The Tricky Thing About Distribution

Sociable Cider Werks and Bauhaus Brew Labs recently began driving beer all the way to Wisconsin in a process called self-distribution.  People have been asking us recently, why? I’ll give you the long answer. Selling beer and cider to bars, restaurants and liquor stores seems like an obvious thing to do for an up and coming craft beverage producer. That said, it was a plan many of us are rather poorly equipped to execute.  We have small, relatively inefficient production facilities that produce beer at a relatively high cost, and we produce such small volumes that we don’t really matter to the people that do most of the buying. Let me explain.  

Most states in our union have what is called a “Three Tier System.”  That means that in the alcohol business you can be either a producer (brewery, winery, distillery, etc), retailer (Bar, liquor store etc.) or a distributor, which is effectively a delivery company with a sales staff.  Traditionally, once you chose which of those three tiers, that was the ONLY tier in which you could do business. Only recently have some of those strict lines begun to relax. Drinking a pint in your local taproom, for example, is a relatively new phenomenon.  Similarly, small breweries delivering their own products to bars, restaurants, and liquor stores is another new(ish) carve out from the three-tier system.  

It begs the question, why would a brewery ever want a carve out from this system?  Consider some history to answer this question. In 1978 there were 42 breweries in the country (yes, I said country, not county).   Around the same time there were 4595 distributors. Those distributors in turn sold products to hundreds of thousands of retailers.  If you were a brewer, you sold to a network of distributors, who then sold to a network of retailers. At each level there were more customers buying a limited selection of products.   By all measures traditional distribution worked GREAT.  

Fast forward to today.  There are over 6300 breweries in North America selling into fewer than 3000 distributors who, on average, are responsible for selling over 1000 unique items.  No sales person on the planet is capable of selling 1000 unique items well. As such, smaller brands can’t possibly demand the full attention of the distributor sales force. It’s not a question of desire or effort, it’s just sheer scale.  

Enter self-distribution.  In the retail tier there are 650,000 alcohol sellers in North America.  Meanwhile, in the producer tier, 95% of the licensed producers make less than 4% of the total volume.  In a nutshell, we little guys are a gnat on the cow’s ass of big beer. To get noticed we have to create some buzz.  Our local taprooms helped us connect directly with MN fans… buzz. Beer Dabbler and Guild festivals helped us market directly to beer super fans… buzz.  Cool bars put our new products on tap…buzz.  

Now, by building relationships directly with our fans in Wisconsin we create buzz about our brand.  We can hear directly from our customers and hand-sell the kind of experience we want people to have when enjoying our products.  Delivering kegs and stacking cases is a huge pain in the back. It’s not particularly profitable and it definitely limits how widely available our products will be in Wisconsin.  That said, it will allow us to create that most critical of items for a small craft producer, some buzz. So THAT is the long answer for why we are going back to the basics. Selling one keg or case at a time to customers who will know our story, have some respect for our team, and love getting a little Sociable buzz.  

Jim Watkins