Fearful Symmetries

Witness a machine turn coffee into pointless ramblings...

28 June, 2007

Woe Betide the Wisconsin Microbrewer? (Follow-Up)

When I got home from work this evening, I found that my roommate had taken a message from Russ Klisch of Lakefront Brewery. I called him back only to find him at Summerfest. I offered to call him tomorrow but he was eager to chat.

Earlier today I wrote about the proposed Brewpub Tourism Development Act which Sen. Fred Risser, D-Madison, and Rep. Scott Newcomer, R-Delafield, are looking to introduce this year. Ostensibly the bill is to allow brewpubs to have more than two locations at which their beer is brewed and served. In this case the hubbub centers around the Great Dane Brewpub here in Madison which opened a third location out at Hilldale Mall which currently carries only imports and domestic craft beers instead of their own brews because of a 1933 law intended to prevent large breweries from monopolizing the retail end of the market. Over 70 years later, the law is outdated and in need of revision.

But the bill as it currently stands is drawing the ire of small brewers (as opposed to brewpubs). I noted earlier that I first caught wind of this from Rob Larson of Tyranena Brewing Company. He didn't have the time to help me understand the objections of the microbrewers but Russ Klisch who clarified things for me. Well, as much as he could via the phone while he was at Summerfest.

The crux of the matter is that the bill as it is now appears to prohibit expansion beyond two premises if the sales of food at both locations does not equal 50% or more. According to Klisch, the folks who would most immediately be affected by the passage of the bill are Gray's Brewing, Tyranena, the Milwaukee Ale House, and the Calumet Brewing Company up in Chilton. He illustrated his statements by noting the plight of Jim McCabe, the owner of the Milwaukee Ale House. McCabe is looking to open a restaurant in Grafton but, if the bill is passed as is, he'll find himself in the same position the Great Dane is today by being unable to sell his own beer. This is because there's the MAH and the new brewery and, since the brewery doesn’t get at least 50% of its sales from food, a third location would be verboten. Gray's is in a similar situation with their brewery in Janesville and the Tied House in Verona. The Great Dane is all brewpub with no site dedicated to brewing so they'd be allowed up to six locations.

Klisch clearly grew a bit angry as our conversation progressed and especially when he related how he contacted the Great Dane to talk things over and was directed to the brewpub's lobbyist who, he said, just blew him off. So why is all this happening?

Wisconsin has a three-tier system for beer – brewers, distributors, and retailers. (I like to think of myself, the drinker, as the fourth tier.) Laws passed immediately after Prohibition were designed to keep large brewers at bay. Admittedly, I'm not an expert on the laws, but, in general, retailers must buy their product from the middleman - the distributors. The issue here with the Brewpub Tourism Development Act is with the Wisconsin Wholesale Beer Distributors Association. Things get a little foggy here for me as they were for Klisch but it seems that distributors want to limit the ability of small breweries to sell their beer. The theory is that they are trying to mount a defense against Costco which is apparently lobbying in other states to buy directly from brewers instead of from distributors. The exact mechanism is unclear to me but I was told by Klisch that the distributors want a new classification for small breweries to keep distribution channels firmly in the hands of the members of the WWBDA. I highly recommend reading "Craft Beer Pipeline Opens as Wholesalers Scramble to Add Brands" up at Ale Street News. Now that the craft beer industry is growing again after a slump 6-7 years ago, companies are scrambling to become the sole distributors of microbrews and consolidation is occurring at a fast rate. So it seems this isn't an act of war by the WWBDA, but rather a shoring up of the defenses as Costco is looking to get a foothold in Milwaukee.

According to this article from the Milwaukee Journal Sentinel, the WWBDA is "politically powerful" and is "a heavy source of campaign contributions for both Democrats and Republicans." (Some numbers can be gleaned from the Wisconsin Democracy Campaign.) Recall from my earlier post the surprise of the commenter at Beer Advocate that the WWBDA was on board here. The clout and the Costco Defense Theory would explain why they have given their stamp of approval to the proposal. Klisch said that liquor-related bills are generally introduced in the fall when the legislature is trying to formalize the state budget.

Saddest to me is that there's talk of trying to get a boycott of the Great Dane going. Until now, the notion of a rising tide lifting all boats seemed to prevail in the craft brew industry. Microbreweries and brewpubs were allies trying to enter a market dominated by Miller, Anheuser-Busch, and Coors. But now a fissure has appeared.
|| Palmer, 11:21 PM

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