Pushback Against Brewery Tasting Rooms Threatens The Growth Of Craft Beer – Forbes

Cape May, NJ, 2017 -- Cape May Brewing's tasting room complies with the letter and the spirit of a state law that intends to keep brewery tap rooms from operating as bars.

Cape May Brewing

Cape May, NJ, 2017 — Cape May Brewing’s tasting room complies with the letter and the spirit of a state law that intends to keep brewery tap rooms from operating as bars.

When Jamie Queli opened Forgotten Boardwalk Brewing in Cherry Hill, N.J., in 2014, several elected officials and a crowd of local beer lovers came to celebrate the ribbon cutting. A scant number of bar/restaurant representatives stood among them, and three years later, at least two of her closest bar and restaurant neighbors and a regional restaurant chain with a location less than a mile away refuse to sell her beer even though it’s popular around the state. Why?

As one publican has told her, “You didn’t pay for your [liquor] license so you’re unfair competition.”

Though breweries work in partnership with their distributors and retailers, they also compete against them when they construct tasting rooms and pubs that might draw hundreds of customers every day of the week. New Jersey’s craft brewers guild faced stiff resistance in 2012 when it successfully lobbied for a bill that would allow breweries to sell pints and greater quantities of packaged product directly over their own bars. Though the law has immeasurably transformed the state’s brewing landscape and more than tripled the number of its producers, brewers had to make significant concessions to the associations that represent the state’s restaurants, beer wholesalers and liquor stores in that they must require patrons to take a tour every time they come to sample beer and they can’t operate a restaurant. In an effort to make peace with its sales and distribution partners, the guild has gone further by establishing best practices that strongly discourage the sale of any food – meaning no snacks or even food trucks — and that severely limit live entertainment and certain kinds of TV broadcasts.

“The spirit of the law is to not have a bar. So we don’t do bar games or live music and our TVs don’t play sports,” says Garden State Craft Brewers Guild President Ryan Krill, who also owns Cape May Brewing on the southern tip of the state.

In the past, New Jersey became an outlier as states like Washington, Colorado and California passed far more liberal laws that govern tasting rooms, sometimes called “tap rooms.” But now that every state in the nation has created some space for craft breweries by belatedly modernizing its Prohibition-era liquor laws just as the number of United States breweries climbed to its current 5,300 (most of which have at least one tasting room), those breweries are starting to feel more pushback from their colleagues in the other ranks of the three-tier production-distribution-sales system. Grumblings are growing louder and legislation that limits direct sales out of tasting rooms is getting passed.

Chris Black, owner of Denver’s seminal craft-beer mecca, Falling Rock Tap House, made news last year when he wrote an open letter to Longmont, Colorado’s Oskar Blues Brewery informing management that he would no longer be selling their beer, effective immediately. His complaint? The brewery that had recently sold out to a private equity firm had a plan to open a 43-tap beer hall and music venue in Denver that would sell brands outside of its own, including whiskey. Not one to be accused of inconsistency, Black had done the same thing five years earlier to Colorado’s Breckenridge Brewery when it came to town.

Marty Jones reaches into a tub of beers made by Oskar Blues Brewing Company to serve an attendee at the Great American Beer Festival in the Colorado convention Center in downtown Denver on Thursday, Oct. 11, 2007. Denver’s Falling Rock Tap House will no longer serve the beer. (AP Photo/David Zalubowski)

In his letter to Oskar Blues, Black wrote, “I fully support a Brewers right to a Tap Room. I think it is a vital part of building your brewery & its brand. … When you want to sell your own products, I am a huge supporter, when your primary goal is to sell other people’s beers, I’m not so much in favor. That’s kinda the job for the accounts out in the marketplace.”

Distributors, too, take offense to the explosion of direct sales outlets, especially in states that permit breweries to run more than one. These wholesalers work hard and spend a lot of money to build brands in their markets, and they don’t like getting undercut by their suppliers.

“It seems kind of okay for a small guy with a small brewing system and 100 seats but what happens when someone pulls 1,000 seats?” says Lester Jones, chief economist of the National Beer Wholesalers Association (NBWA). “Then you are looking at the tied house situation: brewing, distributing and retailing gives them a pretty significant competitive advantage.”

A barmaid hands a glass of London Pale Ale to a customer in the tasting rooms at the Meantime Brewing Co. brewery in London, U.K., on Friday, May 15, 2015. Craft brewers argue tasting rooms are critical to their profitability and brand building. Photographer: Simon Dawson/Bloomberg

“Tasting rooms are the quintessential location for brand building,” counters Bart Watson, chief economist for the Brewers Association, who notes that last year craft breweries generated almost 10% of their revenue in their tasting rooms and says breweries with tasting rooms grow faster in distribution than breweries that don’t. “It’s in the best interest of distributors to support their brewery partner’s ability to directly interact with beer lovers.”

As for retailers, Watson emails, “I think it’s more complex, but tasting rooms are bringing excitement back to beer in on premise and continuing to elevate beer and beer culture. That provides opportunities for retailers to sell higher value added products in their own establishments.”

But deep-pocketed distributors and retailers aren’t buying it. They’re starting to partner with mega-breweries like Anheuser-Busch InBev, which don’t need tasting rooms to make money, to lobby for laws that curtail the influence and abilities of these resources that prove indispensable to pocket-sized breweries and the growth of the craft industry as a whole.

Though Watson vows, “We view the ability to sell directly to beer lovers as a right and will certainly support any state efforts to protect those rights,” some states – notably Maryland, Texas and Nebraska – are considering or passing laws that may seem blatantly illogical and unfair to brewers, many of whom are operating on razor margins that are shrinking as craft beer growth slows.

For instance, during Maryland’s most recent legislative session, lawmakers approved a controversial bill (House Bill 1283) to shorten tasting room hours and require that brewers wishing to direct-sell more than 2,000 barrels per year must sell them to distributors and buy them back, presumably at retail prices.

Governor Larry Hogan allowed the bill to become law without his signature, explaining in a statement, “It is clear from the debate surrounding this bill that Maryland’s beer laws – dating back to the end of Prohibition – are in need of reform as they threaten to reverse the incredible growth of our state’s craft brewing industry. Indeed, Virginia has already seized upon HB 1283 and the unfriendly perception it created to lure not only start-up breweries, but to pursue Maryland’s existing breweries.”

Texans are waiting to see whether their governor will sign a bill that would prohibit a brewery and its corporate affiliates that produce more than a total 225,000 barrels per year (1 barrel=31 gallons) from operating a tasting room. Breweries that are grandfathered in or meet certain exceptions can operate tasting rooms as long as they sell their beer to distributors first. Further, the bill limits direct sales to 40,000 cases per year; cases 40,001 and up would go through a distributor first.

In Nebraska, lawmakers are considering a bill that would force breweries to produce beer at each of their allowed tasting rooms or move it through a distributor’s warehouse from the production facility to the point of sale. Nebraska brewers are calling the bill a “job killer” that’s being pushed by big-moneyed distributors and macrobreweries. This would put a quick end to the efforts of breweries that have designed or built new tasting rooms since last year, when their elected officials raised the number of allowable tasting rooms to five.

Cherry Hill, NJ -- The tasting room at Forgotten Boardwalk Brewing features games and an old-time boardwalk theme.

Dan Neuner

Cherry Hill, NJ — The tasting room at Forgotten Boardwalk Brewing features games and an old-time boardwalk theme.

It’s not all bad news for breweries. In 2014, a buy-back bill failed in Florida, and New Jersey’s guild is supporting bills that would further loosen restrictions by removing the tour mandate and allowing breweries to sell snacks.

It’s brewers’ view that tasting rooms act symbiotically with bars, restaurants and liquor stores.

“We’ve heard from many brewers that the accounts that sell the most of their beer are those located the closest to their tasting room, suggesting that retailers can also benefit from the great brand building going on,” emails Watson.

Not to mention that recent surveys show craft drinkers seeking “fresh” and “local” beers above all others. So when a bar refuses service to its closest brewery neighbor, it may come to regret it.

As Queli says, “What they don’t realize is I give them my greatest weapon. I sell them my beer.”