Distribution Basics

by Baker Donelson


The process of distribution is critically important to craft breweries; but, it is commonly misunderstood in relation to the overall operational success of a brewery. A common misconception by those entering the craft beer industry is that once the beer is brewed, packaged, and shipped to a distributor, the brewery can essentially forget about it, leaving the sales, marketing and promotion to the wholesaler. This is simply not the case.

Some distributors are very engaged with the craft segment and actively support it. Other distributors do very little to promote the craft beer segment and focus only on a handful of brands. It is for this reason that market participants in the craft beer segment truly understand the distribution tier of the beer business to ensure their products are adequately marketed and promoted and not shelved in a warehouse somewhere bumping up on expiration dates.

The Three Tier System

After he repeal of Prohibition, most states in the United States implemented a three tier distribution system. Simply put, a traditional three tier distribution system requires beer manufacturers to sell products directly to wholesale distributors and those wholesale distributors are required to the sell those products to retailers. This general three tier structure is subject to few exceptions; however, about 75% of the states in the United States allow some form of self distribution, meaning that a beer manufacturer can sell its productions directly to retailers. The ability to self distribute for certain craft brewery startups can, literally, be the difference in success or failure and is an appealing method to get product to market as a startup brewery.

Self Distribution

Self distribution gives craft breweries greater control over their products; but again, self distribution is not allowed in some states. If self distribution is allowed in your state, the right to self distribute is usually limited in geographic scope and production quantity. Practically speaking, even if self distribution is allowed in your state, a craft brewery should limit its self distribution to some reasonable distance of the brewery depending on market density in order to maintain cost efficiencies. The local market is generally one of the stronger markets for a craft brewery and widespread self distribution can be costly.

Self distribution is appealing to craft breweries earlier in the business life cycle because of the personal, hands-on selling that beer distributors cannot give to most products. The disadvantages are the time and resources involved in running a distribution company within a craft brewery. Distributing yourself requires a focus from management, additional personnel and equipment, and an investment of time and money. In the long run, the overwhelming majority of craft breweries will outgrow self distribution and eventually find wholesale distribution partners.

Finding the Right Partner

A craft brewery will have a few different options for distribution partners in any given market. Each market will generally offer a few major brand houses, Anheuser-Busch, Miller and/or Coors. These major brand houses are the largest and most dominant beer distributors in any given market and maintain a stronger bargaining position over startup and early stage craft breweries. Generally, the major house distributors have been in the business for decades and have strong relationships with many retailers. While these major brand house distributors can provide some value to a startup or emerging craft brewery, the craft brewery needs to understand that it will make a very small portion of this distributors overall portfolio and may not be a priority for this distributor.

Some markets provide relatively smaller specialty distributors that focus specifically on the craft beer and import segments. These small distributors are typically more knowledgeable about craft products and will take the time to focus more time and attention to craft products. The downside is that these small distributors may be understaffed and not have the retail reach of a major brand house.

Deciding on the right distribution partner is critical, especially in the startup and early stages of the craft brewery. State franchise laws, those laws that dictate the relationship between the brewery and the distributor, make it very difficult, if not impossible, to terminate a distribution agreement. When vetting distribution partners, make sure you choose one that can provide you the service you need not only early in the brewery life cycle, but also years down the road. Commit to spending time in the marketplace for a better understanding of the potential distributors characteristics. Engage retailers to gain insight into their relationships with the various distributors in the market.

After you have gathered enough information about your potential distribution partners in a particular market, meet with each one and present your products. Make sure you are well prepared going into the meeting, having the following information readily available for reference: product cost and pricing, shipping costs and arrangements, advertising and promotion plans and budget, incentive programs, and what support you will offer your distribution partner in selling your brand.

Once you have chosen a distribution partner, be sure to have your attorney draft the distribution agreement. In many states, distributors have been using the same distribution agreements for decades. These dated forms are overwhelmingly and heavily weighted in favor of the distributor; however, as the craft segment has started to grow, some distributors are open to changes to their generally accepted distribution agreement form.

The beer market is becoming increasingly competitive, so it is critical to keep in touch with each of your distributor partners on a regular basis. Many small brewers fail to realize how much time and effort this requires. It is advisable for a brewery sales representative to spend a day with one of the craft beer salespeople from your distribution partner to help present and discuss your products to the retailers. It is also very helpful for a brewery salesperson to spend

State Franchise Laws

The rules and regulations pertaining to the manufacture and distribution of beer products differ from state to state. Each state has its own set of franchise laws, making it incumbent on the brewery to know the specific regulations of each state where products are sold. There are often regulations as to what a brewery may supply to both retailers and distributors, payment terms between the brewery and the distributor, and very specific, often restrictive terms for terminating a distribution agreement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.