27 February 2012

The "Wild, Wild West" of the Beer Business

DCBeer.com has a brilliant write-up on the ugly, sordid underbelly of the beer and alcohol business--the slightly-shady-to-overtly-illegal wheeling and dealing between retailers, bars, distributors, salesmen, and breweries (in the latter case, more accurately corporations that happen to be in booze) in an effort to market particular brands of potables over another.

The craft beer side of the industry has been relatively immune from most of this activity, and that for several reasons:
  • Craft beer fans tend to be fickle.  Programs like the ones described in the essay are designed to stimulate brand loyalty, something that is notoriously absent with many (most) craft beer fanatics, who are usually always on the prowl for the next new, exciting, or different beer or experiment.
  • "Payola" takes money.  Even the biggest and best of the craft brewers--Anchor, Stone, New Belgium, Leinenkugel, etc.--are not raking in quite the quantity of dollars necessary to pay for such programs, nor are the profit margins as generous in craft beer as they are in corporate-industrial-scale production.
  • Many (heck, most) craft brewers have nowhere near the production capability, or expansion plans, necessary to warrant such marketing measures.  Many micros have found themselves retreating from already-established markets as their products gain favor in their home turfs, and running up against production constraints.

A more interesting question, however, is why these practices are deemed illegal.

In a general philosophical sense, the concept of currying favor with retailers of your product via such "payola" is no different from a mega-retailer offering you a discount-club card membership, or Amazon's retailers offering free shipping, or McDonald's offering a toy with a Happy Meal, or even a bar offering a Happy Hour or Ladies' Night.  Or even the occasional complementary drink from a bartender at your regular pub.  The above practices, in a sense, are just as unethical and immoral as the practices being discussed in the article in DCBeer.  The fact that such "payola" is downright prevalent in the alcohol business bespeaks much more the profit margins and revenues involved in the alcohol business and the return on marketing from such practices (occasionally qualifying for the term "obscene").

They want your trade.  They're offering you incentives to do business with them.  You don't have to take them.  But you'd be a fool not to take advantage of such offers, if they are of use to you.  (As opposed to, say, the Turnip Twaddler that comes with the Ronco Tomato Musher.)

I am well aware of various philosophical arguments against such practices: small businesses can't afford to get on such a playing field; the rich get richer and small businesses suffer; etc.  But ultimately, this comes down to the micromanagement of business affairs by government regulation, in this case a holdover from the neo-Prohibitionist mindset that still pervades many corners of government today.  Government and regulatory bodies can certainly say "it's for your own good" as they are wont to do.  But such a mentality also implies that you, the consumer, can't be trusted to decide for yourself whether or not to go to a bar that happens to be liberally supplied with beer logo neon signs, or offers a premium football broadcast during Game Day, or  if a beer festival dominated by the wares of a single distributor is a good venue for your imbibing.

A great deal of both the production and the consumption of craft beer is, effectively,. a raised middle finger or exposed buttocks to the "North American Industrial Lager" industrial complex which is the biggest user of such tactics.  Independent consumers and music makers, working with Steve Jobs and the Internet, raised similar gestures to the formerly-equally-lucrative recorded-music industry and its "unethical" payola and marketing practices with self-produced music and grass-roots marketing; the net result is that the record-store industry has all but disappeared in the United States and elsewhere.  The craft beer enthusiast may dream of a day when the powerful beer-industry giants have been vanquished and we are all drinking excellent, flavorful beers brewed locally by scruffy local brewers and their helper elves and gnomes, all gathering to sing "Kumbayah" (or, more likely, "In Heaven There Is No Beer") at the Great American Beer Festival, but for now the best thing we can do as consumers is make informed choices, and choose accordingly.  And if that means Joe's Sports Bar presents the Bud Light Super Bowl Party, Jin's Bistro serves you Delirium Tremens from a pink-elephant-topped tap tower, and Jane's Bar seeks out the most ridiculously obscure beer to serve you, what does it matter to us?


The Oriole Way said...

If you have a three-tier distribution network required by law, these restrictions are probably necessary (there are good arguments to be made on both sides for whether or not this is a good system, but let's assume for now that it is). If Bud or Miller buys all the taps in a bar, how is that different than the bar being a tied house? Basically, these laws arose because parties were trying to dodge the distribution laws. Since alcohol is treated differently than say, compact discs, from a distribution standpoint, it's buyer/seller relationships are also treated differently.

Andrew said...

I realize your blog is a hobby, not a full time job, but perhaps you could give more attention than a simple head nod to the opposing argument, which you've written directly past in your otherwise well argued peon to libertarianism.

Are the tools in place for consumers to effectively make educated decisions, or does existing law outside of the tiered distribution model put them at a disadvantage to begin with? Are there other subsidies in place that favor the Large Scale Industrial Lager complex? How much of the Large Scale Industrial Lager complex relies on the nation's addiction to oil subsidies, and would the repeal of those policies therefore make for a more even playing field? In short, let's not view a single policy in isolation if we're espousing a libertarian world view. Follow the logic through to its absolute conclusion, and let's see how much Status Quo bias accounts for a systemic advantage to certain market actors.

BeerBrarian said...

Sandy, thanks for the kind words, and for linking to it. I do want to contest your analogy, though. I am the "end user" of beer. I am also the end user of a discount-club card membership, hypothetically. In order for the above analogy to work, the retailer of beer would have to be the end user. But retailers are not. I am. You are, maybe. Oh, and that discount-club card membership, it's not free. It may not cost you any money, but it will cost you some privacy.
More here: http://beerbrarian.blogspot.com/2012/03/on-payola-and-libertarianism-on-beer.html