This Week In Beer: Beyond Goose Island
Obviously this week's big local booze news is the sale of Goose Island to Anheuser-Busch InBev, which set the Chicago's competitive-but-friendly craft brew scene abuzz. But there are significant developments in the rest of the beer world as well, both state- and nationwide.
Representative Jason Chaffetz, a Utah Republican, introduced a bill called the Community Alcohol Regulatory Effectiveness Act, basically a re-do of last year's Comprehensive Alcohol Regulatory Effectiveness Act. It would reinforce the ability of states to enforce their own laws for the production, distribution, and sale of alcohol, which are wide-ranging across the country, and mostly reinforce the producer-distributor-seller tier structure. Which sounds great at first--if, say, you're from a Mormon-dominated state like Utah, the idea of the federal government changing how alcohol is sold in your state might be objectionable.
But if you're a California winemaker who wants to be able to market directly to consumers, you might think that the mazes of state laws violate the Dormant Commerce Clause and unfairly restrict interstate commerce, and you want more leeway to challenge them. So for the most part, this has pitted producers against wholesalers against producers, though producers like Jim Koch of Sam Adams and Sam Calagione of Dogfish Head are not totally opposed to distributors:
Sam Calagione, president of Dogfish Head Brewery, likens the battle with wholesalers to fighting a sibling. He said he knows he could never exist without wholesalers, and that it’s tough to be on opposing sides of the issue. Still, he said: “If I was getting into the business now and CARE was passed, it would dissuade me from being a distributing brewery. I might just have a brew pub in a town. Small breweries are just going to get overwhelmed trying to distribute in that environment.”
This three-tier system might seem anti-competitive, insofar as it enforces the existence of a middleman--one that, as Bell's learned just before famously pulling out of the state and deriving Chicagoans of their Oberon, can be difficult to work with. And it's a system that, as Crain's reported in an investigation on beer pay-to-play, can be rife with problems.
Yet there are advantages. First, the three-tier system was originally effective in creating competition, breaking the system of "tied houses" that resulted in all the architecturally distinctive Schlitz bars you still see around town--basically, bars run by breweries that, combined with aggressive temperance laws, limited consumer choice to a handful of big brewers. Second, as Top Fermented notes:
Koch recognizes that that future of craft beer (even – and maybe especially – his) lies in efficient distribution and that craft breweries do not have the power to create said distribution on their own. We see more and more pressure from mega-retailers to cut the middleman out, coupled with the ever-increasing cost of fuel, refrigeration, and even warehouse space. Eventually, distribution is going to take a major hit and craft breweries are going to feel it more than most.
So on one hand, distributors provide a check against big marketers like Wal-Mart, as Jim Koch argues, and provide market muscle for brewers. On the other, they've grown to mirror the tied houses they were created to prevent: "distributors have gained considerable control over Chicago taps by mimicking the practices of brewers during the tied-house days, subsidizing various costs of business in exchange for market share" (to quote myself).
Meanwhile, there's a bill going through the Illinois legislature that ties these subjects together. In short, in-state brewers are allowed to self-distribute in Illinois, though only three--Argus, Big Muddy, and Goose Island--have the necessary distribution rights and only the first two self-distribute. Anheuser-Busch InBev, which is big enough that cutting out the middleman would make business sense, decided it wanted to be able to self-distribute, so it tried to buy a beer distributor it already owned a minority stake in. That was challenged as a violation of the state's three-tier liquor laws. Anheuser-Bush, in turn, challenged the constitutionality of the in-state rule, and it was found to be discriminatory under the Commerce Clause, for pretty obvious reasons:
The bottom line is that in-state brewers are permitted to perform the distribution function in Illinois, while out-of-state brewers are precluded from doing the same....
Granholm mandates that the states treat in-state and out-of-state brewers in an evenhanded manner. Concluding that Defendants’ construction of the challenged Illinois laws fails to do so, the Court must fashion the most appropriate remedy.
This basically put the state in a double bind. It could give in to Anheuser-Busch, which wouldn't be popular with distributors and would arguably be bad for craft brewers, or it could kill the in-state exemption, which would also arguably be bad for craft brewers. The exemption is only a couple years old, but Guys Drinking Beer (which has done excellent reporting this on this issue with their advocacy Save the Craft campaign) makes a good case for the idea that distributors represent a high barrier of entry for small craft brewers, even if the system works for larger craft brewers.
The proposed solution is to get rid of the in-state and out-of-state distinctions and to regulate self-distribution based on the amount of beer a brewer produces, giving small brewers a head start while they're still too small to catch the attention of distributors. The Sun-Times weighed in a couple weeks ago in favor of the idea, but the bill went back to the Rules Committee, where it seems to be stuck for the time being.
If you want a brief tour of Chicago's brewing history, a good place to start is "Local Brew," a 1990 piece for the Reader by Holly Greenhagen, and describes the local beer community as it was then, when Chicago hadn't had a local brewery (though it had brewpubs) in 22 years:
The last to go was the Peter Hand Brewing Company, which sold the names of its two most popular brands, Meister Brau and Meister Brau Light, to Miller in 1972. In 1973 Fred Huber of the Huber Brewing Company in Monroe, Wisconsin, bought the brewery and produced a lager called Old Chicago; the brewery closed again, for good this time, in 1978. (Sam's Liquors now stands on the site.)
Photograph: Bernt Rostad (CC by 2.0)