Craft beer cheaper without 3 tier system?

I want more retail competition. In my town there are a half dozen supermarkets where I can shop for food but only one of those supermarkets has a "deli license" where I can purchase beer (Wegmans supermarket). If all 6 supermarkets could sell beer in their regular aisles there would be 6 retailers vying for my business vs. 1. Competition does indeed lead to lower prices.

And lets not just restrict it to supermarkets, permit all of the convenience stores in my town to sell beer as well. That would increase the competition even more. There are states which permit beer to be sold at all supermarkets and convenience stores and... The beer prices are much lower in those states due to competition.

Cheers!

 

JK, I have a dream!!

Someday the PA legislators and the Governor will pass a law so that all alcohol can be widely sold by multiple retail outlets. For the instance of beer I will be able to purchase beer from multiple businesses in my town. Businesses like supermarkets, convenience stores, specialty beer stores, etc. Let competition and the free market determine what price I have to pay for a 6-pack or case of beer.

I look forward to the day when a business like Total Wine & More can open in PA (and the beers are not too old ).

Cheers!

 

All I know is most local brews are cheaper in bottle shops once they hit distro than they are direct at the brewery. Hardywood and Alewerks come to mind.

 

Jess hits the nail squarely on the head with this answer. Big distribs have a truck already going to every account in the market during a given one or two-week period, so it is much more efficient for them to deliver craft beer to an area.

Here are a couple of excerpts from Fritz Maytag's speech to the National Beer Wholesalers Association in Chicago (circa 1998)

Full Speech Here: http://www.thefreelibrary.com/Fritz...al+Beer+Wholesalers+Association...-a021243719

 

That's because of another factor. PA has a "4th tier" which is another step between the wholesaler and end-user. Most other states don't have that.

 

Shane, I spoke to the manager of a local beer distributor. He confirmed that his business has a license whereby he is permitted to sell to another retailer. He also related to me that he has only sold beer this way very rarely. He gave me an example where a local Mexican restaurant purchased a few cases of Corona because they needed the beer quickly and their normal source for beer (a Wholesale Distributor) would not commit to a quick delivery. So, for this one example the beer distribution was Brewery (importer) -> Wholesale Distributor -> Retail Distributor -> Restaurant. For the vast majority of transactions it would be a 3-tier transaction: Brewery (importer) -> Wholesale Distributor -> Restaurant.

When I buy beer in PA it is a 3-tier transaction: Brewery -> Wholesale Distributor -> Retailer.

Cheers!

 

The Washington Beer & Wine Distributors Association thinks there is a Three Tier System for beer there:

A Three Tier System is simply Brewer/Importer > Wholesaler > Retailer. There is no definitional requirement for independent ownership of each tier since, as you and others note, many states (something like 30 of them) allow some form of self-distribution and/or allow breweries to own distributorships, but the Three Tier system still exists in those states and the majority of beer is distributed via that system. There are, of course, states with Mandatory Three Tier systems.

The thread is obviously about the three tier system for selling beer - Pennsylvania has such a system, privately-owned "middle tier" wholesale distributors buy beer from importers and brewers and sell it to retail distributors and other licensees (restaurants, bars, bottle shops attached to what you refer to as "delis").

Retail distributors also sell craft beer, by the case and now by the 12 pack, in Pennsylvania.

 

If you believe that, you should check out the prices of some of the beer sold in the District of Columbia where there is a big "exception" to their Three Tier law (most states require licensed retailers to only buy beer from licensed in-state distributors):

How would multiple wholesalers in one region delivering the same beer to retailers or retailers buying/picking up directly from distant breweries, or breweries shipping them in "LTL" quantities to retailers, be more efficient than multiple breweries shipping truckloads of beer to the same regional wholesaler, who then breaks them down and delivers those multiple brands in small quantities in one delivery stop to each retailer?

 

It was not also looking for food that misled you.

To sell bottles or cans of beer for take out in PA requires that one have what's called an "eatery license" and so that is able to sell both food and beer for on premises consumption.

Now I do know of a few places that have their bottle sales in a part of the building that is separate enough from the dining area (but physically part of the same building) and so not visible if you go in the door of the bottle shop portion.

This is much the same way a few grocery stores in PA are able to sell beer for take out. They are big enough to offer on premises food consumption and then get a license to operate a separate business that is housed under the same roof as the grocery store but must have a separate entrance and any beer purchased for take out is handled through a different register. For on site consumption you must buy any beer and prepared food from that register. The separation is complete enough that they can't sell you regular groceries at that register. Some chain stores are even required to check ID for all customers.

 

In other businesses manufacturers have the option to use a distributor or not. Or they can buy a distributor, as long as they do not use that market power in violation of antitrust laws.

What is it about alcohol that results in state mandated use of a distributor being necessary to assure an efficient distribution system? Why is it that in other businesses savings in distribution frequently are passed on to consumers but not in beer? And since some breweries are in danger of going out of business, why do we assume that more profit to the craft brewer has no positive impact? I mean if prices are the same regardless, why not mandate breweries pay their employees more, or build bike lanes, or donate water to Flint? The notion that artificially adding a cost is just fine because there is currently an accepted price point seems odd to me, and not one we generally accept when adding costs to businesses.

 

If the three tier system actually does have the most efficiencies as some here claim, why does it have to be propped up by statute or regulation? If it's the best, the free market would create it.

I know some will say, "But Budweiser will buy all the bars and no one else can get on the playing field." That's not a free market. Bud can only buy "all the bars" because of the artificial limit created by licensing and the limits of licenses. When the oil companies were new, they tried to buy up all the competitors, but people kept making more small oil companies (because of high profits in the near monopoly, and because they know Standard Oil would rush in to buy their business).

If there were no limits on licensing for retail, and no 3 tier system, if Bud were to buy every bar in Austin, I would certainly be selling craft beer out of my garage. In about 3 days, I'd have made enough to trick out the garage to make it as nice as any bar. Then Bud could offer to buy my garage. I could sell to them and repeat the process or I could hang on. Assuming fair law enforcement (no thugs breaking my windows or legs) Bud could never buy up everyone.

But what do I know?

 

Look at his audience. You have to be pretty brave to go into the monkey house and speak on banning bananas.

 

Because the right for each state to regulate and tax all alcohol within its own borders was a prerequisite that many states imposed as a condition for approval of repeal of Prohibition. In addition there was a Federal level requirement written by congress into the repeal that each state had to implement some sort of system ensuring that in general alcohol retailers (e.g., bars, saloons, etc.) could not be owned and operated by alcohol producers (e.g., breweries and distilleries).

Edit: This was intended to prevent or minimize several abuses that had existed prior to Prohibition that were thought to have resulted in part from Brewery ownership of lots of bars and saloons.

 

Well, if there's any set of characteristics that would describe Maytag, it would include "gutsy."

 

I am an economist. Economics teaches that entrepreneurs will try to find the best way to distribute products to their customers. A law that requires brewers to work in a three-tier system prevents forward and backward integration that might increase efficiency at one or both levels. This means that prices might be lower if the three-tier system was optional, rather than mandated. I am not too worried about the macro breweries gobbling up the distributors. When people demand craft beer, distributors willing to carry it will appear as if guided by an invisible hand. I worry more about the brewer who is locked in to a crappy distributor but cannot change because of the three-tier system.

 

Usually they can't change because of their contract with the distributor, which they'd want to have in place whether there was a three-tier system in place or not.

 

You are 100% correct. I always end up in this position. I rail against the leaves of the tree, when in fact it's the roots I despise. The laws are almost universally bad. They are bad individually, and they are bad in conjunction. Those very same problems they were trying to address were, in part, created by the artificial limits on the number of retailers created by the licensing. Note also, the thug calculation. All over the US, thugs from "legitimate" businesses would and often could threaten or worse any and all competitors.

You are correct AND I stand by my statement.

 

Just dusting off a bit of history, so no intention of asking you to change...

Ultimately the question you raise we all need to address through our state legislatures since they are the ones that perpetuate the system. Some are changing much more slowly that others.

Edit: We just have to be careful not to let them put a worse system in place....