three-tier system

The Empire Strikes Back

The mega-merger between Anheuser-Busch InBev and SABMiller will give the combined business a 30-percent share of the world’s beer market and control of eight of America’s top ten brands. And, according to Time magazine correspondent Brad Tuttle, it will pose a serious threat to the growing craft beer sector. The big brewers’ campaign against craft is being waged on several fronts.

Big Beer’s first line of attack on craft brewers is “crafty” beers such as Blue Moon and Shock Top. Critics call these products “crafty” because many, if not most, consumers are unaware that they’re made by big breweries.

The big breweries are also buying craft breweries whose products have a following, such as Goose Island, Elysian, 10 Barrel, Golden Road, and Blue Point. Even though there are 4,000 breweries in the U.S., Tuttle points out that strategic acquisitions of key craft breweries make it much more difficult for other craft brewers to succeed.

Advertising is another weapon in the mega-brewers’ arsenal. The craft-bashing Budweiser commercial that ran during the last Super Bowl, poking fun at hipsters who fuss over pumpkin peach ale, is the most notorious.

The big brands still dominate distribution, and the three-tier system isn’t going away anytime soon. In some states, such as Colorado, A-B InBev has bought distributors outright—a practice that may lead to antitrust investigation by the Justice Department.

Finally, consolidation helps offset the big brands’ sagging sales growth by cutting costs. Advertising is one such cost. A-B InBev and SABMiller spend billions on sports sponsorships to promote their brands. Now that the two companies are no longer competing, they’ll have more negotiating power with the sports industry and will demand lower fees for their “official sponsorship” status.

The Friday Mash (Widespread Panic Edition)

On this day in 1938, Orson Welles’s Mercury Theater company broadcast a radio play of H.G. Wells’s novel, The War of the Worlds. Contrary to popular belief, the performance didn’t cause widespread panic, because the audience was so small. It did, however, make Welles famous.

And now….The Mash! 

We begin in Orlando, where a sports bar called The Basement is helping fans cope with the University of Central Florida’s 0-8 football team. It’s offering free beer during UCF games until the losing streak ends.

PicoBrew, a Seattle-based startup, will market a home brewing system similar in concept to Keurig’s K-Cups. The system, which makes beer in five-liter batches, will retail for around $1,000.

In Georgia, a brewmaster has launched a “government rant” series of beers to protest restrictive state laws. The menu’s fall offering: “Why does the state legislature not want to create jobs by allowing us to do growlers of this IPA?”

Could beer hold the key to stopping the alarming decline in the honeybee population? Scientists have found that placing hops beta acid near a honeycomb improves the bees’ chances of survival.

Louisville’s Against the Grain Brewery will launch a beer honoring pro wrestler Randy “Macho Man” Savage and two other members of the famous Poffo wrestling family. The beer will be called—of course—Poffo Pilsner.

On Thanksgiving weekend, Dark Horse Brewing Company will pour 130 of its beers at the HopCat beer bar in midtown Detroit. It will be the largest single-brewery tap takeover on record.

Finally, an editorial in Monday’s edition of USA Today called attention to the big breweries’ latest effort to thwart craft beer. They’ve been buying distributors in three of the top five craft-brewing states. The U.S. government is investigating these transactions.

In Florida, A Fight Over Tasting Rooms

In recent years, dozens of small breweries have opened in Florida. However, a lawsuit filed earlier this month by the Florida Retail Federation could put them in jeopardy.

The suit alleges that the Department of Business and Professional Regulation, which issues liquor licenses, overstepped its legal authority in allowing breweries to open tasting rooms. Many breweries depend on tasting-room traffic to stay viable.

Currently, there are two exceptions to the three-tier licensing scheme under which a brewery can sell directly to customers. One exception applies to breweries that offered tourist amenities. (The exception was originally create for the Busch Gardens theme park.) The other applies to brewpubs. According to the Retail Federation, some breweries fall under neither exemption but operate tasting rooms anyway.

The Fight to Legalize Brewpubs

Charlie Papazian, who writes about beer on, resurrected a 1982 article from Zymurgy magazine about early efforts to legalize brewpubs. It was written by Tom Burns, then at the Boulder Brewing Company. Burns moved to Michigan, where he fought to change that state’s restrictive laws. Unfortunately, Burns passed away before Michigan became the “The Great Beer State” with more than 150 microbreweries and brewpubs.

At the heart of Burns’ article is America’s three-tier distribution system. He conceded that legislators had reasons to ban “tied houses”—they didn’t want breweries to monopolize the retail market—but argued that the laws were so inflexible they made impossible for a small brewery to sell its beer at retail.

Burns, who was an attorney, urged the craft-brewing community to lobby state legislators. He argued for a narrow exception to the three-tier system—allowing breweries to sell their product, on premises, at retail–and offered some useful talking points. Brewpubs are local businesses, which hire local people. They counter the trend toward industry concentration. They help preserve traditional beer styles, and led to the creation of new ones. And they encourage the consumption of beer, a beverage of moderation.

The strategy worked. A generation later, brewpubs are legal in all 50 states.

Is Regulation Hurting Craft Brewers?

Matthew Mitchell and Christopher Koopman of George Mason University argue that craft brewing is hamstrung by regulation at every level of government.

At the federal level, brewers need approval for their label art—this step can take 100 days—and depending on their ingredients and methods, their formula might require approval—which could mean yet another 60 days’ delay.

At the state level, brewers face additional, and often redundant, rules. Some states’ criteria for getting a license are so broadly written that they invite arbitrary denials, especially if they let existing brewers exclude competition. Once licensed, craft brewers must contend with more legal barriers–the worst of which is the three-tier system, which requires brewers to sell their products through distributors. On top of that, many states’ franchise laws force small brewers to either stay in unhappy marriages with distributors or pay a huge sum for a corporate divorce.

Mitchell and Koopman also note that regulators don’t have an incentive to look at the combined effect of regulations at all levels. They also believe that regulators are oblivious to the rules’ practical effect: preventing newcomers from challenging existing firms. (Which explains the persistence of the “bootlegger and Baptist” theory of regulation: restrictive alcohol laws hand an advantage to existing suppliers.) The authors also criticize governments’ efforts to “rescue” craft brewers by with targeted assistance, exemptions, and subsidies, contending that those measures are not only ineffective but also create economic inefficiencies.

What if Prohibition Never Happened?

The latest column by Charlie Papazian poses an intriguing question: what if the 18th Amendment, which imposed national Prohibition, never became law?

If Prohibition never happened, we wouldn’t have had bathtub gin or speakeasies, the U.S. Treasury would have continued to take in millions in excise taxes, and gangsters like Al Capone would have been forced to find some other industry. And millions of Americans wouldn’t have had to break the law to enjoy an adult beverage.

But Papazian also sees a downside to Prohibition never happening. Lawmakers might not have outlawed “tied houses.” That, plus inevitable consolidation of the industry, could have created a barrier to entry so high that small breweries would struggle to survive. Without distributors, small brewers would have little chance of getting their product on the shelves and into bars. And if big brewers pushed huge quantities of cheap beer, a backlash leading to high taxes and tough restrictions might have occurred.

The ultimate question Papazian asks is, “If there was no Prohibition would we have today’s 2,400 small breweries?”

The Friday Mash (Robbie Burns Edition)

Today is the birthday of Scottish poet Robert Burns. It is the traditional day to honor him with a Burns supper, which typically includes haggis, Scotch whisky, and the recitation of Burns’ poetry, and closes with a chorus of Auld Lang Syne.

And now…The Mash!

We begin in Rosemont, Illinois, where America’s fourth Hofbrauhaus had a soft opening in the city’s new entertainment district. The other HB locations are Las Vegas, Pittsburgh, and Newport, Kentucky.

The Canadian humor magazine Bite has created a zodiac-like infographic, “What Your Beer Style Says About You.” (Hat tip: Jay Brooks.)

Two cheers for the three-tier system. According to the New America Foundation’s Barry Lynn, distributors are protecting craft beer from the dominance of the nation’s brewing duopoly–at least for now.

Why is beer more likely to go skunky in clear bottles? It’s because light reacts with hop alpha acids to produce a compound similar to one found in a skunk’s defense spray.

On Tuesday Harpoon Brewing, the nation’s eighth-largest craft brewer, will open a $3.5 million beer hall in Boston. It’s located just blocks from Boston Beer Company’s Jamaica Plain facility.

If you haven’t been able to get limited-release beers,’s Jim Galligan offers tips from the pros. For starters, you should cultivate a relationship with a good beer store in your area.

Finally, Matt Austin, a grad student at Cardiff University, found some interesting parallels between the way Vikings drank in mead halls and the way today’s British college athletes drink.

Capital Capsules

In many states, the legislature is in session. Some of their work will affect craft beer lovers.

The “Surly bill” is now law in Minnesota. No, it doesn’t mandate nice behavior. It allows craft breweries to sell beer by the pint on premises. And Brooklyn Center’s Surly Brewing Company is just one brewery that plans to take advantage of it.

Free the Hops, Alabama’s craft beer advocacy group, is on the verge of a partial success this year. The Brewery Modernization Act will make it easier to open a brewpub in the state and allow microbreweries to open tasting rooms. The governor said that he will sign it.

Ohio lawmakers are considering whether to raise the ABV cap on beer to 18 percent from its current 12 percent.

Connecticut lawmakers have given final approval to the creation of a Connecticut Beer Trail.

A bill introduced in the Michigan House would allow homebrew tastings at licensed breweries and brewpubs for activities such as club meetings and competitions.

And a new Illinois law that allows small brewers to self-distribute has gone into effect. However, the law doesn’t provide much relief to brewpubs, which must establish a production brewery in order to self-distribute their product.

Unfortunately, not all is rosy on the legislative front. In Wisconsin, small brewers are up in arms over proposed legislation that would prevent breweries from owning distributorships. Backers of the legislation include MillerCoors, the Wisconsin Beer Distribution Association, the Tavern League of Wisconsin, and the Wisconsin Grocers Association.

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