The demise of Pretty Things may be the canary in the coal mine for microbreweries that depend on the three tier-distribution model for the majority of their profits as well as those breweries that utilize large format bottles (bombers and 750ml) and those breweries that do not operate a tap room.
Since prohibition the three-tier distribution model has been used by most states for distributing alcohol from producer to consumer. In this model, the producer (brewery) sells the product to the distributor, the distributor sells the product to the retailer and the retailer sells the product to the consumer. The distributor and the retailer each take 30%-40% for handling the product. A microbrewery selling a $10 bottle of beer generates approximately $4 a bottle of revenue for the brewery in the three-tier distribution model.
In addition to the apparent economic inefficiency, with the three-tier distribution model the brewery loses control over quality control measures such as storage conditions and shelf life. For example, a brewer may print “Keep Refrigerated at all times” on every case of beer, but the brewer cannot be sure that a retailer will not leave a pallet of beer on their loading dock in the sun. Likewise, unbeknownst to the brewer a distributor could send out half a pallet of beer from a previous year’s batch that they found buried in their warehouse.
Retailers are stocking greater amounts of product from micro-breweries. With more products on the shelves, barring a quality inventory control system or high sales volume product may inadvertently languish on shelves unsold for long periods of time. Over time, some of those bottles of beer sit on the shelf long enough that there is a coating of dust on the bottle. When a consumer gets a bad bottle of beer the brewery takes the hit regardless of who was responsible for the condition or age of the bottle.
Large format bottles are optimized to provide the maximum amount of beer to the consumer at the lowest cost (bottle and case volume). As the alcohol content of micro-brewed beer has crept up over time, it has become a commitment to drink a large format imperial stout or barley wine. These beers are not the “go to” beer you have in the refrigerator. These are ‘special’ beers served when like-minded friends gather and on special occasions. This naturally limits the amount of beer any one individual will purchase.
How can a microbrewery increase the margin, quality and serving size?
In many States microbreweries are allowed to sell product directly to consumer in their tap-rooms without handing over a cut of the sale to a third party. Since the brewery controls the tap room, the brewery controls the quality. This also provides the consumer a greater choice of offerings.
Beer is a very personal experience and different breweries attract specific types, or profiles. For these folks, an important part of the experience is sitting around talking with each other and with the brewer. When these opportunities are fostered, communities tend to build up around the micro brewery. Like minded folk are attracted to the styles, flavors, personalities and culture of a brewery and in many cases, the brewer(s). When there is a physical space for these communities to gather they grow and the business flourishes. Absent a physical location, brewers organize tastings, pub crawls and beer launch events. These events require extensive coordination and planning and by their very nature are ‘special events’. The camaraderie and loyalty inherent in communing in a specific location is difficult to replicate when opportunities to convene are sporadic.
When breweries have tap rooms consumers freely interact with the community. Events are scheduled and held at the brewery, and the tap room serves as a drop in center for a community whose nexus is the beer. Without a tap room, a small brewery must hand over profit and quality control to third parties and forego the necessary community support to be viable business.
Submitted December 12, 2015 at 11:35AM by ba14 http://ift.tt/1M8ABbR beer
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