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Friday, December 20, 2013

Beer Bill: HB 314 debate continues


It didn't take Georgia's craft-beer community long to respond to the Ga. House of Representatives tabling House Bill 314 on March 1. Down but not out, HB 314 - and its sister bill in the Senate, SB 174 - would've allowed Peach State breweries and brewpubs to sell a limited amount of their own beer (288 ounces, or one case, per person, per day) on-premise for off-premise consumption. 5 Seasons Westside held a rally on March 14 (3/14, get it?), and organizations like Georgians for World Class Beer and the Georgia Craft Brewers Guild (GCBG) worked to increase awareness amongst Ga. citizens. Most recently, the GCBG partnered with Wrecking Bar Brewpub for Atlanta's first-annual Strong Beer Fest.

But they weren't the only ones taking action. Starting in August, a study committee of state lawmakers held three meetings under the Gold Dome to collect information about the proposal and make a recommendation on the proposal's future. A draft of that report has been completed, says Donna Yeomans, who assists state Sen. Jack Murphy, the Cumming Republican who chairs the upper chamber's Regulated Industries Committe, and who has been helping organize the meetings. The report is due Dec. 31, and will need to be approved by Murphy at that point. If approved, it will move on to various members of the Senate and House, and once session begins on Jan. 13, Murphy will decide if the Regulated Industries Committee hears the report, discusses the bills, takes any action.

If passed, the bill would slightly alter Georgia's interpretation of the three-tier system. A regulatory system put in place after Prohibition, the three-tier (made up of manufacturing, distribution, and retail) is found nationwide, though every state is allowed to tweak as it pleases. Georgia , unlike the vast majority of our 50 United States, favors distributors. Brewers cannot sell beer in a store or at a bar without signing with one. Furthermore, breweries and brewpubs can't sell their product on-premise for off-premise consumption (IE: growlers, cans, bottles, etc. that consumers would take home to drink) at all. The latter is what HB 314 aims to change, albeit in a limited fashion.

On one side of the issue is the Georgia Beer Wholesalers Association, a lobbyist group which represents the distributors. The group brought in people like Minnesotan commercial litigation lawyer Michael D. Madigan to speak to the committee about the history and efficacy of the three-tier system as it stands currently in Georgia. As the Wholesalers Association promotional "fact sheet" argues, "Why mess with a good thing?"

On the other side is the GCBG, which brought in brewers and beer-industry employees to explain why they think they should be allowed to sell some of their product directly to customers.

"We consider the wholesalers our intimate business partners," GCBG president and Moon River owner/brewmaster John Pinkerton tells CL. "The last thing we want to do is make our business partners mad. Having said that, at the end of the day, we are on different sides of the fence of the proposed legislation."

Martin Smith, a lobbyist for the wholesalers, agrees that the two sides - distributors and producers - require each other for successful business, but thinks HB 314 poses a "potential risk" to the three-tier system's integrity. That, if passed, the bill would initiate a slippery slope that could lead to the dismantling of the system entirely.

"Once you allow [producers these privileges], you have the potential of someone challenging the system," Smith says. "'I want to have [on-premise sales for] off-premise consumption, and off-premise retail as well."

If a slow-and-steady destruction of the three-tier is what Georgia brewers want, they're not being very vocal about it. In fact, the ones speaking up are saying quite the opposite, if only because distributing beer - especially if you want to do it in the numbers required to make a living at it - requires quite a bit of work, money, and time. There's a reason distributors do that work - they're good at it. Most brewers would like to stick to what they're good at - brewing.

"I would still use my distributor for 99 percent of my beer sales," Burnt Hickory founder/brewmaster Scott Hedeen says. "What [HB 314] would allow me to do is sell a case of beer to a person straight from my brewery. People buying directly from me will build the presence of my brewery as a business and attract more people to my town. This is a cash-poor business. We go through feast or famine here waiting on invoices to be paid. With me having the option of limited sales here, I can establish a cash flow to supplement."

Smith says retailers he's spoken with are unhappy with the proposed bill. He was quoted in a recent Athens Banner-Herald story claiming stores would refuse to carry the products of brewpubs selling on-premise. Smith told CL that it is his "understanding that there are some that have indicated they may do that, yes." Asked to clarify, he couldn't come up with any names - on the phone or in two email follow-ups.

"Theoretically, direct-sales of package by a brewery to the public could have a negative effect on Hop City," owner of Hop City's two locations in Atlanta and Birmingham, Kraig Torres says. "That said, for a small, start-up brewery or brewpub, the barrier to entry is significant and selling directly can be an important and necessary source of revenue [for those breweries and brewpubs]. One look at Asheville, N.C. will show you the economic benefits of beer available for retail sale at breweries and brewpubs alike. Hop City benefits indirectly from a healthy environment for my brewery partners, new and established. As long as there are limits on amount of direct-package sales, I am in favor."

Adam Tolsma, senior beer buyer for Green's Beverage Stores, "can't think of any" negative aspects to HB 314's potential passing. Much like Torres, he sees the legislation as a "rising tide lifts all boats" situation. "A strong local beer culture is a good thing for the consumer and craft beer," Tolsma says. "Part of the fun in craft beer is American brewers are pushing the boundaries and even creating new styles. Experimenting like that is often risky, especially for smaller brewers. I think giving brewers tools to be successful is good for everyone involved."

But one Georgia beer industry member with "friends and customers on both sides of the issue," who spoke with CL on condition of both name and occupation anonymity, disagrees. "We've got a couple hundred customers who do not want breweries or brewpubs to sell beer direct to consumers, but they don't want the backlash, either," the source says. "They're restaurants and retailers, and they don't want to be competing with a brewery or a brewpub. They're not publicly gonna come out against it. They might privately, but not publicly."

More than 40 states allow some form of on-premise sales, be that pints in a tasting room, or growlers, cases, bottles, or cans to go. Some, like Torres and the GCBG, point to North Carolina as a progressive example - the former with his Asheville argument above, the latter arguing that N.C.'s looser laws have led to more than 79 breweries and brewpubs to Georgia's 26. Included in those 79 are some major craft-beer names - Sierra Nevada, New Belgium, Oskar Blues - that are in the process of opening east-coast locations there.

But the wholesaler lobby remains unconvinced.

"North Carolina had the highest unemployment rate," Smith says. "So they provided some incentives for [those breweries], whether that was tax incentives or loosening the regs for them. They're about to see these big breweries come online, and whether that's to the detriment of some of the smaller breweries, we'll see."

Further complicating the point is the conflicting opinions on brewpubs. Are they taking advantage of a system in order to unfairly compete with retailers and restaurants, or are they mom-and-pop small businesses just trying to get their product into the hands of customers? Our anonymous industry source argues that if brewpubs (restaurant and brewery combinations) are allowed to sell growlers, then restaurants that sell beer on draft should be allowed to sell growlers as well.

"[A brewpub's] got a little bit of stainless steel. You know, you can buy a couple-barrel brew thing for four grand," the source says. "You start making beer in your restaurant, and you're gonna compete with the guy who's got five million dollars in his restaurant next door? I don't see how that's fair."

Crawford Moran has a few words to say about fairness. As a former brewery owner (Dogwood, which closed in 2004 after facing distribution woes), and current brewpub owner and brewmaster (5 Seasons Westside, Slice & Pint), he argues that these concerns are simply part of business.

"We all face competition," Moran says. "I face it every day, from other restaurants, brewpubs, breweries, food trucks, grocery stores. Competition makes us better. I don't understand why certain retailers or certain wholesalers should be exempt from competition. Go watch the Nature Channel. The slow antelope always gets eaten. The herd as a whole gets faster."

State Rep. Bret Harrell says the legislative system currently in place does a great job, for the most part. There are more beers for sale in Georgia than ever before, at unheard-of price ranges.

"From the state's perspective, we've got a safe product, we've got consumer choice, we've got consumer variety, and we've got a competitive marketplace," Harrell says. "Within that, I ask myself, what more could the state do?"

Harrell thinks the state could encourage small-business growth without impeding the successful current market.

"As a small-business person, I always understood once I get a customer in my store, whether it's a print shop or a hair salon, if I could make an additional sale from somebody that's already on site, it's a much more profitable sale," he says. "The ability to buy a growler to-go takes an on-premise customer, somebody that's already in your store and buying your product, and allows that business owner to earn an extra dollar of profit off that existing customer."

He continues, "There's a marketing value to having your logo sitting in someone's refrigerator or on a shelf for the next week or two. It reinforces that identity. 'Oh, yeah, I enjoyed that place. I might want to go back.' I think there's real value there."

In the meantime, everyone waits. The study committee's report is due on Dec. 31. On Jan. 13, session begins, and decisions start getting made. While the issue is not exactly life or death, it is symptomatic of a larger concern: Why is Georgia, and the South in general, still playing catch up with the rest of the country after so many years? Pinkerton, for his part, is tired of it. He hopes a compromise can be made between the guild he leads and the wholesalers who disagree with him. If not, well, on to the next chapter to see how the story unfolds.

"We're trying to work directly with the legislators to see if we can't quietly impress upon them that things are about to get noisy," Pinkerton says. "Hopefully they'll put some pressure on the wholesalers to do some kind of deal. If that doesn't work, then we really pull out all the stops with a grassroots campaign. And we want to make sure that the message remains positive in terms of how we value our wholesaler relationship. But we believe that we are right in trying to tip the scales back a little bit in our favor. Because they've been tipped in the other direction for far too long."

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