Friday, May 27, 2011

Wisconsin Legislature, maybe, Trying to Screw Wisconsin Brewers. Again.

This is a "Press Release" of sorts. Written by Marc Buttera of O'So Brewing Company in Plover, WI it deals with a rumored item to be added to the Wisconsin Budget by the Wisconsin Distributors and Large Breweries. I have not been able to independently confirm any of this, so I will just run the entirety of the text of Marc's Facebook post (I did clean up some of the spelling though).

The Journal Sentinel has a great article about why the text is not publicly available. For those of you who believe in open government, you will probably cry.

But here's the gist of what's going on. The Wisconsin wholesale laws prohibit an out-of-state brewery, say, Anheuser-Busch from holding a distributor's license. However, in-state breweries, like O'So, can have a distributor license to distribute up to 50,000 barrels of beer. However, according to a court in the Northern District of Illinois this violates the Commerce Clause of the United States Constitution; you can't treat out-of-state companies differently than in-state companies.

So, in order to keep the status quo, but avoid a court challenge that would destroy the whole thing and allow A-B to own a distributor (it's not entirely clear why this is something that needs to be avoided, but that's another post for another day, I suppose), the Wisconsin Distributors (and MillerCoors, incidentally) want to eliminate the ability of breweries to hold a distributor's license at all. Distribution up to 300,000 barrels would just be part and parcel of holding a brewer's license.

It is not clear whether this innate distribution right would also be subject to the exclusivity rules that a distribution license is subject to; i.e., a distribution right is exclusive to a given territory. However, the rumored legislation would hurt two of the primary ways small breweries have to make money related to a brewery's current distribution rights: 1) selling distribution rights for a given territory; and, 2) minor investment by the distributors themselves.

As to the latter I am reminded of the wise man who once said "Thou shalt not shit where one eats." However, as to the former, removing the ability of breweries to sell their distribution rights, creates a funding issue that simply reeks of distributors being pissy that they have to pay the breweries for the rights - while on the other side, making mad bank by selling those same rights to other distributors. Something about having cake and eating it, too, comes to mind.

Distributors have been underhanded with small breweries over this for the past few years - taking advantage of brewers that don't yet realize that their distribution rights have value that distributors should be paying (dearly) for. Shame on the distributors for being so ... ruthless ... but I'm also reminded of the wise man who said "Don't hate the playa, hate the game." Completely eliminating the ability of the breweries to sell these rights while keeping the ability of distributors to sell the very same rights, simply reeks of bad sportsmanship though.

Moreover, the 25 retail account rule seems a bit of an overreach; there's no reason for it since these breweries are using their distribution rights to get started - everyone has to start somewhere. Requiring 25 retail accounts in order to have any self-distribution rights is akin to making the brewers only brew pale ales until they can prove they are good enough to make other styles.

Some of the other pieces of the rumored legislation are merely gratuitous bits that seem to be attempting to reign in ... well ... I'm not really sure what these other changes are attempting to do. Mostly, they seemed aimed at annoying small brewers. Marc's note mentions something about The Great Dane, but they wouldn't be affected at all since The Dane doesn't hold a Brewery License - they hold a Brewpub License, which is a completely different beast.

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Currently there is legislation being pushed through the Joint Finance Committee and SECRETLY into the budget bill without feedback from the small brewer!

The Chapter 125 Branch Legislation would:

All Wisconsin Breweries and Brewpubs will be negatively affected by losing their Wholesale and retail licenses and the benefits those licenses provide. With out this O’so wouldn’t have survived over the last ten months after our split with our local distributor! We certainly wouldn’t have hired two new guys, as we did, and wouldn’t of grown enough to be planning on the future!

Eliminates the current option of a brewer choosing to self-distribute or starting a Wholesale Distribution Company. For New brewers coming up, this is really bad because they will never have the chance to begin on their own keeping more of “their” money before choosing to go with distribution.

Eliminates a Brewers current right to have ownership in two restaurants. For all of you who eat/drink at the Great Dane, what will happen there???

Protects (Grandfather Clause) currents Wholesalers retail licenses, while eliminating that benefit for new start up Wholesalers.

Unfairly burdens new Wholesalers and breweries with a requirement of 25 separate independent retail customers before a Wholesale license can be granted.

Eliminates the ability of Brewers to sell existing retail or wholesale operations separately from the brewing operation. If you grow large enough to move a portion of your production to a industrial park, you would not be able to sell out of that location at all, if you chose to keep your retail/pint sales out of your “store front.”

Eliminates current Wholesale investment in privately held Wisconsin Breweries while allowing investment in out of state and foreign and publicly traded breweries.

The Story line from Wisconsin Beer Distributors Association (WBDA)/Miller-Coors: Small brewers are unaffected by these changes. Small breweries can do everything they can do today. Small brewers are “exempt” from changes.

This is simply not true.

We currently can hold two retail licenses. These licenses are issued by our local municipalities and are like all other retail licenses. They allow us to serve other breweries’ beer and promote the craft beer industry. A retail establishment owned by the brewery is a portable asset and can be sold like any other retail establishment. This proposal eliminates the ability to have a retail licenses and ties the retail establishment beer sales permanently to the brewery permit. It also limits beer sales to the products of the brewery only by the removal of the retail licenses.

We currently can hold a wholesalers license. It is also issued by our local municipalities. It is the same wholesale license as those held by any other wholesaler. It allows us to sell our beer, as well as other breweries beer. This proposal eliminates the right to hold a retail license. American Craft Beer Week was last week and in honor of it, many local breweries traded beer to be on guest taps at each other’s locations, this would NOT be allowed next year if WBDA & Miller/Coors gets this through legislation!

Why is WBDA and Miller-Coors be pushing this? Simple they are losing market share of sales. May the better beers win!!!

It is no secret that craft beer is gaining market share while the Miller-Coors and InBev market share continues to decline. The WBDA can eliminate future serious competition by prohibiting craft brewers from getting together to open their own wholesalers. It is a very real scenario that in the near future small breweries in Wisconsin will be forced to get together regionally, and open wholesalers for their own and other craft beers. This is already happening across the country. Consider these facts: There were 92 wholesalers in Wisconsin in 1994. In 2007 there were 67. Today there are 42, and the number continues to drop. At the same time, the number of brands carried by these wholesalers has more than doubled. Distributor jobs have also been eliminated. The employee to brand ratio at the wholesalers has declined to the point that adequate sales representation no longer exists. Breweries are trying to band together to reverse this trend. These new brewery-owned distributors will also create new jobs that Wisconsin desperately needs, instead of eliminating jobs in the name of efficiency as wholesalers do as they consolidate.

Every small brewer uses their wholesale license today to sell to a few customers. Many brewers sell (with their wholesale license) to special events/festivals with permission from the wholesaler that has the assigned territory from the brewer because the wholesaler does not want to haul the beer, or man the booths, out to weekend festivals. These festivals have helped O’so grow quickly over the last three years. The first two years we were somewhere in the state building our own brand! We shouldn’t have to do this without any sort of compensation. Most of us use this as our marketing! This proposal requires 25 or more customers, making start up of self-distribution nearly impossible. It would also not be possible for small brewery to get started by selling to a small local grocery store chain with 5-6 stores where the beer obviously would be well advertised and seen. This is often the only way to get started without giving up as much as 28% off the top in sales to a distributor in which you get lost at the bottom of their portfolio because as a small brewer you don’t have the money to give a way free things like New Belgium, Miller, Etc. We keep our money within the buildings to improve efficiency’s and create more jobs by being able to produce more product. If you build it they will come! We produce the product, why should the distributors have all the rights! It is our product, we should be able to choose if we want to do business with any distributor, not be forced to do business with them because they have more money to pad the representatives from Wisconsin’s pockets. A good distributor wouldn’t feel threatened, but learn to adapt to change and build a craft division!

Small brewers often look to wholesalers as a source of capital. Many times wholesalers have funds to invest, and a local brewery can be a good place to do so. Many small breweries see this investment as a way to gain market share with the wholesaler. Today, Wisconsin wholesalers can and do invest in both in-state and out-of-state small breweries. This proposal unfairly discriminates against WI small breweries by eliminating this potential source of capital while allowing wholesalers to invest in out-of-state breweries whose brands they carry. NOT that we would ever want to do this type of capital building.

Small brewers can currently own two restaurants, and some small Wisconsin breweries do. This proposal eliminates the ability to own a restaurant with a liquor license.

Governor and legislative leadership say they do not want to use the budget for policy.

This legislation is being pushed through the Joint Finance Committee and secretly into the budget bill, without input from us, small brewers, whose livelihoods are being threatened. This means that it doesn’t have to go through hearings and reviews that it otherwise would. Why is this being rushed through so quickly without proper input, debate, and disclosure?

Legislators and the governor say they are against more government and bigger government.

This legislation creates more state government bureaucracy, by transferring license administration from local municipalities to a state level agency, eliminating local jobs.

Sorry for the length of this note, but this is so important to share with all of you who drink our beers to know about and help us fight. The craft brewing industry is one that is providing real jobs in Wisconsin. O’so Brewing Company started in a strip mall in 2007 and is about to embark on a ¾ million dollar expansion, creating 7 full-time jobs over the next three years. We are part of a growing community of breweries that continue to have a recognizable impact on Wisconsin's economy. We started out very small and our only lifeline was the fact that we were allowed to self distribute. In fact, we had a split with our local distributor last August and the only recourse was to only sell our product out of the front of our brewing supply store because we could not use our license from the brewery because of contractual language. These sales kept us growing and kept our current 5 full-time employees with jobs. Some of these employees positions had already been eliminated by larger companies down sizing. Had the laws been different about licensing, I am not sure the outcome would have been the same for our survival, nor our employment of any of these employees.

The brewers and the Wisconsin Brewers Guild will NOT OPPOSE the joint legislation changes (Branch Legislation) provided we are TRULY Exempt.

• Current 50,000 barrel level of annual production for brewers to hold a Wholesale License would move to 300,000.

• Brewers under 300,000 barrels are completely exempt from all remaining changes proposed with “Branch Legislation” (meaning that any licenses that we are able to hold today, we would still be able to hold after The proposed changes go into effect)

So what do you need to do? Contact your local representatives! Tell them that you OPPOSE the Chapter 125 Branch Legislation unless it is written in that all current and future breweries (under 300,000 bbls) are exempt from these changes.

Information provided by The Wisconsin Brewers Guild. Do you want to help the WBG in having the money to fight this type of cause? Join the Wisconsin Brewer's Guild by becoming a WIBL member today.


  1. Some of the proposals are good. I can see why small breweries wouldn't want AB (or Miller) owning a distributorship. If they did, then they could keep more of the profits themselves (cutting out the middleman). This would give them greater power over wholesale prices and could potentially drive the retail price of macros down to squeeze out smaller competition that must keep higher price points to break even, thus increasing macro market share.

    What would this do to so-called "beer marketing companies" and contract brews? I believe they are currently required to have a WI Wholesalers license to be able to buy from a Brewery. Many of these entities then immediately sell to another Wholesaler to handle actual distribution. If they needed 25 accounts (under the currently arrangement described above they just have 1 account - the other Wholesaler), it would seem that system would fall apart, no?

  2. A good point on the Beer Marketing Companies. They are a mixed bag. Some of them actually have brewers licenses, so there wouldn't really be an issue. But others would definitely have that problem unless it were somehow taken care of. It's hard to say without having seen the text of the bill how this issue would be resolved.


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