I-Team: A brewing battle over beer

I-Team: A brewing battle over beer



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Posted on September 16, 2013 at 3:08 PM

Updated Monday, Sep 16 at 3:20 PM

CHARLOTTE, N.C. -- North Carolina politicians in Raleigh like to say they’re pro-jobs and pro-business.

But what happens when lawmakers are forced to pick sides between new, small businesses growing jobs and big legacy businesses trying to hold on to the market share they’ve got? Would it help you to know that the big legacy companies give hundreds of thousands of dollars in campaign contributions and the new small businesses are not yet organized? 

There’s just such a battle brewing in North Carolina over beer – and who gets to distribute and market it. It pits a growing number of small craft brewers against big distributors. And the big distributors who are among the largest campaign contributors have state lawmakers on their side. 

The number of craft breweries in North Carolina is growing rapidly. The state ranks 10th in the country in the number of craft breweries (70) but drops to 19th in overall beer production. Some small brewers say they could grow faster and generate more local jobs in North Carolina if lawmakers weren’t forcing them to hire outside distributors.

Lawmakers capped the amount of beer brewers can make before they are forced to hire outside distributors to transport and market their product. The law sets the cap at 25,000 barrels per year or 775,000 gallons.

One Charlotte brewer is joining others in pushing back against the cap – saying it’s bad for business and a job killer.

John Marrino poured his heart, soul and a lot of his own money into Old Mecklenburg Brewery before it ever poured its first beer. He started distributing the beer with a $10,000 truck he bought on Ebay. He’s obviously proud of the product – all natural with no additives, preservatives or artificial coloring.

In a day and age of tech startups, brewing German beer in a warehouse in south Charlotte is decidedly old school. But John thought it was the American way. Work hard. Work smart. Build a small business into a big business. And everyone profits. “It’s a virtuous cycle,” Marrino says. Workers get jobs. Workers spend money. Government collects taxes. A little something for everyone.

But John Marrino and Old Mecklenburg Brewery are on track to bump up against the legislature’s cap and be forced to hire an outside distributor. As soon as he hits the cap, he’ll be forced to give up control of distribution. He objects: “You're supposed to be able to build something and not have someone take it away from you.” 

Marrino says there’s a place for distributors. He subcontracts with one to handled bottled beer. But he says it should be up to brewers. He doesn’t understand why lawmakers have to get involved and tell him who to use to distribute his beer.

“Why do I have to drive it down South Boulevard to a distributor so he can drive it around the corner to a restaurant?” he asks.

Beer is unique. The North Carolina law forcing brewers to hire a distributor to truck their commodity to market applies only to beer.

“The bakery doesn’t have to use a distributor,” John says. “He can distribute his own bread.”

Beer distributors don’t just truck the beer to grocery stores and pubs. They also take over the exclusive right to market the brand – to get it on the shelves or the taps.

“We have to basically sell them the rights to our brand in a local territory,” Marrino said.

Right now Marrino’s sales team sells only his product. But distributors can carry 40 or 50 lines.

“The Coke distributor doesn’t carry Pepsi,” Marrino said. “They’re carrying competing products.”

So how did this happen? The NC Beer and Wine Wholesalers Association lobbied for the restrictions in Raleigh. They don’t buy the argument of Marrino and the craft brewers like him.

“For someone to imply this is holding back the craft beer market is an absolute fallacy,” said Tim Kent, Executive Director of the wholesalers group.

Kent says distributors help small brewers sell more beer than they could by themselves – by introducing small craft beers to a wider marketplace.

“Look - this is a vibrant craft beer economy right now and a big reason for that is distributors provide an avenue to market,” Kent says.

Besides – he says – it’ll be a long time before small brewers like Old Mecklenburg Brewery hit the 25,000 barrel cap set in state law.
“In all due respect, I think Old Mecklenburg is tilting at windmills,” Kent said. “Last year they produced 7400 barrels of beer; they’ve got three and half times to go before they even become close.”

But OMB is growing fast. Last year it grew by 76% in volume year over year and has plans to expand capacity with a larger facility, a brewpub and a beer garden off of South Tryon Street.

And if distributors are such a great deal for brewers, why do lawmakers have to dictate the precise point at which brewers must use distributors?

“The legislature does not dictate,” Kent says. “The legislature makes decisions based on good information.”

In this case that “good information” came from one of the best funded lobbying groups in the state – the Beer and Wine Wholesalers. Last year the group representing 78 distributors spent $181,900 on campaign contributions according to the National Institute on Money in State Politics. The top recipients? House Speaker Thom Tillis at $8,000, Senate leader Phil Berger at $7,000 and Governor Pat McCrory at $5,000.

“I mean the beer and wine interest is a mega, mega interest over here at the legislature,” said State Representative Pricey Harrison, a Democrat from Greensboro. Harrison has gone to bat for small brewers trying to raise the 25,000 barrel cap to at least 60,000 barrels.

“It’s been impossible to overcome the beer (distributor) lobby,” she said. Year after year she has fought the cap. And year after year she has lost. “They very effectively killed the bill both times in committee,” she said.
John Marrino joined forces with Red Oak Brewery near Greensboro which has long fought the cap. The small brewers argue that craft breweries grow faster and create more jobs in states like Colorado and California without limits on distribution.

Colorado has a little more than half the population of North Carolina but employs five times the number of workers in craft breweries – about 5,000 employees.

North Carolina small brewers are poised to grow. But Marrino and others like him say they will need lawmakers to side with the little guy first.