Free State Craft Beer Offers Distribution, Sans Franchise Agreements

Free State Craft Beer Delivery founder Dan Kennedy is the first to admit that he didn’t start a traditional beer wholesaling business.

“I really started a trucking company,” he told Brewbound.

Kennedy, who left a career as an events director at Goucher College in Towson, Maryland, to pursue entrepreneurship and a passion for beer, is the brains behind upstart Free State.

The Maryland-based company, which recently celebrated its one-year anniversary, sidesteps complicated three-tier regulations and provides logistics services to small alcohol producers in Maryland while simultaneously allowing breweries to maintain control over their distribution rights.

“I am performing all of the functions of a distributor, except for the order taking,” he said, explaining how Free State avoids the very thing many beer distributors tout as their greatest strength: salesmanship.

Here’s how it works:

Maryland law permits smaller alcohol producers, such as class 7 microbrewery licenses holders that produce fewer than 22,500 barrels each year, to obtain a separate wholesaler’s license that allows for the distribution of up to 3,000 barrels annually.

That license, which costs $50, also grants the brewery the ability use an additional location for warehousing and delivery.

Enter Free State, which holds transportation and storage permits that are obtained through the Maryland Comptroller’s office, the state’s alcohol regulator.

“Because breweries, wineries and distilleries can self-distribute, they sell all of their products to retailers and then I just deliver it,” Kennedy said.

Free State, which is currently working with more than a dozen brewery and winery clients, maintains a 2,000 sq. ft. warehouse in Frederick, Maryland, that is capable of cold-storing finished beer. That space also houses dry goods, such as malt and cans, which small breweries can purchase through a separate third-party supplier.

Kennedy, who said delivery, storage and keg return fees vary, charges around $20 to pickup and drop-off product to on– and off-premise retailers.

In the 18 months since the company was conceptualized, it has grown to include one additional full-time employee, who helps sort and transport orders, and two delivery vehicles – a 16-foot refrigerated “reefer” truck, and a 10-foot “box” truck.

“We will normally pick up beer from breweries on Wednesday, bring it back to the warehouse – where we sort it by brewery and retailer – re-palletize it and deliver on Thursdays and Fridays,” Kennedy said.

The advantage Free State has over more traditional distributors, Kennedy added, is the ability to be flexible with its delivery schedule

“I recognize that distributors can offer more than what I can — in terms of the marketing, promotional flyers and banners,” he said. “I am just dropping off product, but I can react faster. If they call me on a Wednesday with stuff that needs to be delivered on Thursday or Friday, I can make that happen.”

Additionally, Kennedy said his model allows bootstrapped, self-distributing brewery owners to spend their time and money on sales, instead of also tasking individual salespeople with product delivery.

“When you have your salesperson out delivering, they are not making a sale,” he said. “So delivery is actually costing you money, because that is a lost opportunity.”

Kennedy added that outsourcing transportation helps breweries avoid certain fixed costs associated with self-distributing, such as vehicle purchases and routine maintenance.

“They don’t have to buy a truck, hire a driver or worry about oil changes and brake replacements,” he said. “This is what makes my model so attractive.”

But perhaps most attractive to upstart brewing companies is the fact that Free State is not technically licensed as a Maryland beer distributor, which means that it cannot, legally, enforce franchise laws.

Instead, the company signs 30- or 90-day service agreements with its clients, which in turn allows breweries to maintain their distribution rights and gives them the opportunity to sign with a more traditional beer distributor in the future.

During its first year, Free State delivered beer and wine to about 200 different retailers, Kennedy added, noting that the company makes stops at nearly 100 accounts each week.

He declined to share specific revenue figures for the business but said he hopes to prove the concept in Maryland before possibly rolling it out to other states.

“I see my model as being franchise-able,” he said. “I need 18 months or two years under my belt of perfecting the concept, but I’d like to go to other states and drop this model to someone else.”

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