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Independent Beer Wholesalers Fuel the Craft-Beer Market

Independent distributors provide critical access to market for small breweries and help develop craft-beer culture.

John M. Verive March 27, 2017

Independent Beer Wholesalers Fuel the Craft-Beer Market Primary Image

Never do I feel more like the proverbial kid in the candy store than when I’m browsing Sunset Beer Co., a bottle shop and taproom tucked into the back corner of a shabby strip mall at the eastern end of L.A.’s famed Sunset Boulevard. The popular craft-beer outpost draws customers from across northeast Los Angeles with its coolers full of almost 1,000 different beers. It’s easy to become paralyzed by indecision, and the options are ever expanding with incessant debuts of new breweries and new beers. The craft-beer consumers, who have none of their father’s loyalty to a single beer label, love this glut of product, and the craft-beer industry was built on the promise of choice.

The vast array of products on the modern beer aisle is a remarkable effect of America’s rigorously regulated alcohol industry—particularly the three-tier system of alcohol distribution where licensed wholesalers act as intermediaries between producers and retailers. The average beer drinker doesn’t understand very well the details and mechanics of the three-tier system, and for good reason. They are terribly complex, vary widely from state to state, and are not nearly as fun to talk about as hops, malt, and yeast. However, it’s the middle tier in the three-tier system—the beer distributors—that’s allowed the small and independent breweries to grow into a force that’s forever changed American beer culture.

The independent beer wholesalers provide access to the market for small breweries, they develop the marketplace for craft beer, and they have a big influence on beer culture, but it all happens behind the scenes. It’s a mysterious aspect of the beer industry that can seem as murky as a pint of a New England IPA. While beer fans can be experts on the brewing process and certainly enjoy tasting the beer, there’s a gap in the understanding of the path beer travels from grain to glass—specifically, how it gets from the brewery to the bar or bottle shop. It takes a lot more than a truck and a warehouse to excel as a craft-beer distributor.

“It’s a fun business to be a part of,” says Jason Ebel, owner of Two Brothers Brewing. “It’s a different challenge than brewing beer.”

Ebel knows the ins and outs of brewing and of the beer-distribution business. When he launched Two Brothers with his brother in Illinois in 1996, they couldn’t find a Chicago-area wholesaler to distribute their wares. The brothers had no option outside of self-distribution—a powerful tool available in many states that allows a brewery (sometimes only up to a certain size) to sell directly to retailers. “It was the only access to the market that we had,” he says, but self-distribution takes considerable manpower and equipment. Two Brothers spent a few years trucking their beers to accounts around Chicago, and as the craft scene developed, the demand for a craft-focused distributor grew. The brothers launched Windy City Distribution in 1999, thanks to a loophole in the state’s regulations, and the new all-craft distributor began picking up other early craft brands such as Left Hand Brewing and Avery Brewing Co. By 2012, Windy City carried dozens of brands and employed seventy-five people. Then the brothers ran into an obstacle.

State Regulation

The problem actually started way back at the end of Prohibition. The more-than-a-decade-long moratorium on booze production had shattered the alcohol industry in the United States and wounded an economy already struggling during the Great Depression. The lost tax revenue from alcohol sales and loss of thousands of jobs—from brewers to barmen—was unsustainable, and politicians and businessmen came together to champion the Twenty-first Amendment, which repealed Prohibition.

Soured on the idea of trying to regulate the alcohol industry after the repeal, the federal government passed the burden on to the states. Each state handled the regulation in its own way, from continued prohibition in some areas, to a state-run monopoly over alcohol distribution, to the three-tier system of alcohol distribution. The three tiers (producer, wholesaler, and retailer) were meant to level the playing field and prevent large breweries from owning their distribution networks and applying too much pressure on retailers. But even in three-tier states such as Illinois and California, the basic chain of producer to distributor to retailer to drinker rarely exists in the marketplace without a host of exceptions, additional regulations, and gray areas.

One of those gray areas in Chicago left a loophole open that allowed Windy City Distributing and Two Brothers Brewing to coexist with the same owners, but after 2010, a new director of the Illinois Liquor Control Commission wanted to close it. The Ebels were told they would have to sell Windy City or fight the state in court.

“We saw [the state] take Anheuser-Busch to court and win, and we knew our days were numbered,” Ebel says. The Ebels sold off Windy City, but they didn’t stay out of the second tier for long. “We missed that business,” he says. “We liked it a lot, so we ended up opening a new craft-beer wholesaler in Arizona.”

Arizona Beer and Cider Company launched in 2014, and Ebel says it’s already “growing like gangbusters.” The craft marketplace in Arizona is very different from Chicago’s beer scene, but Ebel says the biggest challenge is simply being the new guy on the street. The big wholesalers—who are often aligned with one of the major beer brands, if not outright controlled by them—have been in the marketplace for years, and they have well-established relationships with retailers and bars. It can be difficult for a start-up distribution company to develop those relationships—or even to find accounts to work with.

“A big part of it is just getting your name out there as a legitimate company,” Ebel says. “A lot of accounts don’t want to bring on a new wholesaler because they already work with four or five distributors. They only have so much space [for product].” He says the solution is to champion craft beer, focus on educating new accounts, and to be the little guy who “does all the other things that the big guys can’t get to.”

Alternatives for Smaller Breweries

Scott Wiegand may be the biggest little guy working in beer wholesaling. Approaching seven feet tall, with a splay of brown hair and a thunderous guffaw, the industry veteran is easy to spot at events and beer festivals. He’s affable and seems to know everybody in the industry. Wiegand spent five years with Stone Distribution before moving to Artisan Ales, a boutique beer distributor in Los Angeles. Last year he partnered with his brother to launch Wiegand Family Distribution, and they began to build a portfolio of breweries looking for a nontraditional wholesale partner.

“I’d been on the traditional [distribution] side for a long time, and it’s the same thing day-in and day-out,” he says. He wanted to do more than go after high-volume accounts with a book full of IPAs. He wanted to work with smaller and out-of-market breweries—operations that couldn’t or didn’t want to support a standard distribution agreement where core beers and repeatable sales are expected. He intended to focus on one-off beers or special runs from breweries who “wanted an occasional relevant placement, but who didn’t want me hounding them for more beer.” It’s a novel way to serve the marketplace, but Wiegand knew there were some niche breweries that didn’t fit the traditional distribution model. He wanted to offer those breweries an alternative.

Weigand echoes Jason Ebel’s statements that the biggest challenge, and the biggest key to success for a craft distributor, is establishing relationships with both breweries and accounts. The wholesale tier isn’t just about moving beer from producer to retailer; it’s about moving ideas.

“Our job is to take the brewer’s vision and find a place for it in the market,” says Jace Milstead, another veteran salesman in the Los Angeles beer industry. He compares beer distributors to Hollywood talent agencies, with the sales reps acting as agents, and the beer brands the hopeful stars. Like the big box-office draws, some breweries sell themselves, while others are more akin to character actors who don’t get asked for by name but can shine brightly in the right role. “The reps need to know all the accounts in their territory, and they need to get those accounts excited about the beer,” he says.

I saw this in action when I met Jimmy Smith at a bar in downtown Los Angeles. Smith is a sales manager at Wiegand Family Distributors, and I wanted to talk to him about pounding the L.A. pavement as a sales rep for craft distributors. We’d scheduled to meet after he paid a call to the bar on Spring Street, and I was able to watch his pitch. He had an established relationship with the bar manager, Coleen, and he brought samples from the breweries in the Wiegand portfolio that he thought she’d like. First up was a light and crisp cream ale from Mumford Brewing, just a few miles away from the bar. He knew it would fit into the twenty-four taps as an approachable option for customers who maybe weren’t yet fully converted to craft beer. Coleen liked the beer and agreed that it could do well with people “just looking for a beer.” Next, Smith opened a Populist IPA from Eagle Rock Brewery. He told the story behind the beer and also suggested it would pair well with the Italian hero sandwich on the bar’s menu. Coleen seemed impressed by the bright West Coast–style IPA and said she’d take a keg. “I get the beer because I like it, and I keep the beer on because they like it,” she said, gesturing to the handful of regulars who’d turned up for happy hour.

Eagle Rock was the first brewery to sign with Weigand Family Distribution. The brewery had been carried by Stone Distribution, but the brewers were unhappy with how their brand was handled by the wholesaler. Eagle Rock Cofounder Jeremy Raub was frustrated when it seemed that his beer got lost in the shuffle (sometimes literally) at Stone, and he says that while the two companies’ goals were aligned at first, Stone Distribution’s explosive growth quickly outpaced Eagle Rock’s. “Stone [Distribution] wants to grow like this,” Raub says demonstrating a steeply inclined trajectory with his hand. “And they want all of the brands in their portfolio to grow like that, too. We want to grow like this,” he says while pantomiming a slower ascent on a much flatter trajectory. He wanted a new distribution partner that understood his brand and could support his growing, but unpredictable, sour-beer program, and he found that partner in his old friend Scott Wiegand.

Just as there is no one best model for craft breweries, independent wholesalers can approach the market in many different ways. Finding a niche, building a compelling book of brands, and developing the all-important relationships with accounts are the keys to success for independent distributors in the highly competitive beer market. As with the craft breweries, the biggest rivals for independent wholesalers are the wholesalers aligned with (or in some states, owned by) big beer. The competition is fierce, and sometimes the tactics get dirty. Weigand says during his days with Stone Distribution, retaliation from rival wholesalers was common. Cutting tap lines and gouging out the O-ring seals on their competitors’ kegs were the usual techniques—anything to give the reps from rival distributors a hard time.

The war for better beer isn’t fought just in the bars and stores; it’s increasingly fought behind the scenes by the distribution companies that supply those more visible theaters. The conflicts are heating up as more breweries open and expect access to the market, while the biggest players consolidate their holdings and find new ways to apply pressure to the little guys.

“Our model is to keep it scaled down to brands that we can grow, develop, and invest in long term,” Jason Ebel says. “Other wholesalers carry more than 100 brands, and [I] wonder how they can manage that to the best level for the brewer.

“That’s a double-edged sword, and I see both sides because I wear both hats. I think if done properly, the three-tier system is important. Wholesalers play a very integral part in a brewer’s livelihood, and if done right, it’s a partnership.”

ILLUSTRATION: JAMIE BOGNER

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