Jester King Brewery in Austin, Texas. Photo by Michael Kiser.
THE GIST
After years of deliberation, public outcry, and potential lawsuits, breweries in Texas and North Carolina are on the precipice of change. Both states are on the verge of new legislation being passed that will allow each to gain the legal right to expand key aspects of their craft beer sector.
In Texas, to-go sales from production facilities would allow for a customer to purchase up to a case of beer a day from a manufacturing brewery. Meanwhile, the Tar Heel State will finally raise a cap on self-distribution, allowing its breweries to keep full control of their off- and on-premise wholesale up to 50,000 barrels.
Both changes have been years in the making.
Texas’ fight dates back to 2015, when Deep Ellum Brewing Company filed a lawsuit against the Texas Alcoholic Beverage Commission with hope to gain the right to sell beer to take away from their taproom. North Carolina’s efforts picking up steam a year later and led to lawsuits and a constitutional challenge in 2018.
Consistently, brewers have asked for legislative help to reduce laws they saw as a burden on potential business growth. In North Carolina, companies openly said they would refuse to cross a 25,000-BBL self-distribution cap because it would mean layoffs and loss of autonomy by handing over that side of their business to a wholesaler. Likewise, Texas’ brewers have most recently banged the drum of being the last state in the country to not allow packaged beer to-go as an option. And they’ve leaned on their political action committee to get the word out.
[Background on the Texas situation, as well as other legal fights in Maryland, were recently highlighted on a March 2019 episode of the GBH podcast.]
WHY IT MATTERS
Now that both states are near the end of their fights, the changes couldn’t have come at a better time. As featured this week on an episode of our Sightlines podcast, the idea of what growth is—and more importantly, what it can be—has been shifting rapidly for breweries. There are plenty of examples of breweries who have strong growth and can’t fit tanks in production spaces fast enough to keep up with demand, but that’s not the reality for a majority of these “small and independent” businesses.
According to the measurement of Brewers Association-defined “craft breweries,” year-to-year growth in sales reached its slowest point in a decade in 2018, highlighting broader shifts in an alcohol industry that has seen less beer sold in lieu of wine, spirits, and flavored malt beverages, not to mention a general shift toward “better-for-you” booze. The ability to manage a business internally (North Carolina’s distribution) or take advantage of a margin-friendly sales available everywhere else (Texas’ to-go option) is particularly crucial at this moment in time.
A significant issue that faced NC and TX breweries leading up to this point was the irony of legislatures led by supposedly pro-business Republicans who instead opposed laws that would allow for expansion, presumably because of the significant political donations they received from wholesaler companies and lobbyists. Similar situations have played out in Louisiana, Georgia, and other states in recent years.
But as Brewers Association chief economist Bart Watson recently pointed out in his analysis of 2018 sales figures (and on the GBH podcast), there’s a bright spot in the slowed overall growth of craft beer: own-premise sales.
In 2018, BA-defined craft brewers sold around three million BBLs of beer on draft or packaged to-go at their taprooms. That was about 400,000 BBLs of growth from 2017, about the equivalent of what a top-10 brewery like Stone or Deschutes might make in a year.
What's more impressive is that taproom sales have grown across the board, from "microbreweries" making less than 1,000 BBLs of beer a year (+6.1%, 2016-2018) to "regional" breweries making as much as 60,000 BBLs (+1.3%) or more (+.2%). In that three-year timeframe, only brewpubs making more than 1,000 BBLs saw a decline in taproom sales.
"The trends from 2016-2018 also show that onsite sales have grown in importance for basically every business model except large brewpubs, who have always straddled the line in their business model," Watson wrote about the numbers in April.
The value of this area of sales has become so key in recent years that even the literal taproom model has changed, with breweries finding new and entertaining ways to expand their footprint with spaces for musical performances, hotel stays, conferences and more—all of which were highlighted in a three-part series on GBH.
The value of controlling aspects of brewery operations like distribution and on-site sales isn’t just a practical benefit for business, but options that can help the companies grow and—you guessed it—even provide more tax revenue for the states that previously denied those changes. It’s a win-win brewers have long highlighted, one that got lost among the machinations of politics.
For now, it seems like that’s no longer the case for Texas and North Carolina. The beer makers and drinkers across those two states have one more reason to celebrate this holiday weekend.
Words by Bryan Roth