Why craft brewers and craft beer drinkers should thank the three-tier system
Photo Credit: rpstanton on Flickr (via Creative Commons)
The following is a guest post from John Conlin of Conlin Beverage Consulting, Inc. Conlin Beverage Consulting offers merger and acquisition expertise and management consulting services for the beer and beverage distribution industry. The company focuses on M&A, operational improvement and driving corporate change.
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Since I have a knack for stating the obvious, let me state that craft beers/brewers are the prettiest girl at the dance… and they know it. My blog has recently been discovered by a number of craft beer and craft brewer web sites… places like the Craft Brewers Association … And Beer News … And Guys Drinking Beer, got to love that name, says it all… and then there is Aleheads…
After my Who’s Your Buddy post, I noted a lot of visits from this place called Aleheads. If you recall my Who’s Your Buddy post suggested that MillerCoors fully embrace the craft beer world, using their strength and “their” distributors to help this market flourish.
I must admit I hadn’t heard of Aleheads before but I don’t generally visit beer geek websites (and I truly say beer geek as a compliment). But please do go to these sites and you’ll find many more great craft beer sites to visit …. I went to Aleheads to see what was up and lo and behold there was an article with my lovely picture under the headline “All Hail the Conlin” It was a pretty good article – with a title like that how could it be anything but? 
And for beer distributors it is rather insightful on what even dedicated beer fans know (or don’t know) about beer distributors and this industry… I have to admit I sent the link to that article to a few friends and most thought I had written the thing! It’s the title-thing… my friends know me and my ego. I have henceforth requested all who communicate with me begin their speech with a hearty “All Hail the Conlin” but have found compliance is very poor, to say the least.
Well back to these craft beer drinkers and brewers. I communicated with a few of these folks and thought I’d directed a post more to them… to give them at least my take on the history of the beer business and why they have the opportunity to exist. That last part might have more than a few thinking what does that mean? Opportunity to exist? Some probably believe this market opportunity just popped up, like most do, and not the result of an industry structure set up long ago.
Well Sherman, let’s take the Way Back Machine and see what things were like about 100 years ago in this country regarding beer and alcohol. In a word, things were bad Not from a consumption viewpoint, consumption was rocking and rolling. That was the problem… there were many excesses prior to Prohibition… many. Ken Burns in his three part piece on Prohibition called this a Nation of Drunkards… you can watch his film on your computer at this link. Pretty good stuff if you can ignore his liberal worldview… I know, I can’t keep off my political soapbox
Anyhow, prior to Prohibition most bars/taverns were what are called “tied houses”… a tied house was a tavern or bar that was partially or totally owned by the local brewer (pretty much all brewers were local then, and there were A LOT of them). In a tied house you could only purchase that specific brewer’s products. Tough luck if you and your buddy liked different beers, you wouldn’t be drinking together at the same tavern… it wasn’t possible.
Competition for customers was fierce and the brewers found owning the individual taverns helped them in their search for customers. Showing the law of unintended consequences cannot be fought, some cities raised the cost of a liquor license in the hope of stamping out what they considered were too many bars. This move just pushed the retailers even further in the tied house direction. This took many forms…they sold to “their” taverns on extended credit terms, provided the equipment and supplies, sometimes charging low or no interest, often paying rebates for pushing their brand or carrying it exclusively. Or they took the whole enchilada and owned the place outright. The focus being on maximizing sales… period. Things like gambling and whore houses on the second floor were initially introduced as draws to sell more product.
Now these tied houses weren’t the only reason for “A Nation of Drunkards”, but they certainly did contribute to the problems… and these problems contributed to that failed experiment call Prohibition. As it became quite evident that Prohibition was a pretty bad idea, many ideas were considered… the people had clearly spoken and they prefer legal alcohol… but what to do to ensure the pre-prohibition excesses don’t again raise their ugly head?
As a political solution the 21st Amendment to the Constitution was passed. This amendment repealed Prohibition and also gave states the authority to regulate the production, importation, distribution, sale and consumption of alcohol beverages within their own borders. Yeah for state’s rights!!
