Craft brewers have availed themselves of several lifelines since the COVID-19 pandemic sent the beer industry into turmoil.
They include the U.S. Small Business Administration’s Paycheck Protection Program, curbside beer-to-go sales and, in some cases, delivery to consumers’ homes.
In Florida, there’s one more measure that would buoy small craft breweries in this turbulent time: the ability to self-distribute their products, according to Pete Anderson, co-owner and head brewer of Pareidolia Brewing Company in Sebastian, Florida.
Anderson is the creator of FreeTheBrew.com, a website calling for reform of Florida’s distribution regulations. He argues that if self-distribution had already been in place when restaurants reopened, then small breweries would have a revenue stream beyond growlers, Crowlers and 6-packs.
“They could have been selling their product in kegs directly to the restaurants in their area and at least been keeping the profit from that,” he told Brewbound.
Under current Florida law, breweries that want to sell their products outside of their taprooms and tasting rooms must link up with a distributor, who will sell their beer to retailers. However, breweries can sell beer-to-go and on draft on their own premises.
Pareidolia, for example, uses two different wholesalers to sell its beer, mostly on draft, in different parts of the state. When restaurants began reopening, one distributor told Anderson they were “only going to be carrying core products, no more seasonals, no more one-offs.”
“They basically put the kibosh on that instantly,” he said. “The ripple effect now is everybody’s complaining that grocery stores and restaurants have the same old brands — there’s nothing new coming out.
“And the new stuff is generally [from] those smaller breweries, so now we have another case where another third party entity is dictating winners and losers again with the stroke of a pen or an email,” he continued.
On FreeTheBrew.com, readers are asked to send a letter to their state legislators calling for changes to Florida’s distribution law.
“With the onset of COVID-19, many smaller breweries (small businesses) are struggling to stay afloat and should have the ability to keep more of their own profits,” a template letter reads. “This option would make Florida’s breweries better able to weather future disasters without relying on government aid.”
Breweries in 34 states have the ability to distribute their own beer in varying capacities. In some states, breweries can only self-distribute if their production volume is below a certain threshold. In others, there is a cap on the amount of beer breweries can sell through self-distribution.
A common misconception people have about the three-tier system is that it dates back to 1933, when Prohibition was repealed, Brewers Association general counsel Marc Sorini told Brewbound.
“Self-distribution was the norm in the 1930s and ’40s,” he said. “There were 3,000 brewers; most of them were self-distributing in their local areas. Distributors were something that you tended to use when you got further away.”
The beer industry today is unrecognizable from when the three-tier system came into existence. Post-Prohibition, it was created to keep tied houses on the retail level from blurring the lines between the tiers.
“The idea was that we wanted to keep the retailers separate from any upper tier industry member, whether that was a wholesaler, an importer, a brewer, etc.,” Sorini said. “That was the norm — the idea that there was a mandatory middle tier between the retailer and the supplier, that only comes incrementally in the post-World War II era.”
Throughout the 20th Century, the beer industry consolidated from thousands of small brewers across the country to a small number of very large brewers with vast footprints. Those large breweries relied on distributors to sell their products, and the middle tier grew to accommodate their needs. This era gave rise to franchise laws, as a means to protect the middle tier from losing the rights to brands on the whims of large brewers.
“It was the ’80s where beer franchise law pretty much got enacted in most of the states,” Sorini said. “This was the era where you had a very small number of very large brewers, and the distributors were largely mom and pop, and they were generally dependent on a single brand.”
Today, the beer industry includes more than 8,200 small, independent craft breweries whose business needs differ greatly from larger beer manufacturers. Often, small breweries aren’t interested in national footprints and prefer to focus on selling beer close to home. Many still make the bulk of their sales in their own taprooms, so a few well-placed tap handles are more a marketing investment to build brand awareness than a volume play.
Pareidolia, which produced 283 barrels in 2019 according to data from the Brewers Association, uses this playbook. Anderson initiates most sales himself at craft-centric bars and restaurants.
“We get about $52 to $56 for a slim keg — a sixtel — from the distributor,” Anderson said. “In-house, that same keg gets us $200-plus, so each time we send a keg, we’re potentially losing $150 per keg, just so they can pick it up and send it where I sold the beer.”
Florida offers two varieties of operating licenses breweries must procure to do business in the state:
- The brewpub-style license (CMBP), which costs $500 annually and grants licensees the ability to sell up to 10,000 barrels each year on their own premises;
- And the manufacturing license (CMB), which costs $3,000 annually and grants licensees the ability to distribute beer through licensed wholesalers with no cap on production.
CMB license holders can secure licenses to sell beer on their own premises through local authorities.
Anderson pointed to two different self-distribution models in other states that Florida could replicate. In North Carolina, where reform was enacted last year, breweries producing fewer than 100,000 barrels annually can self-distribute up to 50,000 barrels. Breweries that distribute fewer than 25,000 barrels can exit their distribution contracts without showing “good cause,” as long as they pay fair market value and give at least five days’ notice.
In Tennessee, a proposed bill would have allowed breweries to self-distribute within 100 miles of their address. The geographic approach would allow breweries to “really just serve your local customers, maintain those local customers and have that kind of personal interaction with them,” Anderson said.
“If you’re a bigger brewery, that’s great you’re still going to want to go beyond that,” he continued. “You’re still going to need the distributor for that by law and that guarantees thm at piece of the pie.”
However, the Tennessee self-distribution bill failed to advance beyond committee in the state Legislature last month.
Both models have merit, Anderson said.
“In Florida, we’re happy with either one, because we have neither one,” he said. “Of course the regional breweries that are all doing over 1,000 barrels or more, they need distributors. It’s just too much logistics for them to handle on their own.”
The ideal candidate for self-distribution in Florida, a state where the major metro areas are spread far apart across its panhandled and peninsular geography, is a brewery with a 10-barrel or smaller brewhouse, Anderson said.
“They’re big enough to send their product out, but they’re also big enough to handle their own local accounts,” he explained.
Pareidolia relies on distributors to sell its beer as far away as an hour north and an hour south of its town on Florida’s eastern coast, and in Tampa, which is nearly nearly three hours west. The company would maintain those relationships.
“It’s not like we’re asking for handouts or anything,” he said of his fellow Sunshine State craft brewers. “Brewers, by and large, are generally not asking for handouts from anybody. They just want to run their business, keep their staff and customers happy. But we’re being asked more and more to do with less and less.”