Georgia craft brewers seek to alter Prohibition-era model

ATLANTA |Brewers of craft beer are hoping their fans will help convince Georgia lawmakers to allow the sale of limited amounts for drinkers to take home.

"I like to buy vegetables from farmers and like to buy bread from bakers, and it doesn't seem fair to customers that they can't buy beer from brewers," said Crawford Moran, brewmaster at 5 Seasons Restaurant Brewer and at the Slight & Pint in Decatur.

Current state law prohibits brewers from selling packaged beer directly to consumers, except for a recent provision that allows brewpubs that offer food to sell suds for on-site imbibing.

The law goes back to the Prohibition era that ended in 1933 and attempts to stop practices common in the industry before Prohibition shut off the spigots for 14 years. Breweries used to make, ship and sell beer in chains of saloons they owned or effectively controlled, keeping out competing brands and pushing sales regardless of the wellbeing of customers. The phrase "lock, stock and barrel" originated to describe the business model.

The so-called three-tiered system of brewers, wholesalers and retailers was designed as a reform to minimize over pouring and to protect smaller brands from being squeezed out of the market by limiting entities to one tier.

Georgia beer distributors say the system has worked well and beer drinkers have gained from it.

"The three-tier system has been beneficial to consumers because it allows all brewers, large and small, equal access to consumers," said Martin Smith, assistant director of the Georgia Beer Wholesalers Association.

But as craft brewers have sprung up in recent years offering intensively flavored alternatives to the national brands, they've chaffed at the system's constraints. They pushed the state Legislature to allow brewpubs that serve food to serve their beers by the drink, like any other restaurant. They won the ability for brewers to give limited samples for free - only being able to charge up to $12 for the glass mug.

Now, they are pushing to sell bottled beverages that can be taken home. Senate Bill 63 would cap sales at 144 ounces, equal to a 12 pack or a couple of growlers.

Chris Herron, CEO of the Creature Comforts brewery in Athens, says take-out purchases would increase demand when someone who enjoys a sample at the brewery takes some home to share with his buddies who come over, and they all wind up buying that brand the next time they're in a store.

"I would see it as having a halo effect on our sales outside of our brewery," he said.

The distributors and the retailers would see their sales increase at the same time the brewers did, he predicted.

Smith sees it differently.

"The fallout is it weakens the system that works," he said.

By the system working, he means that Georgia has the fifth-largest overall market for beer and the 18th-largest for craft beer. Atlanta-based Sweetwater Brewing Company is the largest craft brewer in the South.

Demand is already healthy, but the legislation wouldn't expand the sales "pie;" merely alter how big each slice is.

Herron counters by noting the potential goes further than added sales. His company would hire two or three extra employees, as would each of the two-dozen other craft brewers in the state.

Beyond that is the added impact on the local economy. Craft brewing is a tourist draw to the communities where brewers are located. "Bottle releases" of new varieties have been known to attract a thousand or more aficionados, he said.

Nick Purdy, president of Wild Heaven Draft Beers in Decatur says the added sales from Herron's halo effect actually benefits the entire three-tier system.

"When you visit a winery, you don't go back there when you want a bottle, you go to the retailers," he said.

The wholesalers' Smith represents doesn't buy that reasoning.

"It does not create jobs; it does not create new funds or capital," he said. "It simply shifts existing jobs and revenue."

The Legislature will have to make the ultimate decision, but three marketing professors at separate schools interviewed independently all agree with the brewers and dismiss warnings that the three tiers will crumble, leaving consumers with little choice after the brewing giants take command of the industry.

"That's so dumb, dumb, dumb, dumb," said Barbara Coleman of Georgia Regents University. "... That doesn't mean there isn't room for an alternate method of distribution. I hardly think that buying a 12 pack is a threat."

Chris Lemley of Georgia State University wonders why anyone is fighting the proposal.

"If I were a distributor, I would probably like it," he said. "It's a good sampling technique because it gets people to buy the first 12-pack."

And the University of Georgia's Terry College of Business, marketing professor Sundar Bharadwaj notes that many industries experience tension along the distribution channels. He points to companies like Amazon, Tesla, Uber and even McDonald's when it began as examples of upstarts whose novel approaches to distribution disrupted their industries.

"This channel conflict has always been there," he said.

Distribution channels only crumble if there is no value added by each link in the chain, Bharadwaj said. But since all consumers are not alike, there are opportunities for each tier to cater to the needs of at least some customers, such as the convenience of a retailer, the merchandising and logistics economies of scale from the wholesaler and, of course, the product from the brewer.

SB 63 is awaiting a hearing in the Senate Regulated Industries Committee, which counts as its members several of the bills cosponsors.

Plus, those cosponsors include a number of senior senators, like Economic Development & Tourism Chairman Frank Ginn, R-Danielsville; Judiciary Chairman Jesse Stone, R-Waynesboro; and Industry & Labor Chairman Charlie Bethel, R-Dalton.

Follow Walter Jones on Twitter @MorrisNews and Facebook or contact him at walter.jones@morris.com.