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  • three tier poll!

    I know this probably exists somewhere already, but I couldnt find it and had a question that I would like to pose.
    I read somewhere not long ago that one of the primary reasons that craft breweries thrive out west is directly related to their having eliminated the three tier system of distribution in favor of self distribution.
    32
    Yes, Absolutely-100%
    28.13%
    9
    Probably, but depends on other related laws a great deal
    37.50%
    12
    Maybe, but might not, could make it worse.
    34.38%
    11
    No, absolutely Not, to many other things to consider
    0.00%
    0

    The poll is expired.

    www.beerontheriver.com

  • #2
    Having worked in the west and the mid west where 3 tier roams free. I have seen some breweries do very well in the midwest. People that use a family member or associate to start a distribution center that is not really a part of the brewery but definitely work closely. And there are those that really hunt for the right distributor and build a relationship. In the west you get to skip that step.

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    • #3
      It think more important than the elimination of the three tier are states not being franchised. Even though in PA where self distro is allowed many micros use distributors and the market is competitive and they do very well because they have a choice on which distributor they want to use. Granted its not exactly that simple and business politics are always a factor. But if your only option is an ABINBEV truck and if you get on it you have to stay there for the life of your business, good luck if it doesn't work out. However the three tier could disappear for all I care.

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      • #4
        what I would really like to do is be able to understand the real economic impact that the three tier system has on the small brewer vs self distribution economics.

        I am not advocating either, as I think an existing distributor in the right environment makes much more sense than me running around town in a truck selling beer door to door on a daily basis.

        what I would like to do is eliminate the variables and be able to provide the legislature in Alabama with real world numbers from both sides of the fence.

        basically, if the elimination or modification of the 3 tier system would create more local small breweries and jobs, would it be better than the status quo.
        www.beerontheriver.com

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        • #5
          having recently weighed the pros and cons between self distribution (more or less, anyway - i'm in a 3 tier state that doesn't allow it but still) and having a distributor it comes down to about 30% margin loss. In other words, I'd tell Alabama' or whomever that the little guy will lose 30% revenues to the 3 tier system and gain this back by self distributing. This isn't exactly true, of course, as you do get something for your ~30% (e.g., delivery, vehicle costs saved, paying a driver/doing it yourself, and if you're lucky line cleaning and some marketing/sales) but these things may or may not matter to the brewery. We decided 30% was worth it to pay for a buffer between us and the retailers whom we know personally and like being able to throw the distributor under the bus if necessary.

          You can easily do the math at various production levels i.e., if you assume to clear $50 bucks a bbl (or whatever, this is just a number - not based on anything) @100 bbls a year that's 5k minus 30% = $3500; @500 bbls a year that's 25k minus 30% = $17500 actual and $7500 'lost' and so on.

          Again, depending on the value of your distributor, their work ethic, your position in their catalog, etc., the value of that 30% is extremely varied from what I've seen.

          And another way, a business projected to clear 100k a year by self distributing will only make 70k or less with a distributor.

          As I'm in a 3-tier state, I'm assuming the retail price is comparable whether beer is purchased from a distributor or direct from the brewery. in reality the latter case may be in fact a cheaper price, I dunno.

          FWIW
          _______________________
          Chris Burcher, Wolf Hills
          Abingdon, VA

          Comment


          • #6
            well, after a little research I have found that 30+ states out of 50 do offer some form of self distribution. with that in mind, it leads me to believe that there must be some other driving factors in place that really help breweries in certain places be more successful than others.
            with all the success breweries have had in Colorado, Oregon, California and Washington as well as PA and NC. what are the most important factors ( regarding the law, and/or distribution in particular) that really help them vs everyone else.
            www.beerontheriver.com

            Comment


            • #7
              For effective self distribution, one must bring in a whole new aspect of marketing, operations and supply chain management that doesn't quite exist at the beer production level. The economies of scale that distributors are able to work with are a distinct competitive advantage of the three tier system. Imagine the investment required to have a distribution facility that matches your output/product demand. It isn't just the trucks or facilities; it is the human resource cost that could sink an operation of such. How exactly would you expand into new regional markets and meet the demand? What incentives would a retailer or retail chain receive from selling your small craft brew on the opposite side of the country?

              For a small brewpub to self distribute, I don't see too much of a problem. The costs associated with such local distribution can be very minimal and can be handled with minimal human resources.

              I remember a conversation I had with a microbrewery in Missouri and they self distributed. From their remarks it was too much for them to handle, so they opted for a third party distributor. After the last time I spoke with them, they seemed to be very happy with that route.

              In my opinion, take the energy and time you would spend in debating and pursing modification of the three tier system and use it to build viable and long lasting relationships with distributors. Have a meeting of the minds with them and discuss how you both can aid each other in the distribution of your product. You would be surprised what a jointly developed distribution plan could do for both yours and the distributors business!

              Success isn't solely based on your beer, but on the quality of your business. If you have the best beer in the world and the worst business practices, you beer won't hold ground in any market. Understanding Quality Business is more important than beer. To be an operating brewery these days, it is a pre-requisite that you have quality beer. Give that pre-req, it is your business acumen that will differentiate you from your competitors.
              Last edited by Bill_NHKLLC; 11-04-2009, 04:13 PM.
              Cheers!

              Bill Bensing

              Comment


              • #8
                three tier system

                I am in a state (montana) where breweries thrive. We have over 20 in a state with less than a million people. The state allows self distribution and I self distribute in a 60 mile radius. Beyond that, the distances are too far out here. While I am a firm believer in self distribution, most of the breweries in montana are not. They feel the extra cost/hassle of trucks, employees, line cleaning etc. is not worth the extra revenue.
                The reason the breweries thrive out here is the very limited retail we are allowed. We can get $3-4 a pint versus $90-100 per keg at wholesale. We can present the beer as we like in an atmosphere we have created. Our customers love our taprooms, and are therefore more likely to drink our pints at other taverns and buy our six packs at the grocery stores.

                cheers,

                sam

                Comment


                • #9
                  Originally posted by redlodge.sam
                  I am in a state (montana) where breweries thrive. We have over 20 in a state with less than a million people. The state allows self distribution and I self distribute in a 60 mile radius. Beyond that, the distances are too far out here. While I am a firm believer in self distribution, most of the breweries in montana are not. They feel the extra cost/hassle of trucks, employees, line cleaning etc. is not worth the extra revenue.
                  The reason the breweries thrive out here is the very limited retail we are allowed. We can get $3-4 a pint versus $90-100 per keg at wholesale. We can present the beer as we like in an atmosphere we have created. Our customers love our taprooms, and are therefore more likely to drink our pints at other taverns and buy our six packs at the grocery stores.

                  cheers,

                  sam
                  thanks for the insight. after I started this poll I quickly realized that I had not really addressed the issue as I thought I understood it. since then, I have come to realize that having the ability to self distribute period, is really the most important thing whether or not you choose to do so.
                  in my state its not allowed, nor is having an actual tap room for customers to stop in and try out your products. while technically I can give away FREE sample's (per the ABC Board), and charge customers for the glasses, I am limited to how many ounces that I could pour per customer. im not allowed to sell cases or kegs directly out of the brewery to anyone but a distributor either. these limitations are really just that, (limitations), a packaging winery in the state can sell there wine produced at their vineyard direct to consumers by the case, even though they are limited to a very few cases at a time I believe.
                  www.beerontheriver.com

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