The Beer Distribution Oligopoly Bravely Resists the Competition That Could Lead to a Monopoly

Here is another crazy, anti-competitive regulation to blame on alcohol wholesalers: Under Texas law, brewpubs may serve beer or sell it directly to the public for home consumption, but they are prohibited from selling it via distributors or retailers. A brewpub coalition known as Texas Beer Freedom is supporting a bill, H.B. 660, that would lift those restrictions. But as The Texas Tribune notes, "the small brewers have to overcome some opponents with big names and deep pockets: the powerful beer distribution lobby." Said lobby resists any erosion of its privileges under the "three-tier" alcoholic beverage distribution system, the pure version of which decrees that producers, wholesalers, and retailers should never be the same businesses. Rick Donley, president of the Beer Alliance of Texas, which represents wholesalers, invokes the authority of tradition:

This regulatory system has worked well since Prohibition. Why anybody wants to disrupt it is a question I can never quite get an answer to.

I'm guessing that Donley has never bothered to ask anyone who is not a beer wholesaler. Texas Beer Freedom notes some of the anomalies created by the state's arbitrary rules:

Texas law discriminates against Texas businesses because it favors out of state brewpubs over Texas brewpubs. A brewpub in California isn't subject to Texas restrictions, so it can sell beer on site as well as package it for distribution to other states, including Texas. A Texas brewpub can't do this. So we have a situation where you can buy beer from a California brewpub at your local HEB [market], but you can’t buy beer from the brewpub right down the street. The only place to get Texas brewpub beer is from the source.

The way Texas law is now, a Texas brewpub owner could sell more beer in Texas if he moved his business to California or Colorado. That way, he could still sell his beer on site, while also packaging it for sale in stores. By remaining in Texas, Texas beermakers miss out on an important revenue stream: brewpubs can't make money by selling their beer in stores or in other bars; breweries can’t make money by selling their beer on site.

Texans drink more beer than every other state but California, but Texas ranks in the bottom five states in terms of breweries per capita. It's not that Texans don't love beer—it's that Texas law makes it hard to make beer in Texas.

Craft beer is one of the fastest growing segments of the U.S. economy, but Texas is missing out on the boom. There were five brewpubs in the U.S. in 1986. Today, there are over a thousand. The number of brewpubs in Texas peaked in the late 90s, and there are fewer brewpubs in Texas now than there were 10 years ago.

The current rules therefore manage to be both protectionist (preserving wholesalers' privileges) and anti-protectionist (favoring out-of-state microbrewers). According to the Tribune, Donley says the restrictions nevertheless should be preserved because the three-tier system "keeps any one business from creating a monopoly." Scott Metzger, owner of Freetail Brewing Company in San Antonio, seems to have a firmer grasp of the situation. "At the end of the day," he says, "it's just about they don't want increased competition and how that affects their personal wealth."

Addendum for optimists: According a 2005 report from Connecticut's Office of Legislative Research,  43 states had laws that specifically addressed brewpubs, and 34 allowed at least some sales for off-premises consumption. The very existence of brewpubs (businesses that both make and serve beer) would not have been possible without the liberalization of state laws that began in the early 1980s, one of the factors that contributed to the craft beer revolution discussed here, here, and here.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Scott||

    Part of why I will be seeking out like-minded liberty lovers when I get back down there after finishing my master's degree. I love my state (though I really don't like beer) and want to make it even more free.

  • Almanian||

    ...and here come all the homebrewers in three, two, one...

  • lunchstealer||

    This former Texas beer consumer has relocated to Colorado. The beer is better here.

  • ||

    Texans drink more beer than every other state but California, but Texas ranks in the bottom five states in terms of breweries per capita. It's not that Texans don't love beer—it's that Texas law makes it hard to make beer in Texas.

    From what I can tell, all Texans drink is Alamo Beer.

  • ||

    Remember the Alamo!

  • ||

    What? No, Lonestar.
    and occasionally PBR.

  • Old Mexican||

    It's not that Texans don't love beer—it's that Texas law makes it hard to make beer in Texas.


    That's why w' make beer under th'law! An' move it in fast Chevies and Fords past the cops! Yeeee-Ha!

  • lunchstealer||

    I have never seen a Texan drink Alamo. Craptons of Miller Lite, rather a lot of Shiner, and a whole lot of out-of-state craft beer.

  • Gray Ghost||

    Plus Saint Arnolds, Southern Star, 512, and Real Ale for in-state craft beer. But you're right, with Avery, Oskar Blues, Breckenridge, Great Divide, and others, the beer is better in Colorado.

    Donley says the restrictions nevertheless should be preserved because the three-tier system "keeps any one business from creating a monopoly." Aren't most liquor distributors essentially a monopoly for their location, in their tier? Or is that only for places like Illinois?

  • ||

    Ah, but Ghost, the "tiers" eliminate the monopoly aspect...or something. See, you're getting gouged by a chain of businesses, not just one Big Evil Corporation, so it's all-cools. That the gov't gives them the legal authority to do so is "nothing to see here, move along".

    (People love to bitch about monopolies, but seems to me that pretty much every monopoly, ever, has been a creation of gov't policy. It's almost like free markets abhor a monopoly or something...)

  • Bill||

    I'm sure the government(s) know what they are doing. It's their job to protect the children, and the old folks, and other stuff.

  • ||

    I was making a crack about King of the Hill being my reference point for all things Texas, but lo and behold, there's actually an Alamo Beer Company.

    I'm batting .000 today.

  • Joe M||

    In a related bit of nonsense, it's also illegal to work at more than one tier in the system simultaneously. Hence, I was unable to get a job at St. Arnolds while already bartending at a pub.

  • ||

    You should have recused yourself from seeking that job. Such a blatant conflict of interest, tisk-tisk-tisk.

  • Adonisus||

    Here in Georgia, it's still illegal to buy alcohol on Sunday.

  • nobody||

    It's the same in Connecticut. And Monday through Saturday you can't buy beer after 8 o'clock.

  • ||

    It's 9PM now, but a lot of stores till close at 8.

  • Jerry||

    Isn't the Supreme Court going to hear that wine shipping across state-lines case pretty soon? The microbreweries might not even need a bill...

  • prolefeed||

    Aaaaah, to be so innocent.

    Beer distributor giving "campaign contribution to legislator: "That SCOTUS ruling about wine only applies to wine. Beer is totally different ..."

  • ||

    Beer will totally replace wine in ten years. Don't believe me? Go look at the label for a so-called "wine" cooler.

  • prolefeed||

    Not buying that every vineyard in the world will be replaced by wine cooler makers, or even that the percentage will shift all that much. Some of us proles enjoy the good stuff.

  • ||

    Not just wine coolers but wine itself will be replaced by malt beverages. It's all because of Big Hops.

  • Gray Ghost||

    And as far as the snob appeal goes, beer is rapidly closing that gap too, mainly because of the ridiculous pricing that's taken over the wine market. I got into wine when it didn't require $35 a bottle to find something interesting. Conversely, for $20 at the outside, I can taste an example of the pinnacle of beer making, be it Trappist Ale, or Imperial Russian Stout, or Dopplebock. Add in the fact that wine is much finickier about shipping than beer and it's no contest. I couldn't afford to learn wine appreciation today.

  • Chupacabra||

    If you think you need to spend $35 to drink something "interesting", you're really out of the loop.

  • Gray Ghost||

    Nope, just jaded, I suppose.

    Wine prices have escalated much faster than inflation in the last 10 years, though, so what was a decent $20 bottle for dinner 10 years ago, is now a $35 bottle. It's a bit easier shopping in CA, as CA wines are, naturally, cheaper there.

  • robc||

    Saw an study the other day, at blind tastings, wine experts had a positive ratings increase with price. However, regular wine drinkers who werent professionals had a negative correlation. This negative correlation was even stronger in the $6 to $15 range. As prices got more expensive (not that they knew this, being blind tasting), regular folk liked the wine less.

    So, unless you are Robert Parker, you can find something very very tasty in the $6 to $10 range.

  • ||

    And if you "grow your own", the price drops to about $2.50/btl for some fairly tasty grape. You can buy concentrate for just about any varietal you like these days.

  • prolefeed||

    you can get a great tasting wine for $3. seriously. Charles Shaw Merlot (aka "Two Buck Chuck", up to three bucks now)

    and Costco has a wide selection of wines with Wine Spectator ratings in the low 90s starting below ten bucks, and up to fifteen or so bucks.

    so, no, I'll stick to craft beer and good but inexpensive wine, thanks.

  • )||

    Make mine a nice jug of 2011 Carlo Rossi Paisano.

  • Gray Ghost||

    I've had Two-buck Chuck. It's fruit and water, and very consistent. Very high consistency for the price (which is something much of the wine world could stand to work on.) This is fine if that works for you---it clearly does for very many people. And probably explains robc's above explanation for blind tasting preferences. I just find beer at that price to be more interesting, and I'd rather spend alcohol calories on stuff that interests me.

    With beer, I can get something much more interesting for the same money. Again, $20-25/750 mL gets you pretty much anything in the beer world. BrewDog is on their own program... For $20, full retail, I don't find most of what's offered in wine to be all that interesting. Drinkable, sure. The 3L box packaging of Bonny Doon's Big House line are very tasty at ~$5/750 mL equivalent. But it's not interesting. It's due to being jaded, I'm sure. And the Wine Spectator's ratings are usually---Laube is O.K. on CA Cabs for my tastes---not worth the glossy paper they're printed on. Parker's fine if you stick to Bdx, and if you calibrate for his increased love for oak and extraction. I like the notes from his earlier editions much more. Oh well, everything changes.

    It's all de gustibus non est disputandum anyways.

  • omg||

    I do notice that in CT I can buy a six pack of a beer made at a local brewpub in my local liquor store, so there is some hope at least. Not sure how they got around the legal requirements.

  • ||

    Like from here?

  • omg||

    I've actually never been there before. Do they sell their beer in liquor stores?

    I was actually referring to some beers by "City Steam" which is in the middle of Hartford.

  • ||

    "Monopoly" you keep using that word, I don't think it means what you think it does.

  • ||

    This regulatory system has worked well since Prohibition made me rich.

    Why would anybody want to end that?

  • ||

    More to the point, it has worked "since Prohibition"....seeing how Prohibition was such a failure, pretty much ANYTHING after that point would be an improvement. But hey, let's not look further back, that'd be like olden times or something, and stuff from back then is meaningless today.

  • ||

    I believe that pre-Prohibition many bars made their own beer. And retailed it, often to people bringing an empty bucket from home. And a city like Cincinnati had dozens of bars in some blocks.

  • robc||

    In late 1800s, Louisville had tied houses (which is what the 3 tier system is supposed to provent). Breweries had deals with bars to only sell their beer. Some bars and grocery stores get sick of it and formed a cooperative brewery: Falls City Brewery.

    By the time prohibition hit, it was far and away the largest brewery in Louisivlle.

    In the 1970s it also inflicted Billy Beer upon the world, but win some/lose some.

    The 3 tier system was not needed to solve the tied house problem.

  • dunkel||

    Falls City is back!

  • BoscoH||

    Texans drink more beer than every other state but California,

    Add that to the list of things you don't talk about in Texas.
    1. Which state is biggest. (Alaska)
    2. Which state has the most people. (California)
    3. Which state drinks the most beer. (California again)

    and the 4th thing you don't talk about in Texas? The Civil War.

  • ||

    5. everything is actually bigger in Illinois. (if we include waistbands).

    Losin everything, Texas.

  • flye||

    That beer consumption has to be total, not per capita. Otherwise Nevada and New Hampshire would lead the list.

    Taken on a total basis, California probably leads the nation in purchasing a whole host of things: bibles, shake weights, toy dogs, hubcap spinners...

  • GILMORE||

    Nope. Highest per capita consumption is Wisconsin. I think next was Minnesota and maybe Oregon. New England isnt far behind (per capita consumption closely tracks northern latitude; go north, find fat drunk people who don't mind long winters)

    Internationally, guess who leads the pack. No, don't look it up. Just guess.

  • GILMORE||

    Aw, fuck. I looked it up, and you're right. Thats what I get for checking statistics once a decade.

    Darn you free-staters!

    Wisconsin didn't even break into the 40-gallon club... (montana, north dakota, new hampshire)...

    I discount Nevada completely because its not representative of in-state resident consumption - its a reflection of the fact that Nevada and Reno are cities with one industry = get out-of-staters fucked up and take their money.

  • Jim||

    If any of you get the opportunity to tour the Rahr Brewery in Ft. Worth, it's worth (no pun intended) your while.

  • BakedPenguin||

    I remember buying (underage) a couple of cases of Texas Light in the early nineties for $5.50 a case, which was a ridiculous price even then. They were actually drinkable if you put them in the freezer for 45 minutes - beer slushies.

  • Mr. Mark||

    Time for a putsch!!!!

    The three tiers of biers should never be in the same business? Why? What happens?

    Anyhow...I want to be able to get Forst beer here in the states. This has nothing to do with the topic of discussion, but I think it's important anyway.

  • Mensan||

    I bit off topic, but it is about beer, so, has anyone else ever been to Australia? One thing I noticed was that Fosters is the Aussie version of Natural Light; the only place they sell it is gas stations, and nobody, other than broke students, drinks it. Also, from my entirely unscientific survey of people I met at pubs, the favorite fancy imported beer (that costs $50AU for a 12 pack) was Budweiser.

  • ||

    Bud?!? Seriously?

  • ||

    I heard this was true in Japan--at least back in the 80s.

  • robc||

    Its true everywhere. England, Germany, etc.

  • Jason||

    Czech or American Budweiser?

  • ||

    There is no American Budweiser. It's a foreign brew now.

  • Fatty Bolger||

    They're tekkin err beeersss!

  • GILMORE||

    technically, brazilian

  • Fatty Bolger||

    I don't know about now, but yes, Australian friends back in the 80's told me the same thing. Fosters was considered to be crap in Australia. It's as Australian as Outback Steakhouse.

  • Scott||

    My grandfather drinks Natural Light like it's water. But he was raised in California...

    Alcohol laws get interesting in a state with large clusters of socons. The city of Lubbock became wet for the first time in decades a couple years ago. I'll have to get used to there being liquor stores everywhere when I move back in a few months.

  • Fatty Bolger||

    My grandfather drinks Natural Light like it's water.

    It pretty much is.

  • Jim||

    It's wet now! Jeez, I got so used to making runs to the Strip for an entire week's worth, I can't imagine doing it any differently. My how things can change in a few short years.

  • GILMORE||

    Why do you torment me, oh god?

  • puma pas cher||

    nice

  • ||

    If the Leg wasn't totally consumed with the budget this session, it would be interesting to see how the very large Tea Party contingent handled this. They aren't beholden (yet) to the big lobbyists and trade associations.

    As it is, I doubt any beer reform bills will move.

  • GILMORE||

    I will repeat a comment made before:

    [regarding a beer distributors convention - comment by savvy old industry analyst] = "The dumbest group of millionaires you'll ever get together in one room"

  • Gray Ghost||

    Gilmore,

    Do beer distributors have as much hatred for distilled spirits and wine distributors as I've read in books like, Thank You For Smoking?

  • GILMORE||

    I've been a consultant for both beer companies, distributors, and tobacco companies; in my experience there was little animosity amongst the beer guys for the other booze fellas, other than a grudging acceptance that they have a different (and harder) business to manage... some smaller houses wouldn't mind having a dual-warehousing system for managing on-premise delivery (i.e. reducing stops & fleet costs, in theory), but the fact is that it would require adjustments to the three-tier system that treats beer and spirits differently, and that system protects both sides of the business from competition. (in liquor, the distribution system is much more nationally top heavy, with Southern Wine & Spirits running franchises all over the place... e.g. http://www.southernwine.com/ you can see they own the country aside from the midwest...)

    ... whereas the beer industry is necessarily a 2-1/2 sided system (AB vs MillerCoors vs independents); they basically are a 50/40/10 split for national distribution, and every state has different franchise operators, so there's little threat of change to the status quo...

    So, to answer your question - no, the alcohol distribution business is not much at unease with itself; its more concerned with maintaining its legal protections. The biggest scare they got recently was the loss of AB to InBev, which foretold of possible changes in the largest national distribution system, where suddenly the most generous patron was owned by penny-pinching brazilian financiers who were going to squeeze everything they could out of the middle tier... however, so far, it hasn't shaped up that way. Although i do think the future may gradually see more change; already most houses are getting rid of exclusivity contracts with the brewers in order to pick up incremental volume from in-state craft/microbrewers like those mentioned (where legal), and/or actually carrying both system's products despite being a one-system franchisee (e.g. MC people bidding to haul bud products in certain territories where it makes sense and is less profitable for the main franchise owner). Its still marginal in the end. Craft will never be more than 10% of total volume (equivalent to imports), and more like 5-8% of profits. It's not really a hotbed of debate except for smaller carriers.

    addendum - I made beer @ Market Street/Bohannon Brewing co. & Nashville during college; also worked @ Big River brewpub in same town (I think it eventually became BB Kings...). I have a profound respect for small brewing operations trying to make a buck in a world where the major players basically own all the trucks and passionately try and keep everyone else down...

    Careers in Beer = I don't really need to sell you the perks, do I?

  • Gray Ghost||

    Thanks for the extremely thorough comment. I'd love nothing more than to make a small fortune in the wine business, right after I make a large fortune doing something else...

    Given the very small, and likely to remain so, market share for craft brewing, I never understood why the distributors wanted to make such a fight over direct shipping. Obviously I don't know, but I would think that a large retailer, either on-premise consumption or off, wouldn't have much interest in messing around with direct winery/brewery purchasing---too many accounts to keep track of, not their core competency, etc... Let the distributor worry about all that. With modern inventory/information systems though, I certainly could be wrong about how difficult it would be for the average retailer to deal with order fulfillment for all of the suppliers in their establishment.

  • chaussures puma ferrari||

    is ok?

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement