I usually reserve this space to talk about the best and brightest on the craft beer scene in the Garden State, but sometimes we have to put that aside for a minute and talk about the “B” word.
Business.
Believe me, I’d rather be unwinding with a fresh, local pint. But before I can really relax and enjoy that beer, there’s a 500-pound gorilla in the room, sporting a tie and an MBA. I just have to talk about it.
If you’re into craft beer at all there’s no way you’ve missed this. AB Inbev introduced an incentive plan that will award annual reimbursements for distributors whose sales are at least 98% AB Inbev products. Those reimbursements could be big. Like a million big. Before we look at what that means to the little guy in Jersey, let’s have a little background.
In New Jersey, there’s no one better to consult for any story about the craft beer business than Gene Muller of Flying Fish Brewing. His brewery first took flight in the mid 1990s and he’s no stranger to the state house in Trenton. Muller is a big reason you can enjoy a pint or two at your local brewery, but that’s a different story. He told me that the seeds of this new AB Inbev incentive plan are rooted in the late 90s, when the company rolled out its 100% Share of Mind program. Back then, wholesalers got myriad perks if they carried only Anheuser-Busch products and were discouraged from handling smaller breweries. As we know now, the plan did nothing but draw a Justice Department investigation and participating distributors missed out on some very successful craft brands. Worse yet, they were stuck with an AB Inbev portfolio that was losing market share to the very brands they missed out on.
As craft beer has gained market share, the pressure on AB to make it up to their wholesalers grew. Their strategy? Buy a bunch of craft brands that they can offer to them and throw some cash incentives into the deal. The question about distributors is, as Gene Muller noted, “Will they fall for it?”
The plot thickens here in New Jersey because the laws governing brewer-distributor relationships favor the distributor and make it almost impossible for a small brewer to break out of a contract—even if that distributor decides to stop actively selling and marketing their beer and leaves the brand to die on the vine. Brewers can break a contract for “good cause” but that’s only if the distributor does something illegal. Business reasons are not considered “good cause“ and the cost to fight it out in the courts could bankrupt them anyway. Evil, right? Well, not entirely.
Since I can’t read legalese, I spoke to Alva Mather, chair of Griesling Law’s alcoholic beverage practice group (check out her impressive bio here). Mather explained that brewer-distributor law harkens back to the 70s and a time when there was only “big beer.” Back then, the distributor was the little guy. A distributor was more like a franchise and typically only carried one brand. If that brand pulled out, the distributor was doomed. No one saw a day when the brewer could be the little guy. So, laws were slanted to protect the vulnerable distributor.
I asked Mather if there was a chance the law could be changed. “Not likely,” she told me. Muller agreed that it could be “a bridge too far” for the Garden State Craft Brewers Guild to take on. They have limited time and resources. The only viable option for a brewery that falls into this trap is a “brand swap,” where distributors exchange brands in a non public agreement. It happens, but not very often.
All of this is why many of the new breweries in the state opt to self distribute. It’s a good way to start. However, Ryan Krill, of Cape May Brewing Company and the current Garden State Craft Brewers Guild president, told me that it can limit growth. “At a certain point, you become a distributor,” he said. What he means is that wholesalers provide services like line cleaning, sales and marketing, as well as the logistics of moving your beer to retail locations. He explained that that is a lot to take on for a growing brewery who’s also busy making beer. Even Muller quipped that these small breweries “can be like a new boat: they take up all your time and money.” Like it or not, distributors can be the next step to expanding your brewery.
Gary Monterosso, host of SNJ Today’s What’s on Tap,“ said, “As a person who takes pride in supporting the small, independent business owner, regardless of the industry, I question any sort of business practice that has the potential to limit the public’s right to complete accessibility.” I agree. Without a change in law, it pays for new brewers to be careful who they chose as a distributor. Mather feels that most of them are good but it’s up to the brewer to make sure their wholesaler knows their story and and is able to tell it. For a small brewer looking to take the next step and sign on with a wholesaler, their story is their most valuable asset.
As my dad used to say, “A word to the wise is sufficient.”
I know it’s a little confusing but if you’ve stayed with me this far, it’s time to relax and enjoy that beer. Which one you chose is up to you. Let’s hope it stays that way.
NOTE: While there isn’t likely to be a change in the distributor/brewer laws, the Garden State Craft Brewers Guild is pushing some new legislation that would be great for New Jersey beer. Here they are:
A-1949 / S-1334 – Permits breweries to sell beer at farm markets
A-1950 / S-1335 – Allows consumption of food at breweries
A-1951 / S-1337 – Restricted breweries can sell 1,000 barrels a year to in and out of state retailers.
Contact your state Senators and show your support here!
