3 Tier System

Alot of the bigger craft brewers use the distribution network to distribute their beers. Some self-distribute, but some just throw it on the truck with others BMCs.
I know Every national craft brewery that I can think of outside of Sweetwater uses Long, Tryon, or Ararat for RDU.

 

There's nothing wrong with a three tier system. Most products are delivered that way. The problem is that it's a mandate to use the current three tier system, not a choice.

 

The three tier system needs to be tweaked, not abolished. Most craft Brewers are for it, with some reforms...my rant/explanation is too long for 1am

 

Here's Jim Koch's feeling about the three tier system, a review of his speech before the distributors' organization, the USBW. Although BBC now sells over 2m bbl/yr, Koch's speech concentrates on the experiences of his start-up era and the problems of today's small brewers.

Also, as noted numerous times, there really is no one "Three tier system" there are 50 of 'em- the individual states' laws vary quite a bit and more than half of them allow small or all brewers to self-distribute - so the mandate noted above is hardly universal.

In most of those states it's most likely that the majority of the craft brewers, once they grow large enough, choose to go with wholesalers - especially for in-state distribution outside their immediate region. Most brewers want to brew beer, not run warehouse and trucking/delivery firms, and larger distributing companies have an economic advantage delivering multiple brands at one time.

 

I just wish you get get local beers for significantly less than the other competitors.. The 3 tier system sort of prevents low prices for local beers that in theory should be cheaper as the shipping expense is minuscule. That's my only complaint.

 

Great article, thanks for posting.

He really nailed it when he brought up spirits and wine. While beer and wine are fortunate enough to skirt many state and local excise tax increases we can look at wine and see what it does to distributors that have to carry brands without equity. It is the premium and super premium segments that drive spirits and spread margin across the tiers. 35% of the beer market is reaching but it can be acheived with the right partnership across the chain.

 

Breweries that only want their beers distributed within a very small geographic area surrounding their brewery would be the ones who are against the three-tier system. Otherwise the logistics are simply unsustainable. Paying a salesperson, a delivery person, and a bookkeeper to keep track of all the sales would add significant costs to a wholesale beer. Thus the need for a three-tier system. The middleman pays the sales reps, drivers, and bookkeepers; it's much more cost effective for them to have a portfolio of brands rather than a single brand. That's why single brand distributors don't exist. As has been said before, it isn't the three-tier system itself that is the problem. It's the laws laid upon the system in each individual state that can create issues. Breweries self-distributing are faced with the law of diminishing returns, so once they reach a certain production level it just isn't cost effective any more to self-distribute. That's a fundamental part of business, not a flaw with the three-tier system itself.

 

Shipping costs aren't necessarily that much less for local breweries. If you break the overall freight cost down by the number of cases in a given load, bringing full containers of beer across the country can be significantly less per case than shipping 1 pallet 100 miles away. Besides, even if a brewery is very close to the distributor, and the distributor sends their own truck to pick it up, they still add a freight allowance into the FOB cost of the beer. That freight plus the excise taxes bring it to the "laid in" cost. Distributor margins are always calculated using "laid in" rather than the cost at the brewery (FOB brewery).

 

Exactly.
Supplier picks up the FET and the distributor takes the State and local excise taxes. DI all rests with the distributor.

There in lies the question whether distributors are more efficient and effective than suppliers with big houses distributing themselves. One can not argue that having key competitors under the same distributor house isn't advantageous.
It will be interesting to see what happens in WA state with Coscto. I highly doubt any of the big suppliers will go around their distributors in favor of the retailer distributing.

 

As a nano brewer, I am against someone forcing me to use the three teir system.

 

Take a listen to Erik Lars Myers' (of Mystery Brewing Co. in Hillsborough, NC) latest podcast on the subject. Discusses the subject from many point of views.
http://www.topfermented.com/2012/12/03/podcast-episode-3-the-three-tier-system/