Alcohol Distribution Law

Because of their size, small beer producers and microbreweries face challenges regardless of their position in a three-tier distribution system or as a self-distributer, if allowed by law. When a beer brewer signs on with a distributor it relies on the distributor to promote and market its product and very often is behind the distributor’s top two or three revenue-producing brands. On the other hand, self-distribution by a brewer can be costly and difficult to implement and requires the brewer to invest its own capital into its distribution business, reducing its focus on the manufacturing process.

When first starting out, many smaller beer brewers self-distribute for the while the brand is gaining popularity and distribution is manageable to give their brand a jump-start before signing on with a distributor. Since craft brewers are simply too small to exert much control over the marketplace, most states exempt craft brewers from complying with the three tier system of distribution altogether, and often allow then to self-distribute beer within the state in which their brewery facilities are based until they produce a certain volume of beer each year. Because of their size, though, craft brewers struggle to find distributors willing to distribute their products, particularly outside of their home states.

However, remembering how deeply engrained beer is in American culture, it is no surprise that hundreds of new craft breweries have opened throughout the country within the past five to seven years. And of course, these small businesses are looking to level the playing field with larger brewers and distributors.

Craft breweries are also eyeing the Internet as an alternative channel of distribution for their products. The direct shipment of beer is an area of the law that is in flux, however. States that do permit the direct shipment of beer to their residents typically require the shipper to be licensed as a brewer, distributor or retailer in its state of origin and to obtain a direct shipper permit in each state into which it desires to ship its products before shipping into their states. Further complicating matters, shipping beer through the United State Postal Service is illegal; DHL refuses to ship beer per company policy; and Federal Express and United Parcel Service will typically only ship for properly licensed shippers (those holding a valid brewer, wholesaler, retailer license etc.) on a contract basis. And, some states have alcohol content restrictions or limit the amount of beer each resident may purchase on a monthly or annual basis. Not surprisingly, large brewers and distributors tend to oppose direct shipping because it will likely reduce their sales and profits.

In a nutshell, while the direct shipment of beer represents a potential seachange for the beer distribution industry, this area of beer distribution law needs to develop a bit more to catch up with the times.

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