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How craft beer became a ‘pay-for-play’ bad guy

How craft beer became a ‘pay-for-play’ bad guy


Source: MarketWatch

By Jason Notte

Feb 22, 2016


Big brewers might be heavy-handed with distribution, but now their smaller rivals are engaging in bribery and extortion


Independent beer distribution is key to a diverse, fair marketplace that benefits both drinkers and brewers.


We just aren’t so sure that’s what brewers or their wholesalers want.


In November, when details of Anheuser-Busch InBev’s BUD, +0.63%  proposed purchase of SABMiller were first confirmed, we noted that beer distribution would tighten and small brewers would suffer if laws didn’t change.


In early December, when it was revealed that Anheuser-Busch was offering its distributors incentives to kick beers not made by A-B off their trucks, we repeated this refrain and pointed out that Anheuser-Busch InBev was already being investigated by the Justice Department after buying two California breweries and allegedly making it more difficult for small brewers to get their products to market.


A week later, we reiterated the importance of open distribution channels by noting that Anheuser-Busch InBev is permitted to own distributors in 15 states, is the largest beer supplier and one of the biggest beer wholesalers in nine states, and is covered by the same protections as independent wholesalers, 12 of which it has purchased in nine states since 2012.


So that makes Anheuser-Busch InBev a pretty clear-cut bad guy, right? Not quite. This month, the Massachusetts Alcoholic Beverages Control Commission hit beer distributor Craft Brewers Guild of Everett with a 90-day license suspension for offering “$120,000 in kickbacks” to various Boston-area bars and restaurants. In a hearing prior to the decision, Craft Brewers Guild acknowledged that it would pay bars $1,000 to $2,000 a year for each tap handle they dedicated to a beer that their company distributed.


The distributor was called out by Pretty Things Beer & Ale Project and its owners, Dann and Martha Paquette, whose Twitter rant led to charges against both the distributor and its bar clients. A year later, Pretty Things and its owners were out of the industry. Unless you believe in amazing coincidences, the Pretty Things folks basically sacrificed their brewery to clear the path for all other brewers. That makes craft beer the good guys, right? Not even close.


While Pretty Things did the right thing as a whistleblower, a more thorough read of Craft Brewers Guild’s notice of suspension finds that some of the beneficiaries of those kickbacks include longtime members of craft beer’s inner circle. Though the Brewers Association included only Pottsville, Pa.-based Yuengling in its “craft” ranks a couple of years ago, brewers including Lagunitas, Sierra Nevada, Allagash, Wachusett and Ipswich have been in the fold for far longer. All received tap space in exchange for cash incentives and all are firmly attached to this unfortunate moment for craft beer.


Yet even those brewers and their distribution partner can’t bear all of the blame. Massachusetts law limits the number of liquor licenses available in each town and city, and puts a cement-and-rebar ceiling on the number of licenses available in Boston. As a result, the city has roughly 350 beer and wine licenses and fewer than 700 full-bar licenses, with the latter going for about $50,000 and the former fetching low- to mid-six figures. As a result, many of Boston’s busiest bars are run by large restaurant groups or pub families that can not only afford those licenses, but serve as gatekeepers between brewers and their largest available audiences. Even bars known to be “craft” beer bars are owned by companies like the Wilcox Group, named in the complaint.


As a result, they can name their price for a tap, and they have their state regulators to thank for it. It’s created a culture where Marc Berkowitz, who owns the 113-tap Sunset Grill & Tap in Boston’s Allston neighborhood and gets roughly a third of his beer from the Craft Brewers Guild, can tell the Boston Globe that he’s not only open to “pay-for-play,” but that restrictions on it are “unnecessary and unfortunate.”


Even in states and cities where licenses are far easier to come by, there are plenty of opportunities for brewers to pay their way onto a tap. As Portland, Ore.-based beer writer Jeff Alworth notes, it doesn’t always happen on such a large scale or for such high prices, but it often boils down to an almost unpoliceable formula of what a distributor is willing to offer and what a bar or restaurant is willing to take. Deb Carey, co-owner of New Glarus Brewing Co., of New Glarus, Wis., told Crain’s Chicago Business that her brewery pulled out of Chicago’s “whores’ market” for beer because “small brewers can’t afford to pay for play” – whether it’s money, discount beer, or free beer and merchandise for bar owners.


There’s only going to be more opportunity for graft as the nation’s 4,100 brewers get more competition for finite shelf and tap space. Kroger, a supermarket chain with a huge national footprint, is handing over its alcohol shelving and marketing to Southern Wine & Spirits and creating a “Planogram Center of Excellence” funded by brewers and distributors. That “planogram” maps out a retailer’s shelf space and determines who gets the prime spots, who’s shifted to the margins and who gets left out. The Brewers Association and National Beer Wholesalers Association think this basically amounts to buying space for brands and shutting out brewers or distributors with less money. As a result, they’ve called these potential “slotting fees” to the attention of Treasury Secretary Jack Lew.


We can tell brewers, distributors and craft beer drinkers that open distribution – the second tier of the modern beer industry sandwiched between brewers and sellers – is worth fighting for and a better way to combat their enemies. Unfortunately, it turns out those enemies might just be staring back at them from the barroom mirror.