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Microbreweries Can Sell Direct

Rockford Brewing Company Inc. co-owner Seth Rivard has a new way to get his company’s craft beers into the hands of patrons at local watering holes.

Legislation signed last month by Gov. Rick Snyder effectively removed a major hurdle for small startup microbreweries to enter the market.

Instead of working through a wholesaler, microbreweries making less than 1,000 barrels per year can circumvent the state’s three-tier alcohol distribution system and self-distribute their beers directly to bars, restaurants and other retailers.

The changes should allow a small company like Rockford Brewing to more easily sell its products to local bar and restaurant owners, rather than rely on a wholesaler to make the sales pitch, Rivard said.

“No one can represent our products better than we can,” he said.

Rockford Brewing, which is currently brewing at rate of around 700 barrels per year, plans to distribute its beers to the 10-12 bars and restaurants in the downtown Rockford area, Rivard said.

Supporters of the self-distribution, including members of some of the state’s established microbreweries, say the new law should help companies at a critical time during their startup phase and as they struggle to gain traction in the marketplace.

“Although limited in scope, the bill allows a new brewery to deliver direct to a retailer as they get the company off the ground,” said Scott Newman-Bale, a partner at Bellaire-based Shorts Brewing Co. and treasurer of the Michigan Brewers Guild who testified in favor of the changes. “Oftentimes, this is when they most need it and when a distributor least wants to deal with them.”

The struggle to get the attention of wholesalers is all too familiar for Short’s, Newman-Bale said. When Short’s Brewing first opened its brewery in 2004, it had considerable trouble finding a distributor, and that challenging process effectively slowed the company’s growth, he said.

Short’s, which has a production facility in Elk Rapids, is currently in the process of a $1.2 million expansion that will double the size of its pub in downtown Bellaire, as MiBiz previously reported.

The package of bills sponsored by state Sen. Joe Hune (R-Hamburg Township) and approved with wide bipartisan support offers other changes for brewers in the state of Michigan. The legislation also doubled the production cap to 60,000 barrels per year for microbreweries and allows for owners to have an ownership stake in more tasting rooms and brewpubs.

Hune said he had been working on the legislation for approximately one year, noting that the legislation was of interest to both craft brewers and wholesaler associations.

“In the long-term, (the legislation) should be a boon to get production and a facility up and running, allowing (brewers) to get their product out to market in a manner they see fit,” Hune said.

While the bill passed with no opposition in the state Senate, the bill’s sponsor told MiBiz that he did face some questioning from distributors. However, after a good amount of “give and take” in the lawmaking process, the outcome was ultimately acceptable to many stakeholders, Hune said.

The new self-distribution laws could take away a small amount of business for beer wholesalers that have a vested interest in maintaining the long-standing three-tier distribution model. But Joe Cekola, president of Kalamazoo-based beer distributor Imperial Beverage Co. that distributes beer from some of Michigan’s most acclaimed breweries including Short’s Brewing and Greenbush Brewing Co. in Sawyer, says that he’s not too worried that it will have a significant impact on businesses like his.

“I think the disadvantage is these breweries need to figure out how to deliver it, how to get it on a truck,” Cekola said. “I think some of the brewers are going to find out it’s a lot more work than they think it will be. But they have the option to go either way.”

Cekola says he expects some companies will at least try to go the self-distribution route.

“I think some brewers will (get into self-distribution),” Cekola said. “Some of it is personal relationships. Maybe they know that person from school or church or they just go out to eat there a lot.”

The change in policy comes at a boom time for the craft brewing industry in the state.

The Michigan Brewers Guild lists 124 craft breweries on its website, making Michigan the number five state in the country ranked by the number of breweries. Craft brewing is now a $2 billion industry in the state, according to a 2012 study by The Beer Institute, a Washington, D.C. lobbying group. Two of the state’s brewers — Bell’s Brewery Inc. and Founders Brewing Co. — are among the top 30 largest craft breweries in the United States based on 2013 production volumes published by the Brewers Association.

The industry’s trajectory and the growth at Rockford Brewing could mean the company will not enjoy the self-distribution law for long, Rivard said. The company plans to hit the 1,000-barrel mark sometime next year, at which point it will go back to the traditional wholesaling method, Rivard said.

While the legislation helped brewing operations classified as microbreweries, it did not change the rules for companies that are licensed as brewpubs, such as Grand Rapids-based Harmony Brewing Co. LLC.

While Harmony brews about 500 barrels a year, its legal designation as a brewpub prevents it from selling beer to wholesalers or retailers. Co-owner Jackson Van Dyke would like state lawmakers to look

at tweaks to the brewpub license so companies like Harmony could have minimal distribution.

“People are thinking about the structure right now and asking questions,” Van Dyke said. “We’d love to (have) some kegs at events (off premise).”

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