Cutting through beer-aucracy affecting Charlotte breweries

Cutting through beer-aucracy affecting Charlotte breweries
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In early January, Olde Mecklenburg Brewery made a painful yet necessary decision to pull their beer out of the Triad area. Living in Charlotte, you may be indifferent, thinking this move doesn’t affect you. You’d be right, at least for now. 

If a state law isn’t modernized, you may find yourself hard-pressed to find Charlotte-made beers such as OMB’s Copper and NoDa’s Hop Drop ‘N Roll, even around the Queen City. 

You can find Part 1, an explainer on the state law that caps local brewery self-distribution, here.

(1) Catch me up, so what exactly is all the fuss over?

In North Carolina, in-state breweries are able to not only brew their beer, but sell it themselves. However, once they produce 25,000 barrels of beer annually, they’re required by state law to turn over all brand rights and sales duties to an outside distributor. NoDa and OMB have teamed up with others in an effort known as Craft Freedom, and are trying to get this threshold raised.

craft-freedom-supporters

Image courtesy of Craft Freedom

25,000 barrels may sound like a lot, and it is/isn’t. It’s equal to 50,000 kegs, or 8.4 million 12-ounce bottles. It’s also a drop in the bucket, equating to less than 0.3% of the beer consumed in North Carolina. That’s not a typo; three-tenths of one percent. So yes, it’s a lot, and it’s also a little.

(2) What local breweries are affected by this state-imposed self-distribution cap?

All of them, save three. The two outfits closest to hitting this cap are NoDa and OMB, but nearly all breweries in Charlotte are utilizing their self-distribution privileges. Some brewers may laugh because they’re not near the production limit yet, but the law still applies.

The only area exceptions are D9, Sugar Creek, and Unknown, as they have chosen to go the outside distribution route. 

Mind you, there’s nothing wrong with focusing on brewing and letting someone else handle sales. Craft Freedom argues that a raised limit would allow them to dictate the timing of this decision themselves, rather than have the state mandate it.

(3) Why is Craft Freedom fighting to raise the self-distribution limit?

Their argument is that they have their businesses’ best interests in mind in a way that a distributor simply can’t. If they sign with a distributor, their beers may represent 5% of the distributor’s entire book of business, which means they’ll receive about 5% of the attention.

According to the brewers, if they’re allowed to grow a bit more before signing with a distributor, they’ll be better able to compete with other larger breweries for the distributor’s attention and efforts. Keep in mind that many of these distributors each represent literally hundreds of different beverage options.

beer-distributor-resources

Image courtesy of Craft Freedom

(4) What’s the argument for maintaining the current cap?

The North Carolina Beer & Wine Wholesalers Association, a trade group representing distributors, has repeatedly stood by keeping the limit as-is. Per Tim Kent, the group’s executive director, “The premise behind the 25,000 limit (enacted in 2003) was to encourage incubator brewers an opportunity to get their products to market. Any brewer at the 25,000 barrel level is way past the incubation point.” 

Also per Mr. Kent, an additional reason for maintaining the status quo is that “North Carolina craft brewers already enjoy unique and favorable privileges found in no other Southern state.” The wholesaler-provided examples of said unique privileges number three: self-distribution of up to 25,000 barrels; ability to operate three retail locations in addition to the brewery; breaking the contract with their distributor in exchange for compensating fair market value. 

I’ll break this down further in a later piece.

(5) Are there other breweries in North Carolina that are close to the cap, or over?

Red Oak Brewery, located just east of Greensboro, is also nearing the limit alongside NoDa and OMB. Asheville-based Wicked Weed Brewing was a fourth outfit in the same boat, but recently chose to sign with several distributors locally as they also expanded their territory well outside North Carolina. 

Two other North Carolina breweries, Foothills Brewing in Winston-Salem and Highland Brewing in Asheville, each make around 40,000 barrels of beer per year, and work with several distributors in multiple states to get their products to market. It’s geographically impossible to self-distribute beer over such a wide territory, and utilizing several distribution networks becomes a necessity to cover such an area.

Keep in mind that NoDa and OMB produce roughly half that amount of beer, but geographically cover perhaps a handful of counties. They argue that it doesn’t make sense to sign with a distributor when they’re capable of servicing such a small area themselves.

(6) Have North Carolina breweries always been able to self-distribute their beer?

No. North Carolina didn’t even get a post-Prohibition brewery of its own until 1986, when brewpub Weeping Radish opened on the coast. A few years later in 1989, self-distribution was legalized, with an initial annual cap of 2,500 barrels. 

Keep in mind that OMB does roughly that amount of business in its taproom alone.

beer wine shop dilworth

(7) How did we get to the present limit of 25,000 barrels?

Gradually. The cap was originally increased from 2,500 to 10,000 in 1995, then finally increased in 2003 to 25,000 barrels where it’s remained ever since. 

(8) Since all Charlotte breweries have tap rooms, do sales in brewery tap rooms count against the limit, or are they exempt?

It doesn’t matter where the beer is sold; the limit is based on the amount of beer produced. Whether it’s in the tap room, another county or state, or a bar or restaurant just down the same street: once a brewery produces 25,000 barrels of beer each year, they lose their self-distribution privileges and are mandated to turn everything over to a distributor.   

wooden-robot-tap-room-700

(9) Distributors don’t work for free, what’s their cut?

The range can vary, but distributors taking 25 to 28 percent gross margin is normal. Breweries can either lessen their margins to ensure the prices paid by the consumer stay the same, or maintain their existing margins which will cause substantial price increases at the retail level.

(10) Once a brewery signs with a distributor, what happens to their existing salespeople?

Well, most of them will lose their jobs. Same goes for the delivery drivers. Between NoDa and OMB, they assert that 25 people will lose their jobs if they’re mandated to turn all distribution over to a third party. A few reps might land new jobs with the distributor, but the majority of them would be unnecessary.

It’s important to point out that, the way the law is currently written, all distribution must be turned over once the limit is hit. This isn’t a situation of the brewery being able to handle the first 25,000 barrels and everything else above that goes elsewhere. Once that 25,001st barrel is brewed, it all belongs to someone else.

These self-distributing breweries currently have two options: throttle their own production so they stay under the limit, or turn over rights to every last drop to somebody else. Right now, NoDa and OMB are pledging to throttle production, which will eventually make their beers harder to find around town as they can’t keep up with local demand.

(11) I have more questions not covered here. How do I get them answered?

Find me on Twitter, @AllTheWells. Many thanks to those that reached out to us after the first article, keep these great questions coming!

Speaking of Twitter, many thanks to @Notteham for this wonderful reaction to part one of this ongoing series:

Jason-Notte-tweet-moonshine

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