2 Beer Guys Blog

Welcome to the 2 Beer Guys Blog! Here, you will be able to read our stories and adventures as we travel through the world of craft beer.

Sunday, December 16, 2007

Specialty brewers challenge distributors

This article discusses the struggles that smaller micro-breweries face when trying to deliver their fresh, unique beer to the demanding customer. Unfortunately, Prohibition (which lasted 14 years and ended in 1933), is still handi-capping brewers today. With most of the blue laws gone, I often wonder why things haven't changed. The obvious answer is money. The larger breweries aren't effected, because they either own the distributors or they have a firm grasp of their attention. It's the mid to small breweries that are left in the dust.

If you are interested, read this story below and you will understand.


Drink Craft Beer, You've Earned It!!

Small Brews Show they're Not Weak Beer
As Popularity Rises, specialty brewers challenge distributors
December 10, 2007;

Last fall, Larry Bell yanked the beers made by his small Michigan brewery out of Chicago, where they enjoyed a loyal following, rather than see the rights to market them there sold to another distributor. He worried that his specialty beers would get lost among the distributor's mass-market brands.

"I didn't feel that they were the right fit for us," says Mr. Bell, who founded his brewery, now based in Comstock, Mich., in 1985. Last week, Mr. Bell quietly re-entered the Illinois market with a new brand, even though he expects to be sued by his former distributor, National Wine & Spirits Inc. Mr. Bell found two distributors, Central Beverage Co. and Schamberger Brothers Inc., in the Chicago area willing to take on his new Kalamazoo Royal Amber Ale despite the possibility they'll be sued, too.

The maneuver is perhaps the most audacious in a string of recent efforts by small-batch "craft" brewers in the U.S. to try to assert more control over how their beer is sold as they gain in popularity -- and clout. The craft brewers are using this new influence to stir up changes with beer distributors. Other brawls have erupted in New York and Texas.

The fights stem from the nation's complex regulations for selling alcohol. Under laws that date to the repeal of Prohibition in 1933, beer generally must be sold through distributors. Producers like Bell's Brewery sell the brew to a distributor, which marks up the price and trucks it to a bar, restaurant or store, which then sells it to a consumer. The system was designed to keep alcohol producers from running bars and restricting consumer choice.

States were given authority to regulate alcohol sales within their borders. Many, including Illinois, have enacted so-called franchise laws, designed to protect beer distributors from being dropped arbitrarily by a brewer after they have spent considerable resources building a brand. The laws prevent a brewer from terminating a distributor except under certain circumstances, such as fraudulent business dealings. Distributors, on the other hand, generally have the power to sell distribution rights whether the brewer likes it or not.

Historically, craft brewers have made relatively little fuss over distributors, in part because they have been happy to have companies willing to hawk their brands. But now, at a time when craft beer has become the industry's fastest-growing segment, some small brewers are taking greater control over their destinies. They are attempting to dump their distributors or fighting moves to sell distribution rights -- often over allegedly poor service.

Craft brewers seem "to be feeling their oats a bit," says Benj Steinman, editor of Beer Marketer's Insights, an industry publication.

Last year, Mr. Bell was dismayed when National Wine & Spirits, an Indianapolis company, insisted on selling distribution rights to Chicago Beverage Systems, a unit of Reyes Holdings LLC, one of the nation's largest beer distributors. He worried the company, which sells mass-market brands, including Miller Lite, would devote little attention to his beers.

In an emailed statement, James Doney, president of Chicago Beverage Systems, said "we were looking forward to adding Bell's to our portfolio of fantastic craft beers" and "were puzzled by Larry Bell's choice to leave the market."

Though Illinois accounted for 11% of his sales, Mr. Bell left the state and entered new markets such as Virginia and Florida. But he decided to return to the Chicago market after his email inbox was flooded with Illinois residents thirsting for Bell's, says Mr. Bell, 49 years old, a native of the Chicago area who maintains a home in the city.

"I was really bummed," says 29-year-old Chicagoan Sean Ludera, a devotee of such brands as Bell's Two Hearted Ale and Bell's Oberon Ale.

Mr. Bell has taken a measured approach for legal reasons, creating the new brand, which partly pays homage to the brewery's first home in Kalamazoo, Mich. The beer's recipe is also different than the brewer's traditional brands. After consulting with a lawyer about Illinois law governing breweries, Mr. Bell believes he can return to the market using new distributors as long as he offers new brands with new recipes. "I fully believe the law is on our side," he says.

About two months ago, he says, Greg Mauloff, an executive vice president with National Wine & Spirits, warned him he would face a long legal fight if he tried to come back to Illinois. Mr. Mauloff declined to comment.

Mr. Bell's new brew is available in about a dozen bars in the Chicago area. Edward C. Bronson, a software architect in Chicago who has known Mr. Bell for 15 years, was drinking Kalamazoo last week at the Clark Street Ale House, also on the city's North Side. "I wanted to get some tonight because I'm not sure we're going to be able to taste it again."

Mr. Bronson, a beer judge for regional competitions who used to run a microbrewery, said he was annoyed when he learned that Bell's wouldn't be sold in Illinois anymore. So much so that he said he went to his local liquor store last year and bought four cases of Bell's Two Hearted Ale "so I would have a store."

Comparing Kalamazoo with other Bell's labels, Mr. Bronson said it was unlike anything else he has tasted from the company. "This is definitely different beer -- it has a surprising, nice malt character that I really enjoy."

Several recent spats between small brewers and distributors have wound up in court. In February, New York's Brooklyn Brewery Inc., a fast-growing producer of beers such as Brooklyn Lager and Brooklyn Brown Ale, notified one of its distributors, Gasko & Meyer Inc., that it would terminate their agreement. Brooklyn Brewery was disappointed with its sales in the five counties in upstate New York in which Gasko & Meyer sold its beer, and complained that the distributor made late deliveries and sometimes delivered stale beer.

Gasko & Meyer responded by suing the brewer in New York state court, claiming, among other things, that Brooklyn Brewery failed to properly notify it of any failures to adhere to their distribution deal, which began in 2001. A judge in September rejected Gasko & Meyer's request for a preliminary injunction to keep Brooklyn Brewery from changing wholesalers. Its new wholesaler, Lobo Distributing Co., has rapidly increased sales, says Steve Hindy, the brewer's president. Gasko & Meyer's lawsuit is still pending; officials at the distributor declined to comment.

Trying to switch distributors "is a big gamble for a small company like ours, because these lawyers are not cheap and you want good representation," says Mr. Hindy.

Mr. Hindy says heightened consumer demand for craft beers is giving small brewers confidence to "assert our rights more forcefully." Also emboldening them: Many distributors that once ignored craft beers are now clamoring to add them to their lineup to increase profits. It "is a whole different world for us than has existed in the last 20 years," Mr. Hindy says.

Back in Michigan, Mr. Bell is bracing for a lawsuit and didn't do much celebrating of his beer's return to the Windy City. He has been taking it easy because he had surgery last month to remove his prostate after being diagnosed with cancer. "It's major surgery, so I'm watching my energy level," he says. "There's plenty of life left for drinking beer."

--Douglas Belkin contributed to this article.
Click here for a link to the article.


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