Battle Over Beer Distribution Law Begins

Mar 28, 2017

Credit Tom Dobson/Flickr

It's a rare day that a polka song perfectly sums up a piece of legislation. Today is one of those days. If you're not humming "Roll Out The Barrel" just yet, you should be. That's as in barrels of beer. Although we're having a bit of fun with the topic, on tap is a big dollar showdown between brewers and distributors with each claiming they best represent North Carolina's beer drinkers.

Little beer is now big business in North Carolina. What started small has grown into more than 200 independent breweries adding an estimated $1.2 billion yearly to the state's economy according to The North Carolina Craft Brewers Guild.

But that growth is about to hit a production ceiling. Breweries can distribute their own beers in North Carolina so long as they produce no more than 25,000 barrels of beer a year. A barrel is roughly equal to 330 bottles of beer.

That sounds like a lot, but John Marrino, founder of Olde Mecklenburg Brewery, says it's not.

"This year, I'm on a run rate to exceed this cap and I'll have to dramatically change my business plan," says Marrino.

When a brewery produces more than 25,000 barrels of beer a year, it's required by state law to have a beer wholesaler start distributing all of its product. Olde Meck is not alone. NODA and Red Oak breweries are also staring at the limit as are other breweries around the state.

The beer wholesaler system goes back to when Prohibition ended. As a way, distributors say, to make sure liquor laws were being followed.

But, Marrino says, a lot has changed since then.

Signing distribution deals, he says, leads to a series of problems: higher costs since a middle man is involved, the loss of control of their branding, and getting swept into a distributor's portfolio which can carry hundreds of other beers.

"I distribute my beer in Mecklenburg County and the region surrounding Mecklenburg County," explains Marrino. "That's pretty much all we want to do." He has his own staff of 15 to handle in-house distribution now and that's working.

"I have 650 restaurants carrying my products, over 200 retail outlets. Frankly, if I was in a distributor's portfolio with 980 brands, I'd be lucky if I had 100 restaurants carrying my beer," says Marrino.

And he would have to fire some of his staff. That's a point not lost on Representative Chuck McGrady.

"Prohibiting distribution at an arbitrary limit and, then, forcing the business to hand over the rights of their brand, layoff their distribution employees, and sell their trucks and other distribution equipment when they want to expand simply doesn’t make any sense to me," says McGrady.

That's why the Republican has now introduced House Bill 500, a big bill on booze which, among other things would increase that barrel limit from 25,000 to 200,000 per year and make it easier for brewers to exit a distribution contract for any reason.

"Craft Brewers need more freedom to make and distribute their product," explains McGrady, "And for me it's really become sort of a free market issue."

But this bill faces a tough fight. Namely from the North Carolina Beer and Wine Wholesalers Association.

Tim Kent is the Executive Director of that group and, normally, this is when you'd hear his voice. But Kent is currently battling a bout of bronchitis so I interviewed him over email.

He writes this bill is "a gigantic overreach."

The proposed 200,000 barrel limit is equal to 66 million bottles of beer.

"There are at least a dozen North Carolina beer distribution companies that don’t sell 200,000 barrels in a year’s time," added Kent.  

And, he says, distributors also have a lot to lose.

"We employ 5,600 people in 75 different facilities around the state.  The average compensation package is in excess of $70,000.  Our companies have a $2.5 billion economic impact."

Past efforts to up the barrel cap have stalled out. But this year's beer battle is likely to be a fierce one.

Both sides are well-funded and have their legislative supporters.

In the meantime, remember what Polka music taught is, it could always be worse.