Half Pints

Brewery

Nick Shanagher considers how the ‘small guys’ took on the brewery giants and won.

The success of microbrewers in the US – which in the past half century have come from nowhere to a greater than 10% share of the US beer market in the face of industry consolidation – is well told in The Craft Beer Revolution.

Steve Hindy’s book benefits from his twin careers as a journalist and a co-owner of the Brooklyn Brewery. While interest in the UK may come from the 1,000 microbreweries that now operate here, anyone involved in distribution will be intrigued by the story of how the small guys took on the giants and won.

[pull_quote_right]Sheehan has three rules for selling beer: “Fresh beer sells beer. Distribution drives volume. Volume covers all sins”[/pull_quote_right]

In the 1980s, craft brewers started to get the attention of people in America and in response, August Busch III unleashed a multipronged war on the upstarts, especially Jim Koch and the Boston Beer Company. In 1996, he demanded that his wholesalers, the most highly rated beer distribution network in the US, devote a ‘100% share of mind’ to the AB products in their portfolio.

Beer distribution in the US is a complex proposition, with federal laws and state laws following the repeal of Prohibition that generally mean that brewers cannot own distributors or retailers. The system worked well for the major players as they consolidated and for distributors who owned the rights to the beers they handled in their states.

In response, craft brewers had to organise politically. In the early and mid-1990s, the craft brewers wanted to change the laws that forced them to sell through a wholesaler in most states.

Typically, a distributor will buy a case of beer for, say, US$20 and mark it up by 40% to $28. The $8 covers the distributor’s delivery and sales costs and profit. In most states, the distributors are protected by franchise laws, which stipulate the brewer cannot take the brand back or assign it to a new distributor without the agreement of the first distributor.

A brewer attempting to ‘divorce’ a distributor is in for a big legal battle. Large brewers have large legal departments and budgets. Small brewers don’t. Hence the frustration of many small brewers when they find that their distributor is not in fact selling their beer.

Working together meant they could try to tackle some of these abuses. In 1994, they prevented measures that would tax beer and whisky the same way. The second was about slotting fees, where supermarkets would ask for money to display products. This was illegal for beer but the grocers wanted to change that.

Both measures were still having to be resisted this year.

But despite the obstacles the microbreweries won an audience and big distributors started to pay them serious attention. Once Brooklyn Lager was successful, it wanted to handle it and Jerry Sheehan, who had bought the Budweiser distributorship in Brooklyn, asked Hindy out for lunch and said: “I want to distribute your beer.”

Sheehan has three rules for selling beer: “Fresh beer sells beer. Distribution drives volume. Volume covers all sins… I tell my guys when they deal with suppliers: ‘Consistently exceed their expectations.’ Those are the keys.”

The same forces that shape the market in the UK are at work and this book provides an interesting counterpoint to the problems that UK wholesalers face in handling large multinational suppliers and tricky legislators. The entrepreneurial tales of how both small brewers and wholesalers became successful will inspire you.

As Larry Bell says about his brewery: “For us, it’s about balance – the old ‘three pint’ rule: ‘A good pint should make you want to drink three more.’” Read one chapter of this book and you’ll want to read three more.

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As managing director of Newtrade Publishing Nick has over 20 years’ experience of covering retail markets, Nick helps shopkeepers and wholesalers of all sizes to think about what questions are important for themselves and their businesses, and to find answers that work in their shops.

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