Craft Beer: A True Underdog Story (with a little help from regulations)

I like good news, and so the title of this recent piece in the Atlantic was enough for me to give it a read. I encourage you to do the same, but if you want the super-short story, the author thinks that the explosion in small breweries is nothing short of amazing in an era when most major industries, brewing included, are the most consolidated that they’ve been in decades. Many homebrewers would agree with the first reason he gives, consumer choice. Americans are drinking less overall, but willing to pay more for a flavorful, and increasingly, a local product.   

The author’s second point (and the one he’s more interested in) is a little less warm and fuzzy. He credits the three-tier system of distribution introduced after Prohibition which made it impossible for a brewery to own the distributors and retailers of its beer. This “deliberately inefficient” approach, in his view, prevented big breweries from buying out their competition, and also promoted variety as distributors and retailers looked for new brands to market. He also mentions that exemptions that let small breweries sell directly to consumers in taprooms as a factor, but a controversial one, in the growth of the industry.  

From an economics perspective these are interesting points, but ones most craft brewers wouldn’t see eye to eye with him on. The controversy over taproom sales hits close to home in Maryland, where last year a piece of legislation designed to accommodate a large brewery and protect the interests of distributors nearly made it impossible for anyone new to get into the brewing business at all. In its aftermath, the Maryland Comptroller’s office launched the Reform on Tap Task Force, which brought brewers and distributors (uncomfortably) to the table around one of those questions of inefficiency: how much of the beer that a brewer makes should they be allowed to sell themselves?

As the outcome of reform on tap now heads towards the Maryland legislature as House Bill 518, many of the bill’s opponents began describing it as an effort solely aimed to help brewers against other small business owners (distributors and retailers), or somewhat more confusingly, as a risk to public health. The most balanced take on this that I’ve seen comes from the Naptown Pint, where the consequences of the beer market’s “deliberate inefficiency” are laid out clearly: opportunity isn’t equally distributed, and in that situation it’s hard to talk about an outcome where one person’s gain doesn’t come at the clear expense of someone else, or where removing any regulation doesn’t immediately cause all to fail. 

In reality, I suspect that there’s a lot more opportunity to acknowledge how resilient and connected the industry can be. It’s highly unlikely that raising limits on how much a brewery can sell directly will change the way that beer is sold across the industry. The cost in time and equipment to self-distribute beer widely would likely be prohibitive for most small breweries. Likewise, we shouldn’t assume that because they follow the regulations for selling alcohol, distributors and retailers are the prime guardians of public health or morality. They have a part to play, to be sure, but the more muddled the system becomes the more irritating it is for consumers on all fronts. Anyone who tried to fill a growler in Maryland after they were legalized might remember how much of a pain that was. 

As craft breweries continue to open and (hopefully) to gain market share, we might see that local taprooms are actually capitalizing on a type of business that doesn’t actually fit within the three-tier model at all, with its emphases on high volume production, efficiency, and consolidation. Taprooms draw in visitors who don’t just care about the label on the beer that they drink, but actually want to connect with the people who make it. As homebrewers, we’re lucky to have met, and to keep meeting, many of the new brewers in Baltimore before they open their taproom doors. Those connections are unlikely to be felt over thousands of miles and millions of barrels of production, but up close they’re quite powerful, if “inefficient.” I would hope that the extra money that comes from taproom sales would let more small breweries stay small and make a good living, rather than needing to follow a model where success means selling as much beer in as many places as possible.  

Homebrewers might have more to do with the booming craft beer market—or this small, local trend within it—than the article gives us credit for, but I can forgive the author for not noticing. We do have pretty limited distribution networks: mine spans the distance from my tap to my glass and has only one full-time employee. 

Cheers,
Neil

Tom MaffettComment