After Silver Eagle Distributors increased its keg deposit price by 20 percent, a number of Houston-area retailers, alleging they were never warned of the new pricing structure, banded together to boycott the prominent Texas wholesaler.
As reported by the Houston Chronicle, the dispute began in early June when Silver Eagle started charging a $60-per-keg deposit fee, up from $50, without informing its retail partners ahead of time. In the aftermath, Houston Press reported that at least five bars ceased placing orders with Silver Eagle, effectively squeezing out a number of reputable national and local craft brands that the country’s third largest wholesaler sells in the area.
But the conflict was about more than the simple cost of keg deposits. The ordeal highlighted broader industry-wide issues that reverberate throughout the three-tier system: franchise laws and keg theft.
Though Silver Eagle has reportedly not reined in its price-per-keg deposit fee (the company did not return multiple calls and emails for comment), at least two of the protesting retailers, Petrol Station and The Hay Merchant, have separately announced plans to end their boycotts. In doing so, both retailers took the opportunity to criticize the three-tier system, arguing that strict and prohibitive franchise laws are the enemy of craft beer.
“The real problem is the 3-tier system,” read a Petrol Station Facebook post. “If we want to support the breweries, we have no choice but to use their shitty distributor.”
The posts by both Petrol Station and The Hay Merchant echoed familiar complaints of a three-tier system in which brewers often have little or no latitude when it comes to getting out of a wholesaler contract. At the retail level, operators like Petrol Station and Hay Merchant are essentially forced to do business with a distributor they’d otherwise not support if it weren’t for their desire to pour certain craft brands.
But there’s still another layer of the onion, according to Scott Metzger, founder and CEO of Freetail Brewing (sold in Houston by Silver Eagle) and a Brewers Association board member.
“If this dispute were just about advance notice of deposit increases, I would concede that point and agree,” Metzger wrote on his company’s blog. “But that isn’t the crux of the debate, the debate is over the fact that keg deposit fees are increasing, and may increase in the future. Bars don’t like it because it’s an additional upfront cash outlay, and that cash is best suited elsewhere. I can understand this perspective, but it doesn’t make it the only viewpoint and it doesn’t make it the correct one.”
Metzger argued that higher keg deposit prices could actually help protect against keg theft, perhaps a lesser known problem, but one that still costs U.S. craft brewers millions of dollars each year, according to the BA.
“So long as you are only paying a $50 deposit for something worth $131.62, why would you ever return it?” wrote Metzger. “To really eliminate keg loss/theft, the market really should be charging a deposit fee significantly higher than the replacement cost of the keg to incentivize the retailer/individual to return it.”
Jim McGreevy, president and CEO of the Beer Institute, told Brewbound that in order to curb keg theft, laws must be changed.
“Keg loss is a major financial burden for brewers and importers,” he said. “Legislation on this issue is key to combatting the problem.”
Federal legislation has been proposed as recently as 2013 to address the issue, but most headway has been made at the state level, like in California, which last year enacted a law making it illegal to deface a manufacturer’s name stamped into the keg without written consent.
Distributors, too, are hurt by keg loss, according to the National Beer Wholesalers Association (NBWA). The organization doesn’t have specific data to indicate exactly how much distributors lose annually because of keg theft, but the 2013 NBWA Distributor Productivity Report estimates that the average 1.8-million-case-per-year outfit will sacrifice about $70,000 worth of inventory due to shrinkage and breakage.
Paul Pisano, senior vice president of industry affairs with the NBWA, believes stronger communication between the tiers could quell keg loss. By working more closely together, he said, distributors and retailers could establish fair deposit fees and, in essence, help solve both problems.
“I think part of the communication with retailers is a holistic keg policy conversation we need to have,” he said.