Craft beer political battles hinge on pint sales

Eagle Creek Brewing has struggled to turn a profit, but its owner, Franklin Dismuke, sees a clear fix: Allow direct-to-consumer sales of beer in Georgia

Dismuke contends his small brewery in Statesboro, Georgia, would benefit from the cash flow these sales would create, just as it has helped float many start-up breweries around the country.

"It's been rather difficult to get going. I could probably hit a break-even point in 60-90 days if I had a tap room," said Dismuke, who started the brewery in 2013.

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The vast majority of states has passed regulatory exceptions to the long-standing three-tier system that channels alcohol from producer to distributor to retailer. The Georgia Senate on Thursday is expected to approve a bill that industry advocates say helps small brewers by allowing paid tours but does not let microbreweries sell beer directly to customers.

All but five states now offer some form of direct brewery-to-customer sales, and holdout West Virginia recently approved limited brewery sales of to-go containers, or growlers, starting this summer. As regulations on craft brewers continue to ease, advocates contend that breweries barred from selling beer directly, even in small quantities, miss out on higher profit margins that allow them to survive and create more industry jobs.

Detractors, though, say that handing breweries more retail privilege threatens the three-tier distribution system that has promoted craft beer's nationwide success. The segment grew 18 percent last year in terms of volume.

"Each state needs to proceed carefully when considering laws that would allow brewers, distributors or retailers privileges outside of their tier. It is each tier's independence that has contributed to the U.S. beer industry's current success," Craig Purser, president and CEO of the National Beer Wholesalers Association, wrote in an op-ed last month on the organization's website.

A sliver of the beer market

Laws vary by state, but craft beer advocates say that recent legislative changes in some states have fueled growth that Georgia is potentially missing. Brewers argue for limited direct sales on the grounds that neither distributors nor retailers take a cut, which drives higher profit margins.

"If you're a retailer then there are potentially pints being poured that you're not getting a cut of," said Bart Watson, chief economist at national trade organization the Brewers Association.

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Watson added that direct sales make up about 5 percent of the craft beer segment, which accounts for roughly 10 percent of overall beer volume. That amounts to about half a percent of the U.S. beer market.

In states like Washington, Colorado and California, direct sales laws are rather lax, and small brewers have flourished. In recent years, many other states have followed suit in loosening their regulations.

Pints of beer
Eagle Creek Brewing Company

Take South Carolina. Under a law passed in 2013, the state's breweries can now sell up to 48 ounces (three pints) to customers to drink on site. Since the law passed, 12 breweries have popped up in the state.

In December, the South Carolina Brewers Guild projected that the "pint law" will boost the economy by $70.9 million and create 641 jobs in the state by 2019. The guild supported the law's initial passage.

"Looking at states around us, it's totally reasonable to ask," said Nancy Palmer, executive director of the Georgia Craft Brewers Guild, noting that Alabama allows on-site sales. North Carolina also has loosened restrictions.

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Legislation in New York implemented last year allowed breweries to sell pints on site as long as they sell food at their tap rooms. Barriers to entry in New York City, including lofty rents, make owning a brewery there daunting.

Gun Hill Brewing in the Bronx and Other Half Brewing in Brooklyn noted that the ability to sell pints helps them stay afloat.

Too much freedom?

The Florida Retail Federation is also seeking a clarification on a tourism exception that has allowed craft breweries to sell pints. It was originally implemented to allow Anheuser Busch to sell beer at the Busch Gardens theme park.

But, some argue that giving breweries too much retail freedom will start to stray from the system that has pushed the industry's rapid expansion. In many cases, smaller craft brands would not gain traction without distributors taking them to a wider geographic area, said Rebecca Spicer, senior vice president for communications and public affairs at the wholesalers association.

"This independent distribution system facilitates such enormous growth," Spicer said.

Still, limited direct sales and the three-tier system can and should exist together, Watson said. He added that beyond driving better margins, tap rooms at breweries can help to build grassroots brand strength.

Breweries gaining traction locally can ultimately aid distributors and retailers, he said.