By Annie Tobey
Prohibition may have officially ended in 1933, but the effects of the temperance movement linger. One result of that “Great Experiment,” the three-tier system, declared that producers (breweries) were to sell their product to wholesale distributors, who in turn sold it to the restaurants, bars and retailers. Eighty years later, the system still stands—often to the chagrin of small, independent breweries. To address perceived problems with the system, several Virginia breweries have started their own distribution companies.
Since the three-tier system forbids breweries from distributing directly to a restaurant or retailer, there’s always a middleman, increasing the cost of final product and the time between packaging and consumption. In the case of beers meant to be enjoyed fresh, extra time detracts from quality.
Small brewers fear that a distributor with a large portfolio can’t give enough attention to their brand. Having dedicated sales reps can help, but the brewery still must trust the distributor to deliver the product promptly, to keep it cold along the way and to rotate stock for freshness.
Anheuser-Busch (AB InBev) isn’t soothing anyone’s fears. The company is under investigation by the U.S. Department of Justice for recent incentive programs that don’t merely incentivize distributors to sell AB InBev products but also incentivize them to not promote craft product. Although the jury is still out, the international conglomerate’s $106 billion acquisition of SABMiller also causes a few bouts of anxiety.
In addition to gobbling up relatively small breweries, AB InBev has acquired distributors. “The separation of supplier and distributor is a matter of state law,” says Paul Gatza, director of the Brewers Association, trade association for independent brewers. “I believe 15 states allow large brewers to own their distributors. Anheuser-Busch owns distributors in 10 states and MillerCoors one state.
Regulations vary for small breweries, too, Gatza continues. “[Some] states allow self-distribution for small brewers under a specified barrel cap, which allows small brewers to build a brand and learn the business side in their home markets or further before signing on with a distributor, who then owns (generally) the brand rights for the brewer in that territory.”
To circumvent systemic problems, some Virginia breweries have started their own distribution businesses—sort of. To maintain the letter of the law, the distributors must be an entirely separate legal entity from the brewery, including ownership, employees and property. (Busch Gardens in Williamsburg demonstrates one interesting exception in Virginia. Per Virginia code § 4.1-208, a brewery can deliver beer to sell directly at retail within a theme or amusement park that it owns and operates.)
One well-known West Coast brewery that established this model early on was “imaginatively named Stone Distributing,” says Greg Koch in The Craft of Stone Brewing Co. The reason for establishing the company was to get Stone beers to market, since distributors then weren’t interested in the new craft beer concept.
Established in 1996 in southern California, Stone Distributing quickly moved beyond distributing its own product to extend its services to other independent brands. “In the David vs. Goliath world of distribution, when you’re vying for retail shelf space in stores and keg placement in bars and restaurants,” Koch says, “having a strong, eclectic portfolio of beers is paramount.”
Three Notch’d Brewing and Central Virginia Distributing
In 2013, a small Charlottesville brewery opened, along with their “sister” distribution operation, Central Virginia Distributing. Scott Roth, president and co-founder of Three Notch’d, was a restaurateur before opening the brewery, so he saw distribution from the retail side.
“I saw how easy it could be to get lost in the fold,” he recalls. “These new breweries would get 30 days of good attention, then you never heard about them again, unless there was a tap incentive or some sort of event. It became very dependent on the owners of the small breweries to actually come in and sell their product to you … So our thought was, if we’re doing that anyway to be successful, then let’s control it and try to grow our own distribution network.”
One early difficulty for Central Virginia Distributing was getting product in big box retailers. “That’s where you make your hay in distribution, if you can be on every grocery store shelf,” Roth explains, “getting a lot of visibility and a lot of brand recognition.” Three Notch’d has since landed on shelves in Kroger, Costco, Sheetz and other large outlets.
Since opening the Charlottesville location, Three Notch’d has begun two satellite breweries, one in Harrisonburg and one in Richmond (with an August 2016 projected opening). From a business standpoint, Roth explains, these locations assist distribution by helping to develop brand recognition and relationships with local restaurant staff and consumers.
Central Virginia Distributing has begun to pick up other brands as well, including Aslin Beer Company, and is in discussions with another brewery.
“We’re looking towards … spinning this off into what Stone did, really,” Roth says. “They did an excellent job.”
Adroit Theory and Monarch Distributing
Different reasons compelled the founders of Adroit Theory in Purcellville to start a distributor: because it’s harder to break with a distributor than to end a marriage.
“Given that the distributor relationship in Virginia is a lifetime commitment, we knew we wanted to have control,” owner Mark Osborne says. “My wife started Monarch [Distributing] so we could control all aspects of the beer, including where it went and for what price.
If Adroit Theory started their sister distributor because they disapprove of the shackles of the current system, they have been sincere in establishing more lenient relationships. “We didn’t know at the time … how many other breweries wanted to do business with a small distributor.” Monarch initially represented Aslin, Old 690 and Tin Cannon, but parted ways. Currently, it represents Bad Wolf from Manassas and Quattro Goomba in Aldie, and is in talk with others.
The Veil Brewing and Reverie Distribution
The Veil Brewing in Richmond has one primary philosophy: “Everything we do, we want to do a little different, reflecting attention to detail and quality,” says Matt Tarpey, co-founder and head brewer for The Veil.
Including distribution. Although Tarpey and co-founders Dave Michelow and Dustin Durrance entertained pitches from distributors, self-distribution has always been in the plan. “Once the beer leaves your brewery, your control over how it is treated dissipates,” says Tarpey. “We want to have control over where it goes and how it’s handled, to make sure it’s fresh.”
Freshness is a frequent refrain at The Veil. A fresh beer is packaged every Tuesday morning and released directly to consumers that afternoon. Every can reminds consumers, “KEEP COLD – DRINK TODAY.”
The “driving force for distribution,” says Michelow, “is giving the product the care it deserves.”
Reverie’s distributing practices highlight freshness, continuous refrigeration, keeping stock low to keep the beer young and only signing high-quality breweries, while product placement looks for the best restaurants and craft-focused establishments.
Reverie also emphasizes that it won’t require long-term contracts. “This will be a mutual-respect relationship, a partnership,” Michelow says.
Reverie opened with three accounts: The Veil, Ocelot Brewing out of Sterling and Commonwealth Brewing from Virginia Beach. Ocelot and Commonwealth have already made appearances in Reverie’s distribution footprint. Except for a few small appearances, however, The Veil has yet to brew more beer than eager customers can purchase at the brewery.
Big Ugly Brewing and Pretty Ugly Distribution
For Big Ugly Brewing, self-distributing seemed the best way to start distributing right out of the gate. “We weren’t ready to sign with a big distributor yet,” says Aaron Childers of Pretty Ugly Distribution. “Our production is not at a level where we can meet demands for a large distribution company and we weren’t sure what we would be looking for in a large distributor without having been involved in the process first.”
As wife of Big Ugly co-owner Shawn Childers, Aaron Childers stays current on the brewing schedule and shares that information with clients—and takes them freshly brewed beer.
Operating the distributing business also gives greater control of how much product leaves the brewery. “Of importance to us was also that we didn’t sell out our taproom,” she says. “We focus on our taproom first and want to make sure that our customers have the best selection each time they come in to Big Ugly.”
Pretty Ugly has plans to include other brands in its portfolio, too, “on a small, focused scale.”
ADVICE FOR OTHERS
Although the three-tier system has its downsides, opening a sister distribution business won’t work for every brewery.
“You have to have someone you trust own it, because you can’t own it,” says Roth. “It’s very expensive. You have to have two sets of insurance, two sets of ABC licenses, two rents, full-time employees for both sides—there can be no cross utilization of employees—so it’s very expensive. The fixed costs are there no matter what.”