either A) large or B) completely and utterly supporting craft products. I think he could mean either and the numbers would make sense.
     
  16. savagewhisky

    savagewhisky Initiate (0) Aug 8, 2007 Virginia

    Note that I said dump the *mandatory* three tier system. I'm not making the case that we should get rid of distributors and I'm not saying they aren't crucial for craft beer; they are. However, the fact that a brewer in most circumstances *must* go through a wholesaler to get their product on shelves creates a lot of problems. Franchise protection laws are a whole other can of worms.
     
  17. jesskidden

    jesskidden Grand Pooh-Bah (3,071) Aug 10, 2005 New Jersey
    Pooh-Bah Society Trader

    About 2/3 of the states allow either all or small brewers to self-distribute, including many of the states with the largest populations and/or the largest number of breweries (like California, New York, Colorado, Oregon, Texas, North Carolina, Ohio, New Jersey, Illinois, etc).

    I doubt that "most" new or existing breweries " *must* " go through a distributor given those stats.
     
  18. savagewhisky

    savagewhisky Initiate (0) Aug 8, 2007 Virginia

    Correct me if I'm wrong, in most states w/self-distribution they usual only let brewers under 60k bbls (some states much less) self-distribute and even then some have limits on how many bbls they can self distribute. New Hampshire, for example, allows brewers with production under 15k bbls to self-distribute up to 5k bbls a year. So, a lot of beer is still forced to go through a wholesaler. And I wasn't just talking about craft/new brewers but also the big behemoths, to which I'm sure a lot of people will say "who gives a fuck about the big brewers?". The problems a mandatory system creates aren't limited to access to market issues. The mandated use of wholesalers in combination with franchise protection laws creates a competition problem. Because wholesalers know that brewers have no other option there's less incentive to perform better. And again, I want to be clear that I'm not slamming wholesalers or saying they should go the way of the dinosaurs--I'm just talking about economics. As the amount of competition increases efficiency increases and prices usually drop (this is why people hate monopolies so much).
     
    #118 savagewhisky, Jun 4, 2014
    Last edited: Jun 4, 2014
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