Summary: benevolent regulation caused the craft beer boom. I call bullshit. Look at this graph [1] and tell me again how great the three-tier system was for market diversity. America went from 700 post-Prohibition breweries to less than 100 in 1978. That was the year homebrewing was legalized, and it's a pretty steady climb back up from there. Brewpubs -- which circumvent the three-tier system and its all-too-easily-locked-up distribution channels -- were legalized in the early 80s and exploding by the late 90s.
I must however agree that this is a happy development. "Beer Wars" is a great little documentary about the phenomenon. [2]
> If the U.S. had long ago allowed a couple of corporations to take over both the distribution and retailing of wine before the Napa Valley renaissance, Lynn told The Atlantic in an interview, Americans would be exclusively sipping three varieties of Gallo table wine. “The reason that didn't happen 50 years ago is because you had this system that was designed to promote deconcentration, to incentivize [retailers] to go out and find the new, the different, the alternatives,” he said. “It was effective in achieving that aim.”
This seems completely crazy to me. We’ve also seen an explosion in coffee variety availability, without any kind of convoluted legally-mandated distribution system. American tastes in drinks and food are splintering and opening new market niches; as long as it’s legal to fill those niches, someone will.
It's not just that there was a three-tier system, but I would argue that in this particular case, it was the legalization of homebrewing that was the gateway into the innovation.
Early 80's and 90's homebrewers were essentially hackers [1], doing things at very small scales, and branching far out into experimental recipes and techniques. I'm sure there was innovation in distribution and retail over the last 40 years, but definitely nowhere near the scale of the actual brewers.
Without homebrewing, you don't get the wave of 80's self/indie hackers interested in the first place. So yeah, I could believe the author was right, without the three-tier system the little amount of innovation in brewing couldn't overthrow the total amount needed to also take over distribution and retail.
Maybe the analogy would be the first touch phones, or what Tesla is doing now with EVs.
And the rules didn't just change... people that wanted to make changes had to lobby for years to make it happen... and then it took the right years to make it happen.
I've been a part of this activism in New York State for wine, cideries, and to some extent homebrewing my entire life and belong to a number of organizations to help make it happen.
There's also never a coincidence on timing and the economy. Governments love an excise tax and "sin" products are heavily taxed and a lot stays at the state level to where when the economy is in the dumps... they are much more willing to listen to lobbyists on ways to boost income for the state.
It works every time. In the wake of the "Great Recession," we were able to pass the most amount of pro-winery laws in a generation in New York State, unfortunately, we still came up short for our biggest initiative: WIGS aka Wine in Grocery Stores do to illegal campaign financing from overseas and domestic liquor groups. Albany is still a very dirty space. But prior to the recession, it would cost you $20K to get a license to start a distillery... we got that down to about $600. Wineries can now have 5 outlets or mini-wineries to sell their wine. The list goes on and on and it's had a real impact on jobs in Upstate New York.
You'll notice the big rule change for homebrewing happened in 1978... you had the oil crisis... Carter... inflation... and a Congress that was willing to literally let people start making beer in a super unregulated fashion to eventually boost income for the government... and of course create jobs and all that jazz along the way.
When the economy tanks again, I expect there will be marijuana legalization at the federal level.
> it was the legalization of homebrewing that was the gateway into the innovation.
I'm with you on this part. It's hard to imagine the boom happening while tinkering was outright illegal! Also, surely the 58 year gap (1920-1978) caused some generational loss of knowledge. The homebrewers of the 80s and 90s must have started from scratch in many ways.
> without the three-tier system the little amount of innovation in brewing couldn't overthrow the total amount needed to also take over distribution and retail.
Watch "Beer Wars" and you'll see craft brewers with promising products struggling to get shelf space. The problems started for them even before the shelves: they needed to get into existing distributor's trucks, and by this stage of the three-tier game, tier 3 (breweries) had captured tier 2 (distributors). Why exactly would you let an upstart competitor onto "your" truck?
What's surprising to me is that craft brewers found a way! They succeeded not because of the three-tier system, as this article posits, but in spite of it. I'd love to hear how.
PS. You cite an article by the Dogfish Head founder Sam Calagione. In "Beer Wars" he recounts the story of how he started an illegal brewery in Rhode Island, then (because the state was small enough and he knew someone who knew someone) managed to get a law passed to legalize brewing.
I would like to know too, if it really is some odd phenomena that everyone so far is missing.
If I had to pin it to any one guess, I would maybe go with imports. Beer imports were always around to some extent, but it was also the way that consumers got the other tastes they couldn't find at the football game.
In fact, if I had to think back to when I was a kid, there was always that one uncle who enjoyed drinking imports over typical 'domestic', and maybe that 90's uncle is basically the same person today as a craft-IPA drinking millennial. Distributors accommodate more imports as brands get acquired, and maybe that's the gateway. I suppose you could look at the data of brands changing over the years.
> I'm with you on this part. It's hard to imagine the boom happening while tinkering was outright illegal! Also, surely the 58 year gap (1920-1978) caused some generational loss of knowledge. The homebrewers of the 80s and 90s must have started from scratch in many ways.
This is absolutely true. Find older homebrewing guides from the 80's, and you'll see practices that would seem amateurish to even complete newbie homebrewers today - using baker's yeast instead of specialized strains, limited hop availability and poor packaging, and protections against contamination during fermentation being limited to a towel over a bucket.
reading this makes me realize that the business school mantra of 'create barriers to entry' is ultimately limiting for both the industry and its dominant players
Arguably one of the reasons why craft beer has exploded in Colorado (and probably other states as well) is because small breweries can circumvent the three-tiered system.
I'm in the alcohol business and this is spot on. Many states formed a loophole where craft brewers could not only sell their wares in an onsite brewpup, but they could also SELF distribute to retail and restaurants. This allowed them to completely avoid the formal distribution system.
Beer wholesalers, feeling the pinch, are starting to clamp down to clamp down, leading some breweries to SUE state governments like in NC.
I think the author made the same point. The three tier system didn't help, but once there was an exception for craft brewers there was an opening, because the three tier system maybe prevented eg. chains of cheap bars run by AB.
Yeah, the author didn't quite connect the dots, but the general point was there.
'Craft Brewery economics' are really interesting. The margin on beer sold out of the brewery taproom is insane, 400-600%, largely because they are selling the beer at 'normal' bar prices but don't have to split the profits with middlemen or worry about transportation costs as the beer is made on site. However, if they go through the normal distribution channels in order to sell at grocery stores and other bars, apparently the margins are much closer to 5%-10%. According to some of the industry publications, there has been a bit of a retrenchment going on as a bunch of breweries overextend themselves to try and grab market share through distribution and got stuck selling low margin beer in a really competitive market.
These graphs are quite convincing that the key events happened around 1978 and not decades prior to that. Amazing how a little data can instantly refute pages of exposition at a glance.
The author really went out of their way to talk about Anti-Trust concerns and had to get in a dig at Reagan for loosening them...yet the graph of breweries was up and to the right throughout Reagan’s time when Anti-Trust was paused then exploded in the 90’s.
I know people that run breweries. The Tasting Rooms are extremely important sources of profit. You can sell huge amounts of bottles, kegs and cans and only get a sliver of margin. The tasting room is a profit center because you get to keep most of the margin on your own alcohol (which is considerable).
Therefore, the idea that vertical integration is evil is wrong as well. It’s hard to turn a profit as an independent without a tasting room.
Is it so hard to believe that deregulation can drive economic variety and growth?
Yeah, the claims of the article are kind of bizarre. I'm not an enemy of regulation as such but I recall post-prohibition regulations were very much designed to make drinking a miserable experience and prohibition itself destroyed traditions of drinking for enjoy in favor of drinking for drunkenness.
Growing up in the 70's, American beer was putrid except for a few, hard to find brands. It seems like microbrews followed after "imported beer" became a synonym for "brew that isn't horrible."
Edit: it really is worth mentioning (because the article somehow doesn't) that craft beer in the US (and earlier in England with the Campaign for Real Ale) was a consumer movement for quality as much as it was a movement of businesses. A variety of foods have had this but it's not necessarily something that can be easily transplanted to other products.
NY Times has to insert a general lefty bias into almost every article. New Yorker does this too. Both great papers, but I've learned to detect it and dismiss it over the years
Tasting rooms are a sort of panacea for upstart breweries. If your business plan involves constantly having your tasting room packed, then you're in for a hard time because only a handful of trendy breweries will manage that with hype. Where, actually ramping up production enough to a level beyond 50 barrels is the sustainable land where then you can expand through bootstrapping or more capital investment. In other words, it's hard to turn a profit without breaking past the tasting room.
The 90's microbrewery boom was fueled by brewpubs, many of which went public because they grew so quickly. Rock Bottom, Gordon Biersch, BJs, Iron Hill, Heartland, Russian River, Pizza Port, etc. That growth was more fueled by being a place you could eat and also grab a beer, but they couldn't figure out the distribution hacks needed to reach beyond the few square miles of the shopping mall or downtown block they were located.
Agreed - the three tier system is awful for both craft beer and craft whisk(e)y.
Big Beer is in bed with Big Distribution, and they've been able to circumvent the "protections" for years now. There's effectively two tiers, and allocation of popular beers like the annual Bourbon County release being based on sales of AB InBev products show that the second tier isn't actually able to resist the other part in an effective manner.
You also have breweries that are tiny in comparison to Big Beer that have to do silly things to sell their own beer in the taproom - most states have 'brewpub' type licensing at this point, where really small breweries can sell packaged beer to go, but then as they get bigger (But still a fraction of a percent of the size of AB InBev or MillerCoors) they have to convert to a regular brewery license. Then, if you're in a state that allows regular breweries to sell packaged beer to go, in most of them, you have to sell your beer to a distributor and then buy it back to sell in the taproom. It will never go into their possession, and you will wheel it from your packaging room to your tap room, and you'll effectively have paid a distributor 20% of your cost to do literally nothing.
It's a racket, and the idea that the three tier system as it stands now is a good thing for craft beer is insane.
It's similarly bad for the craft whisk(e)y industry, and I imagine for craft liquor in general, though I am less familiar with things outside of whisky. When doing American distribution, it is uneconomical to provide a variety of small batch offerings and extremely limited bottlings. American retailers and bars get a rather generic lineup of whisky that has a standard set of years and a few variations on barrel types.
Now go to a high end whisky bar in Asia, like the Mash Tun in Tokyo, or the Drunken Master in Taiwan - you'll find a huge variety of small batch whiskies done with bottle limits in the low hundreds, often specially bottled for a collection of these bars. And the prices to the consumer will be tiny in comparison to America, even with these being expensive cities. They can get these directly from the distilleries without the distribution markup or red tape overhead and it lets them get unique bottles and flavor profiles at a low enough cost that consumers can feel free to experiment with new whiskies without breaking the bank. I've had tabs for ~$100 that based on aged years alone would have been $500+ in the US, without even taking into account the rarity. I could never afford to do that in the US, and it's a shame, because the only people being protected in this case are middlemen and big businesses.
I must however agree that this is a happy development. "Beer Wars" is a great little documentary about the phenomenon. [2]
[1] https://io9.gizmodo.com/the-total-number-of-breweries-in-the...
[2] http://www.imdb.com/title/tt1326194/?ref_=fn_al_tt_1