Craft breweries getting jammed by distributors

Posted on 29 March 2017

Let's talk about beer for a bit. I like it and drink it regularly. I particularly like beer that comes from small breweries. If the breweries are not small, that's only because they have very recently built their business from pretty close to nothing by making good, quality beers that fit with what people are now calling "craft beers."

Nevada has several very good craft breweries. I imagine a few of them are in Las Vegas, but I know about the Reno ones, and I have to say that the ones I'm pretty familiar with are great. Most of them are pretty small, but a couple have really built themselves into formidable players in the local market. So much so, for instance, that it's rare to see a shelf in a grocery or convenience store that doesn't carry their stuff.

Well, the craft breweries that have those large operations would like to get a little larger. See, it seems that they're currently limited in how much they can produce and sell on their own premises. Craft breweries in Nevada are allowed to annually produce 15,000 barrels currently. I didn't know what that really meant until I did some math. A barrel is 31 gallons, so [(31 x 15,000)/16]/365=79.62. That's 79.62 pints of beer per day per micro brewery that can be produced. Let's round that number up to 80. A micro brewery in Nevada can currently produce 80 pints per day on average over the course of a year to sell.

That's not very much. If they sell those pints on their own premises at an average of $5/pint and effectively sell out by the end of the year, they'll have made $400 per day before accounting for the cost of the grain, hops, yeast, water, rent, and person pouring your beer.

A law was recently introduced in the Nevada Legislature by Senator James Settlemeyer, a Republican from Minden, to increase the allowed amount of production to 45,000 barrels per year. That seems reasonable! Let's remember that these places are home grown businesses that started from nothing and have built themselves to their current levels by being good at what they do. They should be rewarded with the ability to continue to grow and be cool places for Nevadans and visiting connoisseurs to hang out.

I may have forgotten to tell you that with that increase in production, there would be a cap put on how much of that beer could be sold in an on-site retail situation--meaning a certain amount would have to be made available to the distributors of Nevada and run through the state's three-tier system. I have issues with a three-tier system in the digital age, but that's a problem for another day.

The problem for today is that it just so happens that the distributors are a really powerful lobby in Nevada. It couldn't be made more obvious than by reading this passage from an article discussing the new law:

But Settelmeyer’s proposal was opposed by large liquor wholesalers primarily concerned by the increase in capacity for retail purposes.

The amended version of the bill will allow Nevada microbreweries to produce 30,000 barrels a year, with no more than 10,000 barrels of that total for retail sale on site at a brewery or brew pub.

Settelmeyer said the amendment was a compromise to move the bill forward.

It's as blatant an example as I've seen laid out in such a simple way as to explain how the distributors control the fate of a growing and thriving business. And there is no legitimate benefit to the citizens of Nevada that I can see. Instead of more beer available at the brewery itself (where it's sold at the lowest cost to consumers), we get more control by a middle man who adds nothing to my ability to get the beer that I am choosing to get, but does get to increase the cost and take that money off the top.

Keeping with my math above, it would be possible for a brewery who charges $5/pint of beer to produce at most $800 worth of sellable beer per day before accounting for their production costs, and before we account for the price increase that comes with the additional overhead of distribution. That's probably about the same amount of money the lobbyists who the distributors employed to force this limitation are making in a day.

While it should be noted that this would be a doubling of the state's current limit on production, it should also be noted that it would only amount to half--HALF--of the amount breweries in Utah are allowed to produce. Utah.

In the future, I'll surely get into the three-tier system and why it sucks. But for today, let's just reflect on how breweries who started from scratch and make quality products that we clearly want to have more of in our hands, are being limited to half of what is allowed in one of the most prudish states in America.

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