03 Dec 2012 @ 10:03 PM 
 

Podcast Episode #3: The Three-Tier System

 

Just what exactly IS the three-tier system? Is it good or bad? Why do some people seem to hate it, and if it’s so awful, why do so many people use it?

All this, plus Mystery’s search for distribution and why we ultimately decided that self-distribution wasn’t for us.

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Categories: distribution, industry, podcast
Posted By: erik
Last Edit: 03 Dec 2012 @ 10 03 PM

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Responses to this post » (21 Total)

 
  1. Victor says:

    How does the three tiered system decrease consumption? Is there anything other than economic theory due to increased costs due to the added layer between the retailer and the brewer?

  2. erik says:

    Right – it’s economic theory based on the idea that if X costs more, people will buy less of it. In this case, X costs more because distribution is deliberately inefficient.

    An economist, I’m not, but an armchair economist? Sign me up.

  3. JazPhx says:

    Some thoughts on this-
    Allowing craft breweries to distribute in their own state and limits on the amount of bbls/year seems reasonable. This keeps the big breweries from tied houses and gives smaller breweries a chance to make it in the market without needing a distributor.

    -But-
    Your brand could get lost in a distributor with a big brand or lots and lots of craft brands and not get the attention you want it to. Even with a distributor, you will still have to do sales and promotion in conjunction with or independent from the distributor. Think of the craft breweries with regional sales reps, brewery reps, and what other reps you can think of. Ever go to a beer festival, ask questions to the people in the tent, and find you know a lot more about the beer than the people pouring? That’s why breweries hire sales reps.

    Some states distribution laws lock you into whichever distributor that a contract is signed with. They have exclusive rights to distribute your product forever. Brooklyn Brewing had a problem with just this situation in NYC. If you have a problem, it will cost a lot of money to pay them off to release you from the contract along with hefty legal bills.

    You also give up some money going with a distributor. The $100 keg you were selling to the restaurant/bar is now a $75 keg to the distributor. You will get your moneys worth with a good distributor but a mediocre or bad one can ruin you. Letting them handle the logistics, delivery, and customer relations can be a big help if you are not into that.

    Distributors are a double edged sword. They can help to make you (and get your beer into places you may not have been able) or break you (by totally ignoring you). If you are going into other states, you will need a distributor there.

    Choose wisely.

    Also, I believe Sierra Nevada did initially self distribute.

    • erik says:

      They might have, but they wouldn’t be a nationwide brand without the 3-tier system.

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  4. erik says:

    As an aside to this – most of the reaction that I’ve received from this podcast – either public or private – has come in two flavors:

    1) Distributors – including the NBWA – thanking me and acting as though I’d just written a gushing love letter to them.

    2) People from the craft industry writing me long diatribes explicating historical vagaries of distribution in the craft industry and/or explaining to me what distribution means.

    This wasn’t meant to be a “all distributors are made of gold” podcast, and I’m not sure how it can be construed as such. It is attempting to bring to light the importance of distribution and the 3-tier system to the craft industry. It’s not right for some people – fine. It’s great for others. Yes, the bulk of the distributors that I’ve met and dealt with have been full of good ol’ boy douchebags that bend and break the law at whim and basically do whatever they can to put others at a competitive disadvantage.

    On the other hand, there are others who are filled with great businesspeople who truly love beer and wine and who are just as passionate about selling beer as I am about making it. (For example – I’m very happy with my distributor in NC. They’re, simply, great.)

    There are no neat boxes. Some are good, some are bad. It works for some, it doesn’t work for others. Distribution laws are bullshit, but that’s true everywhere because we’re still dealing with Prohibition Era crap and distributors tend to have vastly more resources than craft brewers and can lobby for their own benefit.

    The point of the podcast – if you listen to it – is informational: where the 3-tier system came from and how it fits into the market at large. It’s important and, quite simply, we wouldn’t have the craft beer industry we have today without it. However, there are, yes, problems with it.

    That’s it. 🙂

  5. […] about beer, there’s been some news about the blocked merger of Inbev and Modelo. I recommend Erik’s podcast post on the structure of the beer industry (the three-tier system) for those who care about craft […]

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