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Why Can’t I Find This Beer?
Almost daily I get asked about why certain breweries aren’t available for purchase in our state. I’m told “you should carry (fill in the blank) brewery because they would do great”, or the opposite questions “why can’t I find XYZ brewery anymore?” So to start this New Yearout I just wanted to explain some distribution basics and hopefully answer a lot of these questions in the process.
In order to have a beer available in this state, beer suppliers must go through the 3-tier system. This system was established after prohibition to regulate and control the alcohol industry and establish a method for taxes. The basic structure of the system is, beer producers can only sell their products to a licensed beer wholesaler, who then can only sell to a retailer who, in-turn can only sell to a consumer. In most cases it’s not as easy as calling up a brewery and saying “Hey you got great beer and we want to sell you in Las Vegas”…..wish it was!
The brewery must first want to expand into this market and have the capacity to do so. When a brewery decides on entering a new market they will, in most cases, visit that market multiple times. They will interview wholesalers during these trips, tour the market checking out liquor stores, grocery stores and local watering holes. They will strike up conversations with clerks, bartenders, business owners andeven patrons to get a feel for that market. During this “courting process” discussions are had with wholesalers on margins, shipping, pricing, 1, 2 and 3 year sales projections, and who will support the growth of the brand more. Once all this is discussed the brewery will make adecision on which wholesaler is the best fit for their brewery and who they think will support and grow their brand.
This is just the first decision of many. Deciding what to charge in regards to pricing in a market is just as big of a decision. All beer has a cost to produce, and then the brewery needs to make their money so they mark it up to the wholesaler/distributor. Shipping is always a factor in these discussions and can be the breaking point to many of these deals. For example; a refrigerated truck coming from the East Coast to Las Vegas can easily cost $4,500. That cost gets broken down and added to the cost of each case and keg. Add in the brewery’s mark up and when it hits the wholesalers dock, this is known as FOB (Freight on Board)… add in NV State sales tax ($.16 per gallon) and you finally arrive at the “Laid-In Price”. The wholesaler now needs to factor in what they need to make on the product (margin) to cover sales, shipping and handling to the Retailer. Lastly, the Retailer must add in their margin requirements. This can create “sticker shock” when someone is used to paying $7.99 for that six pack on the East coast and now it’s $10.99 on the West coast. Shipping is a HUGE factor in these beers.
Now in some cases the brewery and the distributor are willing to give up some margin because the freight cost is pricey but theystill want the beer in the state. So maybe that same six-pack is now $8.99. It’s still more than that consumer is use to paying. To make up that difference the wholesaler needs to fill a truck to make this worthwhile because the $4,500 is the cost whether it’s a full or partial truck. So the wholesaler needs to consider SKU mix (which beer packages and sizes are they going to carry), and remember they have other breweries they carry so normally not all SKUs are brought in initially. This is mostly due to lack of room and keeping product fresh (beer is a foodproduct). If some beer is not pulling through and the wholesaler cannot fill a truck with product that is selling, they have to look at other alternatives because once a wholesaler buys it they own it… just like a retailer. The brewery does not take back product that doesn’t sell. So it’s very important to forecast sales properly. Wholesalers will sometimes try and pair that truck with multiple breweries they carry to make a full truck (this will increase the freight cost because they have to pay for multiple stops along the route).
The worst case scenario – the beer is not selling in the market for any number of reasons we discussed, the brewery and/or wholesaler will decided to terminate that partnership. Wholesalers cannot afford to take a consistent loss on product that is going out of code and not selling. Breweries do not want their products represented in the market that are old and not at their optimal tasting standards. With over 5,000 craft breweries in the US now, breweries often only have one shot to impress a consumer. If that consumers first experience with that brewery is an old expired beer, they probably will not try another from them in the future.
Breweries, Wholesalers and Retailers must protect their image and their bottom line because in the end this is still a business.
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