A Reply to a Response

A few months back (in December) I was invited to write an op-ed piece for the Capital Region Business Journal regarding the self-serving Senate Bill 224, aka The Great Dane Bill. I thought my article took a reasoned stance against the bill. I essentially argued that this was specialty legislation of the worst kind: passed with hardly a debate and appended to a budget bill in a manner that could only generously be considered questionable.

In March, the Capital Region Business Journal published a response to my article by Mr. Eliot Butler, president of The Great Dane. It takes him no less than two sentences to attack: "Unfortunately, the article ignores the merits of the bill and the growth opportunity it provides for Wisconsin brewpubs and instead reports inaccurate information based on insincere rhetoric spread by opponents of the bill." As for the first point, it was an editorial - by its very nature it only took one side of the issue - that was my assignment; if you would like a full, bipartisan discussion of this issue you can see the numerous posts published here. However, while I generally welcome healthy debate - for there is much to debate about this (despite the lack of debate by our legislators in actually PASSING this bill) - I do not welcome being called "insincere" or my hard work in researching this issue passed off as "inaccurate."

Unfortunately, it appears that Mr. Butler is too quickly dismissive of his opposition:

1) "The December article that ran in this publication (which, is sort of like being referred to as "that guy" when you are standing in the room and is rudely dismissive, thank you very much) reported the popular myth that the new law would rob traditional, non-brewpub breweries in the state of their ability to sell food at retail to visiting guests if they produce more than 10,000 barrels annually."

I'm somewhat concerned by the phrase "popular myth" because this is exactly what the legislation does. No brewery producing over 10,000 barrels of beer annually, under the new law, can sell food at retail. It's that simple.

"The new law has absolutely no impact on traditional breweries currently operating in Wisconsin." (emphasis mine) 

Ah, well. That's something entirely different and takes my entire article completely out of context and shows a gross misunderstanding of my arguments. I never once said it would impact Wisconsin breweries as they currently exist. My arguments are entirely future looking (admittedly, I used Ale Asylum as an example, but only for point of reference of a "traditional brewery" that actively leverages its pub facilities).

But there is some pause here, as we consider Mr. Butler's statement, because even it is not entirely forthright. For example, yes, there is to be a "grandfather clause" included in this legislation so that any brewery currently in existence will continue to operate under the old rules (if it chooses). But the scope of this grandfather clause is very much in dispute. It has been suggested by some that merely changing corporate structure, or being bought out, or buying out another brewery would negate the grandfather clause and thus pull a current brewery within the aegis of the new law.

Second, Mr. Butler entirely misses the point: the legislation prohibits this business model for future breweries looking to open in the state of Wisconsin. If someone were considering opening a brewery and brewpub, one in the vein of Great Lakes Brewing Company, Goose Island, Two Brothers, Bear Republic, or scores of other world-renown breweries and brewpubs that compete for sales in the state of Wisconsin, it would not be possible. There is an active disincentive to invest in world-class (or even best-in-region) food service. Of course this is convenient for Mr. Butler, but seriously hampers the options of future brewers in this state and negatively impacts the abilities of future breweries to compete with breweries in just our own region, let alone nationally or globally. In fact, given this strong disincentive, why not just open your brewery/brewpub in Rockford, Illinois or Dubuque, Iowa and ignore the question entirely; such a brewery could advertise to consumers in Wisconsin and distribute here without having to deal with the hassles of our protectionist legislation. This is the alternative that Mr. Butler's legislation provides. 

2) As for sincerity, let's ask the ambitious Mr. Butler a question. Mr. Butler, at your current rate of growth (2000+ barrels per location) you will reach the 10,000 barrel limit before you reach a sixth location. What will you do then?

Well, his answer must one of two, he must say either:

     a) Sir, I promise that I will stay within the letter of the law and I will be content to have my five locations in the state of Wisconsin and call it a day; or,

     b) Sir, this situation is entirely temporary, and I fully intend to keep working with the brewing community to develop a solution that will allow reasonable expansion of brewpubs and yet allow flexibility to our more traditional brewing industry. In the next few years we will be working with the Brewers Guild to propose new legislation that will remove these hard caps and/or permit traditional breweries to allow some form of food service in their breweries, regardless of size.

While pondering which of these you think most closely matches Mr. Butler's "sincere" response, keep in mind that the obvious consequence of (A) is that Mr. Butler looks to continue growing outside of the state of Wisconsin and thereby removes potential tax dollars and employment from this state. Is this really in the best interests of the breweries and consumers in the state of Wisconsin? (maybe, if one were to have a negative opinion of Mr. Butler's beer, it would be). And, in considering (B) look at the need Mr. Butler has for changing the law he spent so much time and money to develop (i.e., none).

Look. I am in no way saying that the old law was good; it was crap. But the new law isn't any better (for anyone other than the Great Dane) and seriously impedes the ability to create a truly workable and reasonable solution. Really, I wouldn't have a problem with this law, if it had been the result of a legitimate legislative process; but it was hastily attached to an overdue budget in the hopes of sneaking it in so that Hilldale could be up and brewing in time for the busy holiday season. And, really, I wouldn't even have a problem with that, if Mr. Butler would call a spade a spade and just say "Hey! We didn't care about the future impact of this bill to anyone other than ourselves. We presented a bill that is in our best interests and sucks to be you." I'm OK with that - it is the legitimate marriage of capitalism and modern politics - but only if he admits to it instead passing off his insincere rhetoric as being in the best interests of the Wisconsin brewing industry and the Wisconsin consumers. Nobody is going to begrudge modern business a selfish self-interest; but it seems insincere and inaccurate to deny it.

By the way, you can read my interview with Mr. Butler about this very issue, here.

Yet Another Brewery That Couldn't Start Today

I know. It's beating a dead horse. Well. It's more like beating the skeletal remains of a horse that was beaten to death. But, I feel obliged to point these things out, because I think it bears explicit demonstration of exactly the havoc that the legislature has wrought by hastily passing the Great Dane Bill (SB224). So, humor me.

Central Waters Brewing Company first started brewing in 1998. By 2000, the owners Mike and Jerome, were winning awards for their barleywine. After a number of ownership changes that, surprisingly left the beer quality high, Central Waters is now one the hottest breweries in Wisconsin. The regular beers in their lineup, Lac Du Bay, Mud Puppy Porter, Ouisconsing Red Ale, Happy Heron Pale, Junc Town Brown, and Satin Solstice are all great beers for their styles. Infinitely drinkable, and supremely balanced any one of these would make a fine choice at the beer store.

But they also have a few tricks up their sleeves. Kosmyc Charlie's Y2K Catastrophe Ale (BA.RB.) is one of the best barleywines in the country, if not the world. While I'm sure we'll get around to a more formal review of it in the future, rest assured that you cannot go wrong with the Y2K barleywine.

But Central Waters' real juggernaut-inducing beers are its barrel aged beers. Central Waters offers three beers aged in bourbon barrels. The aforementioned barelywine is also available occasionally aged in bourbon barrels. Also produced is an aged stout and an aged cherry stout. Last week, the Bourbon Barrel Stout was released. Its availability is scattered, so if you see it around, make sure you grab it - it may not be last long; even at $16.99 for a 6-pack. In fact, I was told that for the second straight year retailers are getting less than anticipated. Brennan's had ordered 25 cases and was assured that they would be getting them; only 5 cases were actually delivered. While Central Waters' expansion into the Milwaukee area might account for some of this, it is hard to fathom what the full reason could be. Last year's excuse was an evaporation issue: that seems like a lot of beer to evaporate.

In any event, the Bourbon Barrel Stout is considered one of the better stouts (BA.RB.) - the one-year aged version is in Beer Advocate's Top 10 for the style.

Appearance: As it pours into an over-sized snifter, it is dark and thick, but not oily like the Russian Imperials; its coloring is more of a dark ruby brown, not the jet black colors of other stouts; it is accompanied by a thin, wispy brownish-tan head that clings as if its life depended on it to the sides of the glass.
Aroma: roasted and bourbon, with some coffee-ish notes; there's some faint chocolaty smells lurking in the background, but it could be hops mixing with the roasted notes. As it warms up the bourbon notes really come out and the chocolate asserts itself more.
Flavor: Ideally served at 55 degrees, this beer has some kick; the coffee and roasted notes hit first, followed by the bourbon, and a smooth finish of chocolate and a light bitterness; some of the oakiness from the barrel comes through, though surprisingly little hop; this beer is all about the malts and the specialty malt complexity is pretty amazing; a light touch with the sweetly caramelized malts adds a soupcon of brightness.
Body:the bourbon aging rounds this beer out and is it is supremely smooth; for a stout it maintains a soft but not heavy body.
Drinkability: An excellent before bed night-cap to watch the timbers in the fireplace dwindle down while listening to the final strains of Mingus' Epitaph.
Summary: If stouts are your thing - and really, who doesn't like a stout every now and then - go out and grab a six while you can; it is doubtful that retailers will be splitting these for singles, so you will probably be stuck paying the $16 for a six-pack; but drink a couple now, and drink a couple next year, and then two more the year after that - you will find it was the best $16 you ever spent on beer. Between the Leinie's Big Eddy Russian Imperial and Central Waters, Wisconsin is making a strong claim for the top of the stout pile.

So, what does the Great Dane have to do with this beer? Well, to belabor the point, as I promised I would earlier, SB 224 would make it illegal to start a brewery that operates like Central Waters does. How? Well, the new law requires that if a brewing company own a brewpub license that all of its facilities must be brewpubs. Thus, brewing operations cannot be separate from retail operations. It is this same rule that would have prevented Granite City from opening here. In this case, Central Waters has a 7,500 square foot brewing facility in Amherst, WI; its restaurant is 60 miles away in Marshfield. Although the restaurant facility does brew some beer (namely, 6 beers that are available only at that location), the brewing facility does not have a restaurant - though it would be required to have one under the new law. Moreover, if and when Central Waters surpasses 10,000 barrels it would have to close down its popular brewpub. Of course, Central Waters will be covered by the grandfather clause; but any new brewers hoping to mimic Central Waters differentiated brewing system will be out of luck.

ps. the word of the day is "soupcon" - use it in a sentence today and people will think you are twenty times smarter. Everybody can thank Sean for today's word of the day.

I Was Going To Post About How Awesome Josef Is

But, instead, I should probably mention that yesterday the budget was passed. As part of the budget, an add-on bill was tacked on at the last minute by Gov. Doyle.

I'm sure you all see where this is going. Yes, you guessed correctly. That pork bill was SB 224. So, SB 224 is now law, with only the "minor" revision that eliminates the requirement that the restaurant be at least 40% of the brewpub income. The Great Dane can now brew at Hilldale. So, congrats. I suspect that you will see the first beers there by the end of the week.

In our prior posts about this topic, we've suggested that the Wisconsin Distributors have taken over the bill and turned it into something that may not be the best for brewers, but works very well for them to further cement the three-tier system. Comments in our last post suggest that the three-tier system is the greatest invention since sliced bread, being the sole force bringing all of the world's craft beer to our doorsteps.

I have a few comments about that.

First, we never said the three-tier system wasn't beneficial. It is a very useful system. The problem of this bill in particular, but the distributors in general, is that their political power further deprecates alternative methods of distribution. If the three-tier system is so awesome, why don't we have Stone, Alaskan, Brooklyn, Jolly Pumpkin, and other nationally distributed beers here? If the three-tier system is so awesome, why don't we have a greater diversity in our beer stores? If the three-tier system is so awesome why does the influence of Miller, Bud, Coors, et al determine what is available in our restaurants? Yeah. The restaurants count on the distributors to make recommendations (remember, even the CEO of Miller suggested that the biggest benefit of the distributors is that they know the local market so well). But the "recommendations" of the distributors are paid for by Miller, Bud, Coors, et al who provide incentives (either over the table, or under it) to ensure that their product gets recommended (seriously, there is no other reason that Miller Chill is still in stores).

If the three-tier system is so awesome why does it need specialized protectionist legislation?

Even despite all of that, our problem with this bill is not that it passed. Our problem is that it was passed in such an under-handed fashion. It was hardly debated. The revisions were not debated. It was appended at the last minute as a political favor on a budget that was under pressure to be passed. This small part of the budget wasn't going to prevent it from being passed. And, that, is our main problem with this bill. If after debate on its own merits, absent the influence and money of the distributors (or The Great Dane, or The Brewers Guild, or any other political action group for that matter), the senators and the assembly both passed this, it would signal a legitimate claim that reasoned discourse decided this was appropriate. But that's not what happened. Afraid that the bill couldn't pass on its own merit, the distributors took over the bill and shoved it down an unwitting public's throat.

As a result, small breweries will be severely limited in the options that they can undertake to grow their businesses. We have turned away novel distribution methods (e.g., Granite City) and we have hampered the regional competitiveness of one of the few vibrant portions of this state's economy. All because the distributors are afraid that if some brewery has a restaurant on their premises that this will somehow erode the three-tier system.

Well. Congratulations to The Great Dane. Seriously, they were just in this for themselves, and I can't say I blame them. They got, finally, what they wanted. This particular piece of legislation, though, is far from ideal. Yet, I can't help but wonder what solution would have arisen after reasoned debate.

========Edit==============
We're getting a lot of hits about this today, so I thought I'd invite all y'all to read up on everything we've done about SB 224 (The Great Dane Bill). If you click the tag at the end of this post that says "SB 224" you will see all of our posts on this subject. We've had a couple that lay out, in quite some detail, exactly what this bills does, and we also have interviews with Tyranena's Rob Larson and The Great Dane's Eliot Butler. Anyway. Thanks for reading! Keep coming back, we promise more about beer.

Not To Beat A Dead Bear

I know we've already had post upon post upon post upon post about SB 224, and I promise you, this is not one, but I want to make a point that I hope the Wisconsin Distributors Association, Miller Brewing Company, and our state legislature (who are beholden to the Distributors) can hear, see and taste.

You see this logo to the left there? The one for a little brewery in Sonoma Valley California? The one that won Small Brewer of the Year in 2006? The one that makes a world-class IPA distributed in many fine bars here in this state? Yeah. That one. You see it? It could be illegal under the law under consideration in this state. I won't belabor the point, but this brewing company is both a Nationally distributed brewery and a brewpub. If the distributors had their way, this type of startup would not be possible here in Wisconsin.

But, this post is not about SB 224. It's about getting ready for winter and finding that one stout that you want a case of to last you. Last winter it was Bell's Java Stout - an excellent, full-bodied, coffee stout. This year, find a bottle of Bear Republic's Big Bear Stout. It's a great dry, roasted stout with a surprising citrusy/hoppy finish. Best served chilled, but not cold - let's call it about 50 degrees or so; too cold and the flavor is stifled, and while it warms up well, there is a nice sweet spot when it is slightly chilled that makes it seem much lighter than it actually is. Very nice. Very drinkable. Get a few bottles and cellar them; it should cellar quite well as the malts should calm down with age - though it may lose some of the bright hoppiness that really makes this such a fun beer.

Appearance: creamy, tan head with lots of small bubbles; dissipates quickly; dark, dark brown, virtually black; the color of coffee; strong lacing clings to the sides of the glass

Aroma:malty and roasted but very bright; subtle earthiness mutes a grassy almost lemony hoppiness;

Taste: strong chocolate, caramel and roasted specialty malts dominate the front giving a pronounced toffiness, while the base malts add some complexity; hops flush out the taste, but add a lasting citrus-like bitterness that reveals itself more in the aftertaste than in the bulk of the flavor profile; as it warms up the hops become more prevalent, and the flavor really smooths out. (ed: the website mentions brown sugar and molasses, which adds to the "toffee" like taste here)

Body: thick, but not nearly as chewy as expected; while very thick, it is not syrupy; the malts dominate, but the hops add a nice twist to keep the flavors fresh;

Drinkability: I drank an entire bomber by myself. Oh. It's over 8% abv, too. Yeah.

Summary: Poured into a snifter; the citrusiness of the chinook and cascade hops really help keep this beer fresh and make it distinctly American - this is a very nice stout that I could really make a consistent player. I'd love to have this on tap at my local bar. Typically I'd rail against the over-use of cascade hops. Having said that, there are two factors that I would note: 1) this beer actually IS from the American Northwest (Sonoma, CA); 2) it's use is somewhat antithetic to the general, more irritating, uses. Cascade hops are, to me at least, associated with the start of the American craft brewing movement. Now that the movement is out of its infancy it would be nice to see some creativity and diversity. Thus, I get very frustrated that every Pale Ale (India, Extra, or otherwise) has cascades and that distinctly citrusy, orange-like bitterness. However, I have no inherent problem with the cascade hops - it has a nice flavor and aroma that can really impact a beer's taste. So, to see it used in an atypical application, like in a roasty stout, is (excuse the pun) refreshing.

Website Notes: ... a blend of Belgian and English roasted barley and crystal malts ...Louisiana sweet molasses and dark brown sugar ... well hopped with Chinook and Cascade hops ... OG 1.076, ABV 8.1%, IBU 68.

The Great Dane Dilemma Part IV - The Great Dane

This is the last of our four part series on legislation currently being considered that would enable The Great Dane to serve its own beer at its Hilldale location. This legislation is currently known as Senate Bill 224. For a detailed look at SB 224, you can read our summary here, and you can view the actual bill here. As we pointed out, this legislation is not without controversy. Many small brewers, including Tyranena Brewing Company, think that this legislation could seriously hurt their ability to compete both here in Wisconsin and on a regional and national level; you can read our interview with Tyranena's owner and head brewer, Rob Larson, here.

In late 2005, co-owner and President of The Great Dane, Mr. Eliot Butler, was introduced to the idea of putting a Great Dane Pub at Hilldale. Mr. Butler, knowing that the current legal environment was against him, nonetheless believed The Great Dane would be successful there whether it could be an active brewery or not. The location would reach its greatest potential as a brewpub, but could still be successful without it. So, he and his business partners agreed to the location. But this story actually begins a few years before that.

In 1994, The Great Dane Pub and Brewing Company set up at the Fess Hotel Building in downtown Madison. It was the first operating brewery in Madison since the Fauerbach Brewery closed its doors in 1966. By 1999, The Great Dane was on its way to becoming the Madison institution that it is today. Around that time, a small brewpub up in the Fox River Valley, appropriately called Fox River Brewing Company, was trying to get the laws changed so that it could have more than two locations. Mr. Butler remembers, "I spoke at the Senate committee hearing that Fox River Brewing instigated that led to the exemption for 'small brewers' (under 4000 barrels cumulative) allowing them to have six retail locations as opposed to two. I begged the senators to set the limit at 10,000 [barrels] and failed due to the wholesalers' power." These committee hearings led to revisions that resulted in a minor exception to the general rule that "tied houses" were prohibited. Namely, that a brewery can have two Class B licenses, but can distribute to up to four more locations if its total brewing capacity is less than 4000 barrels per year.

Clearly, Mr. Butler had his eyes on expanding The Great Dane. In fact, in 2002 The Great Dane opened its second location in Fitchburg. Around this time, Mr. Butler took another shot at convincing the legislature to change the laws. In Mr. Butler's words, "I chose the wrong lobbyist ... those efforts cost me lots of money and went nowhere."

So, in 2005, when Mr. Butler had a decision to make about Hilldale, he chose the same lobbyists that had been successful for the Wisconsin Brewer's Guild.

"I just believed that the current law is so unreasonable and unfair that we would eventually succeed. ... After meeting with [the lobbyist] I was hopeful that the law would be altered in the Spring of 2007. I knew I was taking a big risk, not just with the success of the new store, but with the entire Great Dane brand and concept. Perhaps it was my belief in the excellence of our restaurant operations that provided the courage to move ahead."

Of course, it is now Fall of 2007 and the law has not been changed.

The Wisconsin Beer Distributors Association is a formidable opponent. As has been noted before, no law regarding alcohol passes in this state without the approval of the distributors. The idea that the cap of 4,000 barrels per year would have to be raised would have to have the approval of the distributors. And, thus, the political process of getting that cap raised began. "I was not so naive to think the wholesalers would give us these 'concessions' without getting something in return. Or that they would agree to lift all limits, as I and every other craft brewer would love to see happen."

Modern politics is a game of compromise. Whether it should be or not is another debate best left for another day. But, the fact is, very few legislators are going to go about changing the alcohol laws without first asking the distributors what they think, at least not for the request of a single brewpub. In a perfect world, The Great Dane could propose a law that simply changed the barrel cap from 4,000 barrels to 10,000 barrels - a simple proposal suggested by Tyranena's head brewer in our last post and proposed to the State Senate by Mr. Butler back in 1999. A proposal that was rejected by the distributors.

Bear with me please, but let's analyze this suggestion for a moment.

The following information is based on tax filings in 2006. The Wisconsin beer tax for producers less than 50,000 barrels is $1 per barrel; we will assume that breweries this low on the production scale are not exporting out of Wisconsin in any significant amount (exported barrels are not taxed at all). In 2006, 52 breweries in Wisconsin brewed less than 5,000 barrels (paid less than $5000 in beer taxes). All but 10 of them brewed less than 1,000 barrels. Which means that 10 breweries in the state brewed between 1,000 and 5,000 barrels of beer last year. We know that 1 of those 10 is The Great Dane. Which leaves 9 breweries that brew more than 1,000 barrels and less than 5,000 barrels. There were only 3 breweries in the 5,000 to 10,000 barrel range. What does this mean? Well, this means that raising the cap from 4,000 to 10,000 barrels would affect, at most, 13 breweries (even if we assume that all 10 of them are between 3,500 and 5,000 barrels), one of whom is The Great Dane. Such a cap increase would allow those 13 breweries to distribute to up to 6 locations, instead of 2. How many of them would take advantage? Half of them? Clearly, not all of them; because some of them could have 2 (or even 6) now, but they don't. (If you're interested in where these numbers came from, please see Rep. Terese Berceau's website; somewhat interestingly, it comes from her proposal to raise the beer tax in Wisconsin).

The reality is that the Wisconsin Beer Distributors are putting up a fight that really only affects, at most, half a dozen breweries. Nonetheless, it is a significant move, as any of those 42 that are less than 1,000 barrels could find a market and take off; not to mention those starting up in the future. And, the fact remains that the distributors are opposed to any further erosion of the three-tier system in any form.

So the battle rages on, and the current proposal, SB 224, represents the compromise that the distributors are willing to make to allow 10,000 barrels per year at 6 locations. It basically requires a brewer to make a choice when it starts: brewery or brewpub. If brewery, it must fit fully in the three-tier system; If brewpub, it must stay below 10,000 barrels.

As Mr. Butler notes, "new start-up brewing companies are going to need to have more developed business plans and financing and exit strategies than before." In other words, the owners will need to understand the law and have these options fully mapped out in a defined business plan. The business plan will have to include what strategies will be once these limits are reached and what types of funding will have to exist to stay above or below these limits. Brewing companies that choose the distribution route will have to be creative in how their beer is marketed; opening an on-premises (or off-premises for that matter) restaurant will not be an option. If a brewing company chooses to become a brewpub it must be willing to abandon (spin-off?) its restaurants once it needs to surpass the 10,000 barrel limit. Of course, as Mr. Butler notes, the other option is to simply expand out-of-state once the brewery reaches its in-state limits.

It is useful to be reminded that SB 224 has not yet passed. It is not yet law. It can, and likely will, change from the form it is currently in. Nonetheless, it is a legitimate compromise. It would allow The Great Dane, and other brewpubs in the state, its additional locations and a reasonable path for growth, even if that growth is capped at 10,000 barrels. Current breweries would be grandfathered to the current laws (allowing restaurant permits and up to 2 Class B licenses). Of course, the breweries can still have a Class B license, just not a Class B license and restaurant license; so, breweries could still have a tasting room. On the other hand, starting as a brewpub, even one that's income is less than 40% from sales of food, is an attractive option for entering the market, both locally and regionally. Preventing this income stabilizing and marketing opportunity would handicap small brewers vis-a-vis the region in competing against beers from other states. Moreover, preventing such additional income streams could reduce some of the risks that in-state brewers might be willing to take. Without the safety of non-beer related income, a brewery might be less willing to take a risk that would impact its only source of income, even despite the opportunity for reward for taking that risk.

As of this writing, the Wisconsin Brewers Guild has yet to officially endorse SB 224; in fact, they "officially" oppose it. The Wisconsin Distributor's Association endorses it. Strangely, the Wisconsin Independent Businesses endorses it. The Wisconsin Restaurant Association and the Tavern League are undecided or have reservations. Miller Brewing Company "officially" is undecided, but its CEO has recently made statements strongly supporting the three-tier system ("The three-tier system is the best business model for the beer industry").

For his part, Mr. Butler has this to say:

I do truly believe that the benefits of the bill outweigh the loss of 'total freedom' for future brewers in Wisconsin.

The Great Dane Dilemma Part III - Small Breweries

The first two parts of this series are covered here and here. In those posts, we summarized, in some detail, the particulars of Wisconsin Senate Bill 224.

SB 224 is a big deal. As consumers, we don't really think about the details of getting beer from Point A (the kettle) to Point B (our stomach). In many respects, we've never really had to worry about it; free market economies give freedom to the producers to pick their channels of distribution, with some limitations. For example, the current state of affairs says that breweries (defined, generally speaking, as any entity that produces fermented malt beverages for consumption by the general public) have to sell to distributors and distributors sell to retailers. The general rule is that breweries cannot sell straight to retailers, or even straight to consumers.

Obviously, there are exceptions to the general rule that allow small breweries some flexibility in a crowded three-tier distribution system. Breweries can sell bottles and cans at the brewery, so long as these bottles and cans are not consumed on the premises. This is a Class A license. Breweries can have tasting rooms, so that consumers visiting the brewery can sample the beers there. This is a Class B license. Breweries can prepare and serve food at the brewery if they have a Restaurant license. Colloquially, we usually call a brewery that has a Class B and is a restaurant a "brewpub." A brewery can have two Class B licenses; this limitation to the exception (because remember, the general rule is that no beer goes from brewer to consumer without first going through a distributor)was to prevent large brewers (i.e., Miller, Pabst, and Schlitz) from simply opening up a series of bars all around the state and keeping small brewers from having the same opportunities. A brewery can have up to 20 restaurant licenses (although still only two Class B licenses), and, if it is suffiently small (under 4,000 barrels per year), can supply up to four of the restaurant with its own beer ("tied houses").

This was an important development for the encouragement of small breweries in the state. Allowing small brewers to serve food at their breweries, and to serve their beer at their breweries would allow small-time brewers to gain entry into the market. Consumers could try the beer; then, if they liked it, could find the bottles and cans at their local retailer. Without this outlet, small brewers could only compete with the big brewers at the shelf, without any context or consumer knowledge.

In this environment, numerous small breweries came to thrive in Wisconsin. Among them, Capital, New Glarus, Lakefront, Lake Louie, Central Waters, South Shore, and Tyranena, among others. Nestled in the hills and low-lands along the stretch of I-94 from Madison to Milwaukee, Tyranena brews exceptional beers. Tyranena is perhaps best known for its hoppy beers, such as the Bitter Woman (an India Pale Ale - aka "IPA"), and the Bitter Woman From Hell (an Extra IPA), and the Hop Whore (an infrequently brewed Imperial IPA). But it also has a terrifically smooth and mild American brown ale called Rocky's Revenge, the light and sweet Three Blondes Honey Blonde, and an amazingly subtle and complex Oktoberfest beer.

Like most breweries, if you were to visit (and it is highly recommended that you do) you could take a tour of their facility and then try some of the beers in the tasting room. On the weekends in the summer you can sit on the patio and enjoy a band or two. You can also participate in their charity bike ride or their charity beer run.

The point here is that Tyranena has quite a few ways of getting people to their brewery and getting its name in front of consumers. Other breweries use other means to get their name in front of consumers. For example, Ale Asylum or Milwaukee Brewing Company, or Central Waters might have a restaurant at their brewing facility to attract potential buyers. And, this, says Tyranena's head brewer, Rob Larson, is part of the problem with SB 224.

"If they choose to become a brewery with a restaurant they must get a brewpub license and they are then limited to 10,000 barrels per year in production. Many breweries open as a brewpub to ensure a market for their beer. A practice that is becoming increasingly important as the wholesalers are consolidating and there are few options to entering markets."

Mr. Larson goes on to point out that any brewery starting under the rules proposed by SB 224 would have to qualify as a brewpub if it wanted the additional market benefits of having a restaurant. One of those rules that is part of the current bill is that the restaurant activity must account for at least 40% of sales. Something that is very difficult for a brewery that wishes to focus on distribution and use the restaurant as supplemental income or for market development. And because this new brewery could not be a brewpub, it would be prevented from opening multiple locations with restaurants. Yet, Mr. Larson goes on to point out, a brewpub can also distribute. So, you end up with the inequitable and unfair result that brewpubs can compete with breweries, but not vice versa.

"A brewery would not be able to operate a restaurant at their tasting room, but the tavern down the street that sells less than 40 percent food would be permitted to sell beer and food? These are simply artificial deliniations that limit the future growth opportunities of breweries."

Mr. Larson is blunt about the impact of SB 224: "This legislation limits potential avenues for growth for our brewery." He further suggests that Wisconsin breweries would also be at a competitive disadvantage in the national marketplace:

"It is difficult to know how business is going to advance before it even starts. Goose Island started as a brewpub. Great Lakes started as a brewpub. But in Wisconsin, under SB 224, a brewpub would have to give up its up to 5 locations to become a larger brewer. Do we really want to limit the potential of Wisconsin breweries and businesses? Put them at a competitive disadvantage to out of state breweries?"

"I think almost everyone in the Wisconsin Brewers Guild is in favor of allowing the Great Dane to have additional locations so long as it does not adversely affect the opportunities for other breweries and so long as we are all treated equitably," Mr. Larson says. The problem is crafting a solution that would allow The Great Dane to have additional locations. Mr. Larson makes two suggestions, both of which are simple, would allow The Great Dane to expand, and yet leave market flexibility for small breweries: lift the [tied house] cap from 4,000 barrels per year to 10,000 barrels per year; allow all breweries to have 5 Class B licenses.

"However," Mr. Larson notes, "to pass any legislation in this state that has to do with alcohol you need the [political] support of the the wholesalers." And both of his solutions would further erode the three-tier system. "The wholesalers are interested in protecting their tier in the three tier system which has come under attack with a couple of recent Supreme Court opinions. So the wholesalers are doing everything they possibly can to strengthen state statutes to their benefit, which does not necessarily coincide with the interests of small breweries." Specifically in reference to SB 224, Mr. Larson says that the original bill drafted by The Great Dane was two pages. It is interesting to note that now that the Wisconsin Beer Distributor's Association has officially endorsed SB 224, the bill has swelled to over 26 pages.

Clearly, Mr. Larson, and by extension his Tyranena Brewing Company, is not in favor of SB 224 as it is currently written. He sees it as specialty legislation largely written by a biased trade-group opportunistically taking advantage of an isolated situation to further its own agenda at the expense of Wisconsin's small brewers.

It basically comes down to the fact that the state statutes are screwed up and written for another time. But this patchwork approach to permit The Great Dane to open an additional location and strengthen the legal stranglehold of the wholesalers is not necessarily in the best interest of small brewers. If SB 224 had been in effect 10 years ago, The Corner Pub would likely not exist today, the Ale Asylum would likely not exist today, Rowlands Calumet would likely not exist today, Granite City would not be welcome in Wisconsin. The wonderful diversity of the Wisconsin brewing industry would not exist. Instead it would be a state mandated cookie cutter approach where there would be only places like Great Danes, Rock Bottoms, Millers and Leinies.

The Great Dane Dilemma Part II

A few weeks ago, we started some discussion about what we've called The Great Dane Dilemma. For the uninitiated or formalistic, the definition of "dilemma" is: "state of uncertainty or perplexity especially as requiring a choice between equally unfavorable options." A more appropriate word does not exist in the English language.

The "state of uncertainty or perplexity" is embodied in Senate Bill 224. It is instructive, however, to look at the current state of affairs that has instigated the design of SB 224. At the end of prohibition, laws were put into place that would protect small brewers in the retail marketplace. There was a legitimate fear that the larger breweries such as Miller, Pabst, and Schlitz would oligopolize the Wisconsin beer market by saturating the state with tied houses.

In order to protect consumers from a consolidated market, the Wisconsin Legislature passed the law that is currently in effect. This law prevented breweries from creating "tied houses" but allowed a small number of "brew pubs." The distinction is technical, but important. At a "tied house" beer is not brewed on premises, but the restaurant only serves beer from one source. At a "brew pub" the beer is brewed on premises and sold at that location. There is also an exception to the "tied house" law that allows small breweries, defined as a producer of less than 4,000 barrels, to have a limited number "tied houses."

This all comes together with The Great Dane because The Great Dane has reached the "brew pub" limit, they have two. The current law would allow The Great Dane to distribute from those two brew pubs to their third location at Hilldale under the small brewer exception to tied houses, if The Great Dane stays below the 4,000 barrel limit. If they exceed that limit, they would have to sell their own beer to an independent distributor, suffer the 30% mark-up, then buy it back. As it currently operates, The Great Dane is over the 4,000 barrel limit because of its brew pub operations and outside distribution; The Great Dane sells to distributors and its beer can be found at various bars around the city.

Thus, on the one hand, we have unfavorable option number one: the law stays the same and The Great Dane is unable to supply its Hilldale location without going through an independent distributor while maintaining its two brew pubs and continuing to distribute outside of its own establishments. Why is this an unfavorable option? Primarily because it is not in accordance with the purpose behind the law. Recall, that the purpose was to prevent market saturation by big breweries. Clearly, The Great Dane is not a "big brewery." Three brew pubs and a nominal amount of distribution in the Madison area is far from market saturation. Yet, the law is preventing exactly the sort of entrepreneurship and craft brewing that should be encouraged.

It would be folly to note just The Great Dane because there are a lot of great brewpubs in this state that would be unable to expand. The Milwaukee Ale House, for example, is looking at further expansion.

On the other had, we have unfavorable option number two: Senate Bill 224. SB 224 changes the rules regarding how breweries and brewpubs co-exist. Under the current rules, a brewery can hold a Class B license for up to 2 facilities, regardless of how many barrels the brewery produces. A Class B license allows the brewer to sell fermented malt beverages (beer) for consumption on premises. If the brewer is "small" (under 4,000 barrels a year), it can distribute to up to four locations. And, a brewery can hold a restaurant permit. So, a brewery like Tyranena can sell its beer and operate a restaurant at its brewery because it has a Class B license and could acquire a restaurant permit. If it wanted, it could open a second location with a restaurant and Class B license.

SB 224 changes the brewery/brewpub dynamic and sets out distinctions between being a brewery and being a brewpub. Breweries must adhere strictly to the three-tier distribution (brewery, distributor, retailer), while brewpubs do not. However, the trade-off is that a "brewpub" is very narrowly defined and one cannot be both a brewery and a brewpub. And, SB 224 prohibits a brewery from holding a restaurant permits; if the brewery wants to serve food and beer, it must qualify as a brewpub.

So, what does it take to be a brewpub under SB 224? Well, first, the brewery must produce less than 10,000 barrels per year. This would rule out all but the very smallest Wisconsin breweries. Thus, breweries such as Tyranena, Grays, New Glarus, Capital, Viking, South Shore, and Lakefront would all be prohibited from operating restaurants on their premises; something all of them can do, if they desire, under the current law. Second, the brewpub must brew everything on premises; this is not really much of an issue, but does act to prohibit "tied houses" (Gray's Tied House in Verona is not, despite its name, a true tied house because it brews on premises) and would prevent a situation like at Granite City where part of the brewing process is performed off-site and some of it is performed on-site. The brewpub must operate a restaurant where food sales account for at least 40% of all sales. This is a tricky provision because it requires that each location have sales of food over 40%; thus, it would foreclose a brewpub operating a bottling brewery where they happen to serve some food. It would also prevent small breweries from utilizing restaurant operations as another income stream until beer revenues stabilize. For an example, consider Ale Asylum on Madison's East Side: food does not account for 40% of their total revenue because it is primarily a brewery, but without the food, income streams might be scarce or unstable. Ale Asylum, under SB 224 as it is currently written, would not qualify as a brewpub and thus would be foreclosed from serving food at the brewery.

Next, in addition to the above requirements for a brewpub license, the brewpub must also hold a Class B license and sell beer manufactured by others. This provision is very clearly a distributor protection clause. The distributors want to make sure that every restaurant or pub in the state has to purchase something from them. And, the final requirement of significance is that the brewpub cannot hold a Class A license, a brewer's permit, or warehousing or distribution permits. You will recall that a Class A license allows the breweries to sell (in quantity) bottled beer for consumption off-premises. Again, this provision is very clearly distibutor protectionism, as it prevents any small-time competition to the three-tier distribution system. Presumably, the fear is that if all of the brewpubs could sell bottles and warehouse at their facilities, consumers could just go straight to the source instead of driving down the beer store which is supplied by the distributors.

What SB 224 represents then is an attempt to distinguish between breweries, which can only distribute through the three-tier system, and a very narrow exception to the three-tier system for brewpubs. If a brewer meets the brewpub requirements, it can hold up to six brewpubs in the state.

SB 224 carves out a niche for brewpubs and it does a great job of that. It would allow reasonable expansion by brewpubs. And, believe it or not, would allow brewpubs to bottle up to 1000 additional barrels, on top of the 10,000 barrels the brewpub permit allows, for retail sale. So, this is a great law for brewpubs. Or at least until they want to exceed the 10,000 barrel limit or want a seventh location.

We called it "unfavorable" a little bit ago, and you can probably start to see why some see SB 224 as an unfavorable law. Brewers are forced to choose between being a brewpub and being a brewery. One cannot be both under SB 224. Thus, it forecloses income streams that small breweries take advantage of. For example, Grays would be unable to open Grays Tied House. Ale Asylum could not have their wonderful premises. Tyranena would not be able to run a restaurant at its facility. This income stream is not only surplus income, but it generates tremendous amounts of goodwill for the breweries and craft-brewing in general.

This has been an in-depth look at what SB 224 accomplishes. We aren't judging whether this is "good" or "bad" for the industry. We've merely noted that it changes how the industry currently works and in what ways the industry will be impacted. As for judging this bill, we will have two interviews in the coming days (Wednesday and Friday): an interview with Rob Larson, owner and brewer at Tyranena Brewing Company in Lake Mills, WI; and, an interview with Eliot Butler, co-owner and business manager of The Great Dane. They both have some really great insight on SB 224 and its impact on their brewing facilities, and the industry in general.

The Great Dane Dilemma

Politics has devolved into the serving of special interest groups. This is not an inherently bad thing. Where the problems arise are when not all interests are represented by special interest groups. In those cases, how do those not represented gain a voice? Usually, they don't. In the usual case, those not being represented are the average, uneducated (I don't mean "uneducated" as in "not smart" just one not generally informed of the details of a particular piece or series of legislation generally because one isn't aware of said legislation) every-day consumer. Take, for example, your consumption of beer (you knew it would come to that didn't you?). Well, a new special interest group looking out for joe-sixpack (not this joe sixpack, although him too, just not in his "official capacity") called SupportYourLocalBrewery.org has pointed out that there is some interesting legislation going down here in Wisconsin.

Generally, a consumer can purchase beer in any number of places: at a retail store, at a restaurant or bar, at a brewpub, at a bowling alley or golf course, at a sporting event, and scores of other places. All of these places are regulated in their sale of beer (and other liquors). This isn't really news. However, what you may not know is that the channels of distribution for beer are highly regulated. As a brewer I can't just sell my beer to anyone. As a brewer, absent special circumstances, I can only sell to a distributor. As a distributor, I can only sell to other distributors or retailers. As a retailer, I can only sell to consumers. This distribution paradigm applies to all breweries, including "brew pubs" which are really just breweries that are licensed to sell beer on premises through a codified exception to the general rule.

The current law only allows a brewery to have 2 "on premises" licenses (called a "Class B" license). A brewery can have up to 4 more licenses, if some "small brewer" conditions are met and the restaurants buy the beer through a distributor, not from themselves. Thus, at max a brewery can have 2 brewpubs, and 6 if it's sufficiently small and buys its own product from an independent distributor.

So, these rules set up the problem. A very successful brewery called The Great Dane has two Class B licenses, one downtown, and one in Fitchburg. They are approached by a real estate developer who would like to put a Great Dane at their trendy mall on the West side of town (Hilldale). You see the problem. Under the current laws, if The Great Dane wants to add this third license, they would have to meet the "small brewer" conditions (they don't) and they would have to buy their own beer from a distributor. So, what's a brewery to do?

Well, if you are as successful as the folks over The Great Dane, you hire a lawyer and a lobbyist and you get the rules changed. And now, making its way through the legislative process is the result of that process.

SB 224 (and AB 455) would create a fourth type of license called a "Brewpub License."** In addition to the following rules, here's the catch: a brewer can only hold a maximum of 6 Brewpub Licenses. This license would allow the brewery to do a few things:

1) manufacture up to 10,000 barrels a year across all brewpubs (as a point of reference, this is slightly less than the current total output - pre-expansion - of New Glarus Brewery)
2) bottle
3) sell growlers
4) transport this beer to any of the brewpubs owned by this brewery
5) sell bottled beer at wholesale from the 10,000 barrels and up to 1,000 additional barrels (this is very small)
6) sell other alcohol provided the relevant licenses are procured.

So, back to the top; as a consumer of beer, what does this mean for me? Well, the entire point of the original version of these rules (only 2 Class B licenses per brewery) was to prevent the likes of Miller from opening up a ton of "brewpubs" and keeping small breweries out of the market by saturating the market. Given the reformulation of these rules, it's not like it's inviting the macro-brews from opening up tons of brewpubs. Heck, Capitol Brewery is over 20,000 barrels a year and thus would be prevented from obtaining Brewpub Licenses. 10,000 barrels seems like a reasonable cap and the allowance for bottling could make Wisconsin's beer scene even more interesting (Great Dane in bottles!) Thus, this new formulation is reasonable and exciting.

My only problem is this: what happens when Great Dane has 6 locations all around Madison and some real estate developer in Milwaukee asks if they'd like to have a location at a trendy new mall going in on the North side of Milwaukee. Are they going to go back to the legislature and re-write the laws again?

** For the sake of completeness, the other three types of license: Class A (allows retail sale of beer in original packaging for consumption off premises), Class B (allow retail sale of beer for consumption on or off premises), Class C (allows retail sale of wine for consumption on premises at a restaurant).