Tuesday, April 20, 2010

The Downside of Monopoly In The Distribution Tier

A fancy phrase for "why the three-tier system sucks."

The facts.

I've been working with a small retail facility (a cafe) to make their beer selection better. They are well-situated in a bustling middle-to-high income suburb that doesn't currently have much in the way of premium beer selections. There is one liquor store (not including the grocery store) and a number of bars - none of which are particularly well-known for their beer, and none which really put a focus on quality beer. In other words, this is a great opportunity for this cafe to make a niche for themselves. Granted, this cafe does not currently sell a lot of beer - their orders are typically a case or two a month with the occassional multiple case order for special events.

Last winter, as we were beginning to upgrade the beer selection, I suggested that they place an order with a distributor (General Beer) for one case each of Three Floyd's Robert the Bruce, Great Lakes Dortmunder Gold, and Ale Asylum Ambergeddon. The Dortmunder Gold and Ambergeddon came quickly - both have plentiful year-round availability. The third, the Robert the Bruce, we were told was not available yet but would be soon; we'd have it as soon as it came in. It came in, and still we didn't get it. We were told they were out. We were told they never got it. We were told a million different things, but at the end of the day, we were never alloted our one case. Meanwhile, Barriques didn't seem have any trouble getting (multiple) cases. Star didn't seem to have any trouble getting (multiple) cases. Steve's, Riley's, etc. all received multiple cases.

Clearly, they had it, they just weren't interested in selling it to this cafe.

Then, recently, there was an event for which a case of a special beer was desired. So, I requested a case of Ale Asylum's new Bedlam Belgian IPA. This cafe was told it would be available Thursday and that Gen Bev would be happy to sell a case. Thursday became Friday. Friday became "first thing Monday morning." Monday afternoon became "Oh, I'm sorry, but we don't have any available."

I call shenanigans. It was available. At least one case, and probably multiple cases, were sitting at Barriques on Monday. So, you can't tell me "it's not available." It is available, Gen Bev just wasn't interested in selling it to this particular cafe, for whatever reason.

Well, it turns out that this case was destined for an event that would have a number of young professionals and where premium beer would be featured. You couldn't ask for a better showcase for this beer, for Ale Asylum, and for people to become purchasers of Gen Bev's product. This one case, easily would have raised interest in their product and produced many times its own value in future sales and goodwill.

But "it's not available", I guess.

So, what does this have to do with the three-tier system and isn't this just bitter apples? (sour grapes?) To take the last part first: maybe.

But, to turn to the first part, the issue of the three-tier system. Gen Bev knows that if you want Ale Asylum's Bedlam, you have to go to Gen Bev. You can get it on-tap at Ale Asylum (which they'd prefer not be the case, to be honest), but otherwise, you have to buy it from Gen Bev. And, it's a product with relatively limited supply, and relatively "big" demand. Moreover, they know that a retailer that carries it will likely draw people to purchase this beer. Thus, places that sell other Gen Bev products (in great quantity) will get priority.

And, frankly, I don't even have a problem with that. It's their product, I can understand wanting to showcase it a little and provide incentives to retailers to carry multiple products with the "reward" of getting to carry these special releases.

But. Don't lie about it. Don't take the order, knowing full well you are never going to fill it. Ah, but consider: Wisc. Stat. 125.34(3)(b).
Within a wholesaler’s designated sales territory for any brand of fermented malt beverages, the wholesaler may not refuse to sell the brand of fermented malt beverages, or refuse to offer reasonable service related to the sale of the brand of fermented malt beverages, to any retailer.
Gen Bev can't refuse to sell it to any retailer. Gen Bev is required to take the order. And, then, Gen Bev is required to strain themselves to find a "reasonable" excuse for non-delivery.

It is an entirely actionable claim given the flimsy excuse that amounts to little other than refusal of service. But, what's the damage? One case of beer? Two cases of beer? Gen Bev counts on the fact that: a) the retailers probably don't know the law; b) probably can't afford an attorney to enforce it; c) aren't going to raise a fuss over one or two cases of beer.

Well. Consider the fuss raised.


  1. When I hear a story like this it makes me wish there was someone out there who could start a small, independent beer distro to sell craft beers. Most craft breweries consider their product an entirely different beast from the big domestic breweries, so why not have a similar, like-minded distributor to sell the craft brands?

  2. Wisconsin is a territorial state when it comes to beer distribution; so any 'new' distributor has to get the beer for the area of the state they'd like to sell to. That's a tough job.
    General Beer (GB) supplies Dogfishhead in Madison, but Beechwood/Specialty has the Milwaukee market - confused? Beechwood has New Glarus in the Milw market, but in Madison it's Frank Beer; I'm not sure who has it up north.
    I've earned the better part of my income from the alcohol industry over the past 10 years and I am all for the elimination of the required three-tier distr. system. It wouldn't put the distributors out of business; nor would it restrict availability of product. It would however make the described situation avoidable; Mr. MBR could contact Ale Asylum directly and attempt to get a case directly. AA may not want to work with him, but to have that option available pushes GB to provide better service to their customer (Mr.MBR) to build sales.
    I'm currently not happy with a number of distributors in the Madison area (beer/wine/spirits), but having been a salesrep for a distributor I understand some of the pressures they are under. Mr. MBR - I'm glad you didn't slam the salesrep directly; they may have been sniped on their order, or have been given incorrect information. Liquor distributors tend to be very compartmentalized in their operating systems and information is not always automaticall/accurately transmited to the salesrep.
    Good post - Sucks to have the supply problems, but be aware you're not the only one. FWIW- GB has been one of the better companies I've dealt with over the years.

  3. Interesting story, but i can't really sympathize, having moved back from WI to land of the a true monopoly--the LCBO and Brewers Retail. Largest purchasers and sellers of alcohol on planet Earth, yet one of the worst selections of beer in N.A., unless you like macro lagers, and then you have 200 to choose from.

  4. It is actually not an issue with the three tier system. It is an issue with the law of 'exclusive territories'. If the state allowed multiple distributors to carry the same product prices would decrease and availability would increase.


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