09 May 2015 @ 1:48 PM 
 

On North Carolina Beer Politics

 

You know, it’s been a while since I’ve had a good rant.

I’ve been pretty quiet lately. Since becoming the President of the North Carolina Craft Brewers Guild, I’ve often felt like it’s probably not the best idea in the world to be the guy that pops up the rash ranty blog posts. After all, we’ve seen what happens when I make large sweeping statements. But I feel like there needs to be another voice out there about North Carolina beer politics that isn’t a 3rd party covering us, especially one that’s quoting the NCBWWA without contacting oh, you know, a brewer for an opinion.I'm Just a Bill

So, let’s talk about NC Beer. And to be clear, and safe I guess, this is me, as a person. This is not an Official Statement by the Brewers’ Guild. This isn’t a Mystery Brewing company statement. This is me, elucidating my thoughts in the only way that I know: writing.

If you’ve been following along in NC lately, you might know that there have been a couple of bills that were up for discussion in committee. Here they are:

House Bill 278: Its sole purpose is to raise the self-distribution cap from 25,000 bbls/year to 100,000 bbls/year.  That’s it. Small change to small change. To put it in perspective, NC distributors delivered just about 6 million barrels of beers two years ago (and undoubtedly much more than that now). Based on their reaction to this bill, the .04% that they don’t have access to is an enormous threat to their livelihood and must be stopped at all costs.

House Bill 625: A multi-purpose bill meant to make contract brewing legal in North Carolina, and meant to make Alternating Propietorship (which is a form of contracting) legal in North Carolina. The bill also allowed brewery taprooms to serve wine without the requirement of serving food. The sponsor of the bill also included a provision that would mean that on-site pint sales would not count toward the self-distribution cap. Fun fact: Not only are contracting brewing and AP brewing legal on a Federal level, they are also legal for NC wineries, just not breweries.  In fact, because it is specifically allowed for wineries, it is not allowed for breweries because our law states that anything that is not specifically allowed shall be prohibited. Guilty until proven innocent. The American way.

Here’s the truth about both of these bills, regardless of what that Brewbound article might tell you: Dead on arrival. No chance. Not a prayer that they would even pass through committee to get to the floor of a chamber for a vote.  Why? Money in politics. It’s that simple.

But hey, I’m supposed to be ranting, right?  Let’s rant.

The Hubris

Frankly, it’s the Brewbound article that set me off. The hubris. The utter hubris. The idea that somehow we, the brewers, were so goddamned concerned with this stupid “anonymous” website that we somehow couldn’t keep up with the legislation. What utter and total bullshit. The bills were dead before the website published. And while, sure, we spent some time getting a followup website online, to think that it was the all-consuming effort is insane.

In fact, a few days after the “misdirection play”, I – and good number of other brewers – spent the entire day in Raleigh talking with our representatives and senators about our breweries, our local economy, and the bills that were important to us before inviting them all down to a reception at the Lt. Governor’s office which was attended by quite a few them. Come to think of it, over the course of the day, we didn’t mention the website at all.

What we did mention is that small brewers in North Carolina are the local economy. We put people to work. When people buy our beer, the money stays local. We reinvest in our communities and we help grow and revitalize our towns and cities. We bring tourism dollars into the state and keep them here. We were met with good support. Republicans were supportive, Democrats were supportive. I mean, look – beer is pretty bipartisan. You can enjoy an IPA no matter what color tie you’re wearing.

The only negative feedback we received all day was from the committee chair of Alcoholic Beverage Control. You know, the guy that’s in charge of reading our bill in committee and passing it along to the floor where it can get voted on by everyone else? Weird to see where the largest part of his campaign funding comes from. (Click the “As a candidate” tab and check that Top Donors item.) I know that correlation does not equal causation, but it’s hard not to draw that line.  Well, that and the fact that he gave me verbatim talking points from the NCBWWA playbook before I even made an ask. It felt pretty goddamned obvious.

But hey, look. That’s politics. Money talks, and we’re busy reinvesting in our businesses and our communities, not buying politicians or putting up anonymous slanderous websites. So, we’re at a bit of a disadvantage.

No, the hubris and misinformation that somehow we fell for some petty “misdirection” while the NCBWWA were doing an end-run around us is insulting and a gross mischaracterization. The truth is that the bills were already functionally dead due to pressure applied to politicians outside of the public eye. That they are now claiming some kind of amazing victory, as if they were some sort of underdog and we were struck dumb by their dazzling display of chicanery in the form of something that simple, is mind-boggling and naive.

On the upside, I get to write a blog post now. And I’ve really been ignoring my blog.

The Blatant Lack of Support

A large portion of the brewers in North Carolina and ALL of the brewers who distribute into North Carolina from out of state are represented by a distributor.

I guess we see how they really feel about us.

We talk a lot about how we’re partners, about how we’re all in this together. Craft is pretty much the only growing segment of the beer industry. It’s growing so much that the beer segment as a whole continues to grow despite the declining sales of International Lager. We represent a good source of income for distributors (though admittedly still a small portion for many) and, frankly, we are the future of the industry.

We’re really starting to see that partnership means pretty much jack shit to our partners.

I’ve had multiple breweries in the past two weeks tell me that the “misdirection” website has made them re-think their decision to go to distribution.

The distributor that I use for my brewery, who I feel I have a wonderful relationship with, is owned by a Senator.  One of the executives of the distributor is on the Board of the NCBWWA. I truly enjoy the people that I work with and they’ve been fantastic partners, but are the NCBWWA’s actions indicative of how my distributor sees our relationship working? That instead of growing together and facing the future as partners who want to see the industry grow and prosper, our brewery is part of a faction to be trampled and controlled? That we’re somehow untrustworthy and irresponsible? What am I supposed to think now?

If you’re a startup brewer, do the actions of the wholesaler lobby truly make you want to sign your business over right now? If you’re one of the self-distributing breweries in the state that’s currently approaching the self-distribution cap, could you feel good about signing on with a distributor right now? Would you want to do anything other than fight? If a brewery reaches that cap and is forced by law to turn over their entire production capacity to a distributor, could they do it with anything other than enmity?

“We Have the Best Beer Laws in the South”

Yes. We do. You’re right. That’s us. The skinny kid at fat camp.

Seriously. This is an argument we’re given. “We have the most progressive laws in the South!” Sure we do. We also lead the smallest group in the country and have some of the highest excise taxes on beer. So.. yay us! We can settle for less!

We’re number 42! We’re number 42!

You know what I want for my business? A competitive disadvantage against the breweries who are importing into our state! Yeah!  Woo! Go us!

It’s the biggest joke.

Sure. Every other state in the South wants our laws. Do you know what I want? I want Colorado’s. Our excise tax is 775% higher than theirs is. They have great self-distribution rights, permissive taproom and pub laws, and a kegerator in the Governor’s mansion. They don’t even have gated access to beer on Sunday mornings. They have incredibly successful breweries AND distributors. Both. They only have half of our population, but an economic impact from craft beer that more than doubles ours.

Yes, by all means. Let’s settle for less. Why try to be successful?

The Ridiculous Idea that Brewers Are Trying to Bring Down the 3-Tier System

I bring this up because so much of the rhetoric that I see spouted lately has to do with this fantastical idea that small breweries want to do away with the 3-tier system, like somehow we happen to be small business owners, entrepreneurs, AND colossal idiots. I’ve said it before and I’ll say it again: We have the 3-tier system to thank for the amazing proliferation of craft beer. It’s true. I wouldn’t be drinking a beer from California right now without it. No brewery wants to do away with it.

However, that doesn’t mean that the current state of franchise law isn’t anti-competitive and unconstitutional. That doesn’t mean that I don’t also believe that breweries who want to distribute their own product should be able to do so. Just because a distributor “can’t understand why someone who wants to grow would choose a different route to market” doesn’t mean that “illegal” is the only other option. That’s the basis of free enterprise: People are free to make decisions that you might think are stupid.

At some point, some expert thought that tablet computers would never work. Apple has only sold around 100 million iPads, so, you know, they probably should have just settled for less.

But the truth is, many of us DO rely on the middle tier. We appreciate it and use it because what we want to do is focus on making beer, not run a trucking or logistics company. But here’s the thing: That’s our decision. Somewhere (nearby), somebody does want to run a trucking and logistics company, and they also want to make the beer. They believe (rightly) that they are better represented in the market when they are the ones to sell their own product. It should be their decision to make, always, regardless of whether or not a competitor understands it.

The Lack of Foresight and Accountability

100% true: I cannot figure out for the life of me why distributors and brewers are on opposite sides. We all want the same thing: Success in our business, more beer on the market. With the exception of the ability to serve wine in my pub without Hot Pockets on the menu, the bills that are listed up above do nothing but help distributors. More beer in breweries = more beer for distributors to sell = more money. It’s the easiest damn equation ever.

I can’t figure out why members of the NCBWWA aren’t calling their association saying, “Please stop. You are hurting our business.” Because that’s exactly what’s happening.

They’re losing face. They’re losing potential suppliers, and they’re losing potential sales. The crazy idea that contract brewing is somehow a way to get around the self-distribution cap is ludicrous. Brewers use it to grow. The largest contracter in the state? MillerCoors. They contracted Sam Adams for years. They have an Alternating Propietorship relationship with their own sub-company, Blue Moon. They use a distributor. When Highland was moving from their basement brewery in downtown Asheville into their new facility, they used contracting to grow their capacity so that they could pick up brewing on a much larger system seamlessly. They use a distributor. Carolina Beer and Beverage contracted for years before the sale to Foothills. They used a distributor. There are at least two other breweries in North Carolina that are currently contracting that move 100% of their product through a distributor. Contracting is a tool for successful brands, it’s a means of startup, it gets more beer on the market, which is almost exclusively carried by a distributor in the state. How can the distributors logically explain fighting it?

The “end run around the distribution cap” argument is a red herring that anybody should be able to see through, especially a distributor. I cannot figure out why distributors don’t hold their own organization more accountable for the actions it takes and, most importantly, the tone that is being set in the marketplace with suppliers.  It’s insulting, demeaning, and derogatory.

Yes, there are some breweries that want to self-distribute as much as they possibly can in the state. Yes, those breweries represent beer on the market that isn’t controlled by a distributor somewhere. Yes, it is a ridiculously small amount of beer by comparison and, yes, it always will be even at 100,000 bbls. It also doesn’t mean that those self-distributing breweries won’t use a distributor for some of their operation at some point. Maybe the successful brewer in Asheville doesn’t want to have a logistics arm to drive beer 7 hours to the Outer Banks, but really wants to distribute there. Are you really going to say no to an established and known brand who wants to use you for distribution?

Well, not when they’re mandated to use you by state law, I guess.

But the reality is that most, if not all, of those guys will never go down that path. Especially after the past couple of weeks, and the intensely negative posturing toward self-distributed breweries. They’ll find another way. They’ll limit their growth. They won’t lay off workers, liquidate equipment, and sign 30% of their revenue over to somebody they don’t feel they can trust with their life’s savings, with their babies.

Look, I understand that the real issue is power. The real issue is that someone is scared to death of change and the unpredictability of the future, but you know what? It’s coming. It’s that simple. Change will happen. It’s unavoidable. It’s the only constant. We can all grow together and prosper or we can do it through pain and fire and brimstone. We can go through nasty tactics, threats, and slimy actions, or we can work together to set a precedent for the rest of the country.

Come on NCBWWA, do you want to be leaders or do you want to settle for less? You have nothing to lose and so, so much to gain by actually being good partners.

I tell people all the time that North Carolina is one of the best places in the country to have a beer. I’m proud of the breweries in this state, their innovation, their quality, and their leadership.

I really wish our most natural partners wanted to stand proudly alongside us instead of attempting to quash us at every turn.

 

Tags Categories: op-ed Posted By: erik
Last Edit: 09 May 2015 @ 01 48 PM

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Responses to this post » (14 Total)

 
  1. Dave says:

    I love you Erik!

  2. Thanks Erik.

    Here is something I’m not clear on, however. Were the cap to go to 100K, would a brewery currently signed to a NC distro and producing, say, 50K revert to self-distro should they so choose?

    • erik says:

      The answer is functionally, “no.” As in, they could, but it’s probably going to be incredibly expensive and just not feasible.

      Franchise law in North Carolina is built to protect the distribution tier above all. Once a brewery signs on with a distributor that is their distributor forever, unless one of the following conditions is met:

      1) The distributor amicably lets the brewer go at no cost (rare).
      2) The ownership of the distributor changes.
      3) The distributor trades/sells the brand to another distributor.
      4) The brewer can show “good cause” to end a relationship. (Essentially, the brewer needs to prove that the distributor has taken illegal activity. “Not selling enough beer” is not good cause.)
      5) The brewer pays “fair market value”. FMV is typically one year’s gross profit times some multiplier. 2 or 3 is usual, but some have been quoted as high as 10. Regardless, it’s not an easy number to come up with.

      And that’s to say nothing of the investment that it would take to grow the infrastructure you’d need. It’s sizable for just one brand. It makes a lot more sense to grow that kind of business organically.

      Final answer: It wouldn’t happen.

  3. Todd Ford says:

    Well stated Erik. Change is the only constant. The thing I would say is that most distributors provide a valued service. With that in mind why is it that the representatives of the distributors in Raleigh act like the only way for the distributors to get new business from craft brewers is to make it a legal mandate. Why not trust in your service and let brewery owners make the distribution decision for themselves?

  4. Rob Watson says:

    Thank you for this excellent piece. It may be a rant but it’s spot on and your efforts will help make this happen eventually. I am also trying to push this through my FaceBook page, Help Your Craft (link below). I hope you’ll check it out.

    https://www.facebook.com/profile.php?id=690514964414480&tsid=0.9495017805602401&source=typeahead

  5. Andrew says:

    Hi Erik,

    Great rant. I’m wondering if you could help me understand your section about the 3-tier system, though.

    You imply that only a “colossal” idiot would want to do away with the 3-tier system, but the rest of the section seems to be advocating for just that. If I’m reading correctly, you’re arguing that participating in the 3-tier system should be voluntary rather than a legal mandate. This sounds a bit like: “I’m not against speed limits, but following them should be a choice.” If the 3-tier system could exist organically then why did it have to be instituted by the government in the first place? Isn’t the legal mandate part of the 3-tier system?

    You also that the current state of the system is unconstitutional. I’d like to read more about that if you can point me to a good article.

    Apple’s sales seem irrelevant to NC beer laws; a bit of a red herring. ;P

  6. erik says:

    Andrew,

    You’ve got it exactly correct. I am advocating for voluntary participation in the middle tier by small and independent producers. Just like every other industry in the country.

    The middle tier DOES exist organically. Everywhere. For all kinds of products. Soda, toothbrushes, transistors, soap, food, etc., etc. Everything except for alcohol. Every other industry has the ability to do their own thing until the WANT to go find a distributor, because it makes sense for their business, not because they HAVE to. They’re allowed to write contracts with conditions for both parties and have actual good business relationships instead of a federal mandate.

    To be clear: I have no doubt that ABI and MillerCoors could, and would, abuse a complete deregulation of the middle tier. I’m not advocating for that, either. I’m not entirely sure of the best fix, but I know that what we have now unfairly limits small producers.

    Franchise law. Here’s some good reading on franchise laws:

    https://www.brewersassociation.org/wp-content/uploads/2014/10/Beer-Franchise-Law-Summary.pdf

    They’re anti-competitive, and they can (depending on the state) breach anti-trust law. I’m not a lawyer, but my opinion is that franchise law (not the three tier system) is unconstitutional.

    I don’t think that Apple piece is a red herring. It’s just an extreme example. There are lots of people that start businesses on ideas that somebody else thinks is stupid. Tablet computers, caffeinated light beer, seasonal-only breweries, Crystal Pepsi, whatever. Stupid isn’t illegal. If it doesn’t work the business will fail. That’s a risk that anybody takes when starting a business. Just because Person A doesn’t understand why Person B would run a business that way doesn’t mean that it should be illegal for Person B to do it.

  7. jd says:

    Spot on..only thing that really has been discussed at our place is maybe the jump from 25,000 to 100,000 seems a little high. Would they have fought just as hard if it was a raise to 50,000 barrels? I would think so but just seeing what the response to the question is.

    • Todd Ford says:

      JD

      I guess the answer is yes. The Wholesalers also defeated the Bill that would only raise the Self-Distribution cap by the amount the brewery would sell through its tap room annually. That would be around 1000 barrels for most of us. That in effect would move the cap to about 26,000 barrels. The wholesalers have made it quite clear that there would be no compromise on self-distribution.

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