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.