Antiquated laws are hurting the state’s prized microbreweries
Zack Jones borrowed against his house and used his retirement to sink close to $1 million into a light-blue brick building on the edge of Columbia’s Cottontown. He spent a year transforming the former printer building on Franklin Street into a microbrewery and beer garden, and shipped his first keg in December 2017.
Today, however, Jones struggles to stay afloat, hamstrung, he said, by state laws keeping him from entering new markets.
“I’m losing money every month,” said the 54-year-old owner of Cottontown Brew Lab, who still works a day job as an independent software developer. “I’m still paying for the privilege of owning a craft brewery. ... I need to be selling 100 barrels a month just to cover my overhead cost. Right now, I’m at 40 and that’s with one distributor.”
Craft breweries and beer and alcohol wholesalers in the state are at odds over proposed legislation breweries say is needed to keep the booming industry thriving.
Wholesalers, who stand to lose some business if the proposals pass, argue the measure undercuts them and undermines the state’s three-tiered regulated sale of alcohol, broken down by producer, supplier and retailer.
“This is all about making more money,” Lance Boozer, executive director of the S.C. Beer Wholesalers Association, told members of a S.C. Senate Judiciary subcommittee Thursday. “This is no longer about safely educating a consumer or introducing them to the product. This is an attempt to legislatively gain an unfair (economic) advantage over others in what is an orderly market.”
Breweries contend state law holds them hostage to wholesalers, making it extremely difficult to break contract while distributors control the price and volume of their beer sold to retailers.
Jones and other brewers say the changes would put some of the power back in the hands of craft brewers and lower the burden for new businesses trying to enter South Carolina’s craft beer market and those looking to expand.
The proposals would let breweries transfer beer between facilities without having to go through a distributor that charges a mark-up, excluding a costly middle man. Under current law, if a brewery wanted to transfer beer between its locations, it would have to sell the beer to a distributor at one location and buy it back at another.
Breweries, too, would be allowed to open standalone taprooms, where they could serve beer without having to brew on-site or host a tour of the permitted facility.
The measures also remove the 288-ounce limit on how much beer customers can by from a brewery to go. That’s the equivalent of a 24-pack case of 12-ounce cans.
“We aren’t trying to put our competitors out of business,” said Wesley Donehue, an owner of Charleston’s Frothy Beard Brewing Company and former political aide to the S.C. Senate. “All we want is the ability to work our tails off — to grow, to create jobs and help build South Carolina’s economy.”
Since the state passed the so-called “pint law” that allows breweries to sell pints of beer on site, South Carolina’s craft beer industry has ballooned from about a dozen to more than 80 breweries and brewpubs, said Brook Bristow, director of the S.C. Brewers Guild.
The industry now produces more than 108,000 barrels of beer a year, and directly employs some 4,400 people across the state for an annual economic impact of $780 million, according to the Brewers Association. The nonprofit trade group represents nearly 5,000 U.S. brewers.
S.C. brewers argue the state’s three-tiered system is antiquated, dating back to Prohibition, when wineries, breweries, distilleries and importers were forced to sell to a middleman — a wholesaler — to distribute their product to retailers.
Wholesalers contend the “time-tested” law creates a level playing field, for large and small producers alike. And that breweries just want to make more profit by, essentially, operating bars and retail stores across the state.
“These folks want to play, but they want to pitch to their own team,” Boozer said.
A State Law Enforcement Division officer, too, raised enforcement concerns.
“If brewers were allowed to operate on all three tiers, that would make our enforcement efforts a little more difficult,” said SLED agent David Leslie.
Adding a taproom, though, would allow Cottontown Brew Lab to add a crucial revenue stream, Jones said.
“A taproom is the only area of a brewery that makes money,” he said, adding breweries aren’t looking to make more profit, just a profit.
Currently, S.C. law requires breweries that do not sell food in a state-licensed kitchen to provide a tour before they can serve three pints per patron.
“(We) walk you back to the brew house, give you a (30-second) tour and then bring you back and limit (you) to three pints” in the beer garden, Jones said.
“If I sell a keg to the distributor, I sell if for $60. I may make $20 to $30 off that keg,” he said. “They sell it for $95 or $100. ... And then the retailer will sell that keg for $240.”
Under current law, brewers cannot sell kegs on site because they exceed the legally allowable volume. If the proposals become law, that would change and would be a boon for brewers, allowing people to buy beer for a party or wedding.
“I sell it here for $240. I get the retail revenue off my beer selling it” on site, Jones said.
Jones and Quest Brewery in Greenville argue wholesalers, intentionally or not, stand in the way of small microbreweries from effectively distributing and marketing their beer.
“(Distributors) represent dozens and dozens of brands so they’re under no pressure to move my product,” Jones said.
But the state’s franchise law essentially prevents him from picking another among South Carolina’s distributors.
While the proposed bills wouldn’t solve breweries distribution problems, “it’s a compromise,” Jones said.