TX - Bills brewing in state Legislature could help or hurt Texas craft beer
By EVA-MARIE AYALA
Texas craft brewers are closely following legislation in Austin that could either help them boost their brands or be a serious buzz kill.
The state was late to the scene, but now it’s experiencing what many call a “craft beer renaissance.” The number of brewers grew by 44 percent in 2013 alone, and Texas ranks second nationally in the economic impact that the burgeoning industry provides, according to trade groups.
“We’re really coming up in craft beer with it becoming more popular across the state,” said Charles Vallhonrat, executive director of the Texas Craft Brewers Guild. “We’re seeing brewers who are getting so creative that you could have a different style every time you have a Texas beer.”
But laws enacted in the wake of Prohibition haven’t kept up with the evolving niche market, brewers say. They’re looking to lawmakers to chip away at limits on distribution and marketing. Meanwhile, distributors see the craft brewers as trying to break a carefully constructed deal on distribution rights, and one lawmaker is looking to rein them in.
Brewers say they rely on word of mouth among diehard enthusiasts, so they want drinkers — particularly those from out of state — to introduce their beers to friends, neighbors and other connoisseurs. A measure offered by Sen. Kevin Eltife, R-Tyler, would let brewery visitors purchase beer on site to take home with them.
The financial gains from such sales would be minimal. But the ripple effects from word-of-mouth promotions could be big and even promote tourism in the state, said Michael Peticolas, owner of Peticolas Brewing Co. in Dallas who helps keep tabs on legislative issues for the brewers guild.
“Breweries get a huge number of tourists coming in,” Peticolas said. “So often they try something that they like and want to take a stout or a six-pack home for them or their friends. Right now, we can’t sell to them, but Texas wineries and distilleries already get to do this.”
Another bill would make further inroads in self-distribution by allowing brewers to store ale in a different county, expanding a provision that already applies to other beer styles.
Currently, if Peticolas wants to reach out to retailers in Austin or San Antonio to sell his Velvet Hammer Imperial Red Ale, a driver would have to return unsold products to Dallas that same day.
But distribution rights are an ongoing battle for brewers.
Since the end of Prohibition, most states, including Texas, have operated a three-tier system for alcohol, separating producers, distributors and retailers. The goal was to curb monoplies that helped feed the excesses that Prohibition tried to solve.
“This system helps establish safe and responsible distribution of alcoholic beverages, stimulates price competition through the promotion of diverse product choice and new product entry, ensures efficient and reliable tax collection efforts in the interest of the state and helps prevent the distribution of alcohol to minors,” explains the Beer Alliance of Texas, a group for distributors.
Such trade associations also say independent distributors help bolster craft brewers by ensuring they have access to retailers and aren’t pushed out by major corporations.
But Peticolas, along with Granbury’s Revolver Brewing, is among a handful of brewers suing the state to have more control over distribution.
In 2013, the Legislature prohibited brewers from selling distribution rights. Before, distributors would pay brewers for the right to sell their beer in certain markets. Craft brewers say they would then use that money to reinvest in their brew.
But now, they must give those rights to distributors for free, although the distributors can sell the rights for profit.
Legislation offered by Sen. Senfronia Thompson, D-Houston, would slash distribution rights further. Her bill would reduce the number of barrels that microbrewers could self-distribute from 40,000 to 5,000. Each barrel is the equivalent of about two standard kegs.
Rick Donley, president of the Beer Alliance of Texas, said his group helped bring craft brewers and others together to compromise on legisation two years ago. So industry representatives were surprised when craft brewers sought legislation such as Eltife’s bill this year, he said.
“They made no attempt to engage those same stakeholders,” Donley said. “So there is a natural reluctance to not support it, especially when we don’t see the benefit for us. The legislative process is the spirit of compromise, and we certainly feel some of these bills violate the spirit of that agreement.”
Donley said craft brewers are thriving in the current system.
“They already have every tool they need now to have access to the market,” he said.
Brewers believe Thompson’s bill “would be a huge blow for us,” said Steve Porcari, a co-founder of Four Corners Brewing in Oak Cliff. “The day it was filed, one of my drivers asked what it meant, and I said it meant he’s out of a job if it passes.”
Since it opened in late 2012, Four Corners’ Local Buzz beer and other offerings have developed a loyal following. Four Corners is on track to sell more than 8,000 barrels of beer this year.
Porcari said the brewery was looking to hire a fifth delivery driver to keep up with demand. But now, owners are nervously watching lawmakers, trying to decide whether they will need to slow production.
In a written statement, Thompson said her bill is meant get brewers back into the long-standing system of checks and balances.
The 2013 agreement “was intended to give craft brewers access to the market and move them to the traditional three-tier system as quickly as possible,” Thompson said. “There is a movement afoot to break the agreement, and I trust all sides will make good on their promise.”
Vallhonrat, of the brewers guild, ackowledges that craft brewers worked with distributors and others two years ago, but he disputed that the agreement included a cut in self-distribution rights.
Distributors, he argued, could be hurt by the new plan, too. They might have to take bigger risks on new brews before they’ve proved popular.
“I don’t know what it is we’re not honoring,” Vallhonrat said. “Business is growing, and we want to help it grow on both sides, for brewers and distributors.”
Craft brewers know they’re not likely to get everything they want, particularly when up against distributors, who have long-standing political connections and who give generously to candidates.
But they note that more than three dozen Texas breweries are set to open soon.
“Yeah, I’d say overall Texas is a good place for craft brewers,” Porcari said. “And it’s getting better all the time.”
Follow Eva-Marie Ayala on Twitter at @EvaMarieAyala.