April 4, 2017
Brewers, especially new brewers, face the issue of whether to self distribute their product or rely on a third party beer distributor. Luckily enough, most states give you the right to choose. In Minnesota, for example, you can be licensed to self distribute instead of partnering with a distributor, up to a certain brewing and sales threshold.
The Three Tier System
Following prohibition, a law was instated in nearly every state requiring alcohol to be sold through a wholesaler or third party distributor. This is part of what is referred to as the three tier system and was designed to protect suppliers, in this case brewers, distributors and stores by leveling the playing field. The basic structure is that suppliers sell their products to wholesale distributors who then sell to retailers, and retailers then sell directly to consumers.
But which one is right for you?
Third Party Distribution Concerns
One of the biggest concerns that brewers face when deciding on how to distribute is cost. Without a handful of cash, many brewers face the issue of how to get their product into consumers’ hands in a cost effective manner.
In the last decade, the number of breweries has increased while the number of distributors has decreased. Big distributors are often owned by large companies that carry products from other breweries, meaning your product may not get as much attention in the sales portfolio.
Another concern for brewers who wish to go through distributors is their ability to meet the demand for the amount of product they need to produce.
For those that have a smaller product volume profit margins get even smaller if it means having a middle person who now gets a share of the profits. This makes it difficult for some brewers to afford working with distributors.
Outsourcing Distribution Advantages
However, partnering with a distributor has several advantages. While a middle man will get a share of the profit, you will hopefully get more sales volume because the distributor has a larger sales team and therefore a bigger penetration of the market. This allows you to reach new customer bases out of your sales territory, exposing your brand to a wider audience. But, that doesn’t mean you shouldn’t have your own sales team. Pushing your product as much as possible, and in the best way, is going to be crucial to building and maintaining those retail accounts.
Using a third party distributor gives you the ability to focus on your craft and building your business as well. No need to waste time, energy and resources if distribution isn’t your strong suit.
Distributors also have relationships with owners, store managers and more that are extended to you through your partnership that are crucial to getting your product through the door. Combine your own sales representatives with a distribution partnership, and your brand will get the attention it deserves.
Putting You First
The relationship between a seller and a buyer can be complicated. A third party should be knowledgeable on how your brand should be represented, how your beer should be stored, sold, and much more. A brewer is an artist, after all, and the beer their craft. When entrusting a third party distributor, every brewer wants his or her product to be presented in the most authentic way possible.
Having proper legal counsel is important in order to negotiate contract terms with a distributor properly. At Hop Law, we understand the brewery business and want to see it thrive. Let us help you navigate the waters of outsourcing beer distribution to ensure your craft is in the best hands available.