Editor’s Note: This sponsored column is written by Nick Anderson, beermonger at Arrowine (4508 Lee Highway).
We’re diving back into how the alcohol business “works” again this week.
This past Tuesday saw news break that San Diego’s AleSmith Brewing Company would expand their distribution into North Carolina. I’ve been fielding questions about AleSmith beers for 10 years now, and with yet another state being opened up for their beers I anticipate the frequency of the questions to increase once again from Virginia craft beer fans.
With the AleSmith news this week, I wanted to see what I could find out about why North Carolina was chosen over Virginia, so I could more thoroughly explain to my customers as well as for my own education as a retailer. I wanted to take this opportunity to confront my suspicions and assumptions, and find out what truly affects a brewery’s decision-making process. Here is what I discovered:
AleSmith signed on with a company called Mims Distributing in North Carolina, which, according to its website, serves nine counties in and around the “Triangle” region of the state. Mims represents a diverse assortment of breweries both domestic and foreign: Yeungling, Sam Adams, Sierra Nevada, Anchor, Foothills, Bear Republic, Innis & Gunn, Palm, Rodenbach, Boon and more.
Based off of July 2013 estimates, the population of the nine counties served by Mims is just under 1.6 million. By comparison, the population of the Northern Virginia counties that would account for most of AleSmith’s theoretical Virginia sales (Arlington, Fairfax, Loudon, and Prince William) is just over 2.1 million by January 2013 estimates. A half million people is a big number, but it’s not as big a difference as I thought I’d find. So if potential market size isn’t an issue, what gives?
I contacted Mims Distributing to ask about its territory and new deal with AleSmith. Roger MacKay, Vice President of Sales for Mims, told me that the demand for craft beer in their part of North Carolina reflects the rise of craft beer in the U.S. overall: ”There are so many people following everything they can read about, blogs, sites, podcasts, the list goes on.”
MacKay also cited the state of North Carolina’s efforts at promoting its own craft beer industry as a factor in this rise. When asked about how many of Mims’ accounts they consider to be “craft” oriented, MacKay said they tend to “fall into three categories, all craft/import, all local craft, a mixture of craft, domestic and import,” noting that “(t)rue loyal craft accounts are definitely growing every day.”
Mims’ commitment to representing AleSmith in North Carolina makes sense of the “Why there?” part of my question, but what about the “Not here?” This is where some of my early suspicions bore out, as I reached out to a Manager for a beer distributor here in Virginia.
Our state’s excise taxes discourage many breweries from considering Virginia as a market; along with the difficulties of working with VABC and the fees it charges for registering each beer. The biggest factor, however, might be with the legal ramifications of signing on with a distributor in Virginia. The way the laws are set up, signing a distribution deal in Virginia is essentially a lifetime commitment; it’s extremely difficult and very rare to see breweries get out of distribution deals in Virginia to work with another company. The Brooklyn Brewery’s Steve Hindy spelled out many of the issues craft brewers face in a piece that ran in the New York Times recently:
“Almost every state franchise law demands that breweries sign a strict contract with a single distributor in a state — the so-called three-tiered system… This model was enacted in the 1970s, when the industry was a lot different: Back then there were fewer than 50 brewing companies in America and 5,000 distributors. Many small distributors carried beer only from one large brewer, and they needed protection in case the brewer they represented wanted to pull its product… state laws continue to empower distributors to select brands and manage them however they want — selling those they choose to sell, while letting other brands sit in their warehouses. The only recourse is to sue, and many small breweries lack even a fraction of the resources needed to take on a big distributor in court.”
Until we see real reform in the three-tiered system, breweries are going to be wary of entering new markets — even ones whose consumers are primed and ready to support their product. In the face of such challenges, it’s remarkable that we have as diverse a selection of beers available to us in Virginia as we do.