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Cover 03/20/2013

Winners and losers emerge in beer battles at the Texas Lege

Photo: Photos by Justin Parr, License: N/A

Photos by Justin Parr

Scott Metzger, owner of Freetail Brewing Co. and one of the craft brewing leaders

Photo: , License: N/A

"With the new laws, there would be incentive to ramp up production."

With all of that, it's easy to guess which group feels they got the short end of the stick.

The Texas Craft Brewers Guild, which negotiated as a united front on behalf of its brewpub and microbrewery members, plays its cards close to the chest, but several members say it didn't take long for howls of protest to emerge in e-mails among the membership.

Microbreweries, which often pay for their expansions with money earned from selling distribution rights, will lose that revenue stream if the law passes. Depending on the business potential, distributors have paid from as little as a few bucks per account to seven figures. Breweries can survive and thrive without that one-time cash bump, but say it is much slower going.

The gnashing of teeth began immediately with this missive on Facebook from the new Deep Ellum Brewing Co. in Dallas: "Such a huge step backward for microbreweries. Congrats to the regionals, brewpubs, and most especially the distributors for getting all you wanted. It only cost you ... OUR distribution value! SB 639 is a terrible piece of legislation. To see it now being triumphed as a win for the craft community is an absolute travesty."

The bill allowed only this compromise: breweries can negotiate to share promotions and marketing costs with distributors.

Lee Hereford, CEO of the fast-growing Pedernales Brewing Co. in Fredericksburg has sold distribution rights to its Lobo and Pedernales Classics line of beers to various companies around the state, but is still negotiating others.

"I have a hard time with the concept that my work was worth nothing," Hereford says. Pedernales self-distributed in its early stages and worked to garner 300 accounts at bars, restaurants, and stores. When the time came to use a distributor, they put a value of $50 on each account established by Pedernales. No cash changed hands, but the modest price went back into a kitty for in-store promotions and marketing of the beer by the various distributors from San Antonio to Dallas.

Mark McDavid, a co-owner of Ranger Creek Brewing Co. in San Antonio, says the growing brewery still self-distributes, but their business plan included the sale of their distribution rights when they had enough monetary value to pay for expansions.

If that goes out the window with the new law, then they will have come up with a new strategy.

One of the Senate bills that came out of committee last week would allow microbreweries to sell beer for consumption on premises either during tours or regularly established hours. You can drink beer at a Texas microbrewery (also known as a production brewery to differentiate from brewpubs) now, but they have to give it away. Merchandise and tour charges help offset that cost.

"Do you value the ability to sell pints in your taproom over what you value your distribution rights?" McDavid says is the question he asks himself.

"Limited beer to go given up for the ability to sell pints; wasn't that our compromise? It shouldn't have been giving up the sale of distribution rights," McDavid says.

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