If you missed my introductory post last week, check it out for some basic information on beer distribution in the U.S. As I mentioned in that post, laws can vary widely between states as a result of the 21st Amendment. While Virginia's three-tier system is somewhat standard, breweries have a few ways to sell beer without using a wholesaler. Like most states, brewpubs (where the producer is also the retailer) are allowable in Virginia. Since the passage of Senate Bill 604 in 2012, craft breweries in Virginia have also had the right to sell products from a taproom for both on-premise and off-premise consumption.
Virginia craft breweries are not totally limited to contracting with a wholesaler when it comes to selling beer to a retailer (i.e. a bar, restaurant, convenience store, bottle shop, grocery store, etc.). Self-distribution is technically allowed in Virginia's Alcoholic Beverage Control Act through the creation of an independently-owned wholesaler.* One brewery, Three Notch'd Brewing Company out of Charlottesville, has actually taken on that task by opening Central Virginia Distributing, LLC. There is a reason very few breweries "self-distribute" outside of their local area: the costs and time associated with distribution are massive and challenging. Distributors invest in sales staff, cold storage space, and logistics that allow beer to be sold and delivered across a large territory in a timely manner. Investing in that type of infrastructure is challenging for a small craft brewery!
The 2012 Craft Brewers Conference in San Diego opened our eyes to the reality of the three-tier system. After a great deal of followup research, in January 2013 we began meeting with distributors in our local territory. There are an incredible number of variables to consider during distributor research and selection. For example, is the wholesaler aligned with MillerCoors or Anheuser-Busch InBev, or are they a craft-only wholesaler? Do they pay their sales staff a base salary or do the employees earn a commission? Are the sales staff highly trained in understanding and selling craft beer? Do they have draft beer technicians that clean draft lines at on-premise accounts? How does their marketing department handle craft beer? Do they participate in all of the local festivals and events? Are they statewide or limited to a certain geographic area? Those questions are just the tip of the iceberg when it comes to discussions with wholesalers.
We are using multiple methods to evaluate each distributor currently under consideration. Besides multiple meetings at the distributor's offices and our future facility, we also request a ride-along to see how the sales staff operate on a daily basis. It's very enlightening to see the relationships the staff have with local establishments, as well as which products they push and, conversely, ignore. Every time we are visiting a brewery we inquire about their relationships with wholesalers; most brewery owners will share the good and the bad, which is exactly what we are looking to understand. Finally, we also speak to retailers and bar managers as often as possible. They are purchasing the beer from the distributor in the end, and it's extremely important to hear how they feel about working with each and every distribution company.
There is much to be done over the next six months to prepare for distributing our beer outside of the brewery. Two years of research have resulted in a solid knowledge base, but the landscape is constantly changing and we will continue to refine our distribution plan. Signing that first contract with a wholesaler will be the culmination of years of hard work, but it's all worth it if we make the right decisions and end up with great partners!
*One of my favorite sections of the Virginia Alcoholic Beverage Control Act is 4.1-208, which describes Beer Licenses available in Virginia. While we will be only the second craft brewery to open in Williamsburg, we will actually be the third brewery if you count Anheuser-Busch InBev's massive production facility located only 3 miles from 401 Second Street. The construction of the brewery, which was opened in 1972, also included the development of Busch Gardens Williamsburg, the Kingsmill Resort, and the Kingsmill on the James residential community. The Act reads as follows:
"The Board may grant the following licenses relating to beer:
1. Brewery licenses, which shall authorize the licensee to manufacture beer and to sell and deliver or ship the beer so manufactured, in accordance with Board regulations, in closed containers to (i) persons licensed to sell the beer at wholesale; (ii) persons licensed to sell beer at retail for the purpose of resale within a theme or amusement park owned and operated by the brewery or a parent, subsidiary or a company under common control of such brewery, or upon property of such brewery or a parent, subsidiary or a company under common control of such brewery contiguous to such premises, or in a development contiguous to such premises owned and operated by such brewery or a parent, subsidiary or a company under common control of such brewery; and (iii) persons outside the Commonwealth for resale outside the Commonwealth. Such license shall also authorize the licensee to sell at retail the brands of beer that the brewery owns at premises described in the brewery license for on-premises consumption and in closed containers for off-premises consumption.
Such license may also authorize individuals holding a brewery license to (a) operate a facility designed for and utilized exclusively for the education of persons in the manufacture of beer, including sampling by such individuals of beer products, within a theme or amusement park located upon the premises occupied by such brewery, or upon property of such person contiguous to such premises, or in a development contiguous to such premises owned and operated by such person or a wholly owned subsidiary or (b) offer samples of the brewery's products to individuals visiting the licensed premises, provided that such samples shall be provided only to individuals for consumption on the premises of such facility or licensed premises and only to individuals to whom such products may be lawfully sold.
Online records of changes the General Assembly has made to the Act only go back to 1994, but something tells me that Anheuser-Busch may have had an influence on Beer Licenses in Virginia!