3 Tier System: Retailers

The stores and bars where we buy our beer has the most prominent role in our beer drinking lives, even though brewers get all the fame. The following is what I’ve learned from retailers about the 3-tier system and their role in it.

  1. Introduction and History
  2. Breweries
  3. Distributors
  4. Retailers (you are here)
  5. My Conclusions

Put quickly and simply retailers represent the third tier of the 3 tier system. Breweries make beer and sell it in bulk to distributors who then resell it to bars and stores where the beer is then purchased by us. Store and bars are, in many states, the only places we can go to beer. They serve an important role of bringing craft beer to our attention and getting it into our hands.

After talking to brewers and distributors and finding a lot of similarity in their general operations and responses to these questions I was surprised by the variety of responses I got. Though when I think about it most of our local distributors are a somewhat similar size and all the local craft breweries I talked to don’t have a huge range in their production or distribution. The stores, however, vary tremendously with The Party Source and Jungle Jim’s representing the two biggest stores in the area and Dutch’s – while bad ass and my favorite bar – could comfortable sit inside the beer section of either of the first two.

What you aren’t gonna read about here is beer allocations. Due to readers interest and retailers woes I’ve decided to give that whole subject it’s own post. Look for that coming in the next week or two.

Not paying to play

When I talked to distributors our readers were worried about stores and bars working with distributors to trade tap handles or shelf space for money or perks. The distributor reps all told me that this is worried about far more than it really happens, though it does occasionally happen. This is exactly what I heard from stores as well. Now, that should be taken with somewhat of a grain of salt. How many people will really admit to doing something illegal? The other thing I want our readers to consider is how common, legal, and standard practice receiving sporting tickets or lunches are in other industries.

Liquor vs. Wine vs. Beer

As I began to lineup these interviews I realized many of these places sold more than just beer. This led me to wondering how buying/selling wine or liquor compared to beer. The ability for 1 store to sell all types of alcohol varies a fair bit around the country, this is where states have created variations in the laws. Most states don’t care if you sell 1 or all 3 types of alcohol but some states have dedicated liquor stores (like North Carolina’s ABC stores) but allow wine and beer to be sold elsewhere. Another state oddity is Tennessee where anything over 5% has to be sold in a liquor store, under 5% can be sold wherever. The ABV of the Bud/MillerCoors standards and lights make me wonder about who created this dividing line… For Ohio the laws about wine and beer are the same but liquor gets special treatment and is bought from distilleries and sold to retailers through the Ohio Department of Commerce Division of Liquor Control. Technically the Division of Liquor Control owns all the liquor you see in stores and those stores are selling in for the state on a commission.

Self-distributors

The store owners I talked to had some varying views on self-distributors, breweries who take care of selling their own beer and don’t use a distributor. Most said they’re happy to work with self-distributors especially when they make great beer. The retailers did say that it can be burdensome to have to keep track of another contact when ordering beer. Another problem they reported is that self-distributing breweries often only have 1 sales guy, he can’t get out to every store every day to check on their stock levels.

Challenges

When asked about challenges from the 3 tier system the answers also varied widely including:

  • The additional costs and taxes added on by having a third-party (distributors) involved in the process.
  • Inability to directly reach out to high demand breweries like Russian River and get them on shelves (stores in DC can actually do this!).
  • The power distributors have to boost or kill a brand or a store. If they won’t sell you the hot new beer you and the brewery can lose a lot of business. Of course this really isn’t in their interest and they don’t do it.

Benefits

The way stores and bars benefited from the 3 tier system was more widely agreed upon. The biggest benefit reported was the greater availability of brands. If every brewery had to self distribute and had to have a rep in every city of every state it’d be unfeasible for the small guys to spread their wings. Both in terms of hyping their beers and making sure the shelf spaces are full. Without the separation distributors provide big brewers could use their vast wealth to squeeze out the little guys. Another benefit that surprised me was state minimum pricing, as a beer drinker we don’t hear much about this. Basically the state forces a minimum 25% markup on beer. So a wholesaler like Costco can’t charge less than a small store.

That’s all I got for the retailer tier of the 3 tier system. If you have any questions for store owners that didn’t get answered here, questions other than about getting X beer because I’ll answer that soon, then feel free to leave a comment. Many store owners read the blog and may respond, if not I can reach out to them to get your question answered.

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6 Comments

Filed under Beer, Informational

6 Responses to 3 Tier System: Retailers

  1. Nick

    Just wanted to let you know I’m enjoying this series. The three-tier system is a curious beast… you’ve done well to explain it.

    • Tom Aguero

      Thanks for the feedback. They’ve been a very enjoyable labor of love. Sorry about them taking so long to get finished. Lining up interviews, going through all the interviews, and finding time to sit down and type them up takes a lot longer than I initially imagined. But I’m gonna meet my goal of doing it in this calendar year so I’m happy about that!

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