CRAFT breweries may be a big story in the media these days, but they face much tougher challenges than most other small businesses.
Take the rules governing how beer is distributed, known as franchise laws, which were written decades ago and today are being used to limit consumer choice by keeping small and start-up breweries from moving easily into new markets.
Almost every state franchise law demands that breweries sign a strict contract with a single distributor in a state â€” the so-called three-tiered system. The contracts not only prevent other companies from distributing a companyâ€™s beers, but also give the distributor virtual carte blanche to decide how the beer is sold and placed in stores and bars â€” in essence, the distributor owns the brand inside that state.
This model was enacted in the 1970s, when the industry was a lot different: Back then there were fewer than 50 brewing companies in America and 5,000 distributors. Many small distributors carried beer only from one large brewer, and they needed protection in case the brewer they represented wanted to pull its product.
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