Distribution, Part I
Folks that come into the cidery usually have a set of questions they progress through when they’re here:
- How long have you guys been open? (6 months)
- What did this building used to be? (A pharmacy. A meeting place for the Oddfellows. A strip club).
- Where else can we get your cider? (Nowhere. Yet…)
That third question always leads to more questions. The answer is – of course – more complicated than it seems. Here’s our attempt to explain the situation, in a two-part blog! Today is Part 1, which outlines the difference between self-distribution and working with a distributor.
First of all, the USA’s alcohol system is a ‘three tier system’, thanks, of course, to laws set up after the disaster that was Prohibition (where most weird alcohol laws come from). For more information about this system and its history, check out this great article over on Serious Eats.
- Tier one is the manufacturer of the product – these are your breweries, wineries, distilleries, and cideries. Us!
- Tier two is a distributor. These are companies that buy product from manufacturers at wholesale prices, and then sell them to retailers. In Indiana, we have Monarch Beverage, Cavalier, Zink, etc. who play this secondary role.
- The third tier is then the retailer. This is where you as customers can come to get a drink. Think bars, restaurants, liquor stores, grocery stores, etc.
Every state has different liquor laws. In Indiana, micro-breweries can cut out the distribution tier up to a point (based on volume). If you’re familiar with Indiana alcohol laws, last year, Sun King Brewing Co. fought to raise the limit so that microbreweries can self-distribute a greater volume of beer before having to work with a distributor. So, microbreweries can self-distribute, and while most of them start with self-distribution, many of them decide to sign on with a distributor well before they hit the self-distribution ceiling in Indiana. There are some great reasons for that:
Why You Would Self-Distribute
Self-distribution sounds like a great deal, especially at the start. You can hop in the car, put a keg or two of your product in the back seat, drive to a bar, say, “Hey, want this?”, and if the answer is yes, you can pick up a check and leave the beer. Bam, you’re on tap at a local restaurant and are already growing the market for your product. You get to collect the retail price for your beer and take it home to the bank. As a startup, that extra profit can help you expand a lot faster than selling at the wholesale rate. Also, in brand new businesses, one or two people could probably handle all the distribution needs.
Bottom Line: Quick way to reach more customers, higher profit margin for the business.
Why You Would Work with a Distributor
Eventually, if things go well, you’ll need quite a team to keep up with the demand for your products. A fleet of vehicles, someone on staff who visits accounts with the sole purpose of cleaning draft lines, sales people to bring in new business and keep current customers happy, and multiple delivery drivers, not to mention someone to handle all of the logistics that come along with so many moving parts. A distributor would handle all of that for you in exchange for a portion of your profits. They will also likely expand your footprint because they have a wider reach and access to more varied accounts because of the multiple different brands they represent.
Bottom Line: At a certain point, most breweries will end up working with a distributor because the extra reach will make up for the chunk of profits and the staffing needed to support self-distribution.
So, Back to Us…
We tricked you – none of these laws actually apply to us because we aren’t a micro-brewery! Our legal classification is a Farm Winery, and in Indiana, Farm Wineries aren’t allowed to self-distribute at all. This explains why you can’t find our ciders on tap at bars and restaurants yet.
Since we opened, we’ve known that we’d need a distributor to grow. We’ve met with many, sussed them out (this is an important partnership, after all), and negotiated contracts. As of TODAY, we have finally signed the all-important paperwork, which means that the time for us to start popping up around the city is near. Like…a few days away!
Next week, we’ll post a blog about what YOU as a cider fan can do to help us grow our business.
Thanks for coming along on this wild ride with us!