Wednesday, May 6, 2015

Is Kansas City Having a Brewery Boom? - Part 2

In Part 1 of this series on brewing in Kansas City, I talked a little bit out our situation in the KC brewing scene. Although we've got a lot of new breweries opening up, we don't have even close to the number of breweries that other true brewing centers like Denver, San Diego, and Portland have. This is all while I feel that with the beer culture we've got here, we really could be a great brewing town. In this second part of the series, I'm going to give my take on why we're falling behind.

The most important reason for our relative lack of breweries are the overly restrictive laws governing beer in the metro. It's difficult to open a brewery anywhere in the US because of the national, state, and city/county licensing typically required. However, breweries in the KC metro have even more hurdles than in many other places.

In order to help explain the laws, I asked Mike McVey of MKL, PC to help me out. Mike is our local homebrewing lawyer who has helped navigate the labyrinth of local beer laws many times in the past, and was a big advocate for homebrewing reforms passed in Kansas last year.

The two important regulations in question are the right to self-distribute and the "food rule." Ok, I know this is going to get rather technical and boring, but stick with me! This stuff is important! Here we go...



Right to Self-Distribute

So this is what the American Dream
looks like...John McD in 1989

Consider the legend of Boulevard's humble beginnings. It's told all the time how John McDonald trucked his first keg of Pale Ale in the back of his pickup down the street to sell at Ponak's. It's basically the most quintessential American story possible. It involves an entrepreneur, beer, pickups, and a free regulatory environment that allows small businesses to grow. This could never happen today because brewers lack the right to self distribute in Kansas and Missouri.

The right to self-distribute relates to the 3-Tier System of alcohol distribution. The 3-Tier System is a legal framework that was designed to protect consumers and small brewers from unscrupulous practices of monopoly breweries. It sets up a system where brewers (1st tier) can only sell to independent distributors (2nd tier), and those distributors sell the beer to bars and liquor stores (3rd tier). Breweries do not have the right to sell their product directly to bars or liquor stores in this system (that is, self-distribute).

The system actually works pretty well for the most part and the distributors provide a great service to brewers and consumers. The distributors help breweries solve logistical problems, grow more easily, and move into new markets. They also help with marketing, putting on events, and selling the beer to individual bars and retail shops where it might not be possible for a brewery to have a local representative.

However, restricting the right to self-distribute to all brewers, even tiny nano-breweries, creates a conundrum for small breweries trying to enter the retail and bar market. It's a big investment for a distributor to take on a new brewery. If a brewery has no proven track record in the retail and bar market (because they can't get on with a distributor), it makes it a risky endeavor for distributors to take them on.

Consider another more recent brewery-origin story in KC. Martin City Brewing Company didn't have space in their restaurant to house the brewery they wanted, but they had a great space directly across the street. Because they couldn't self-distribute, it was impossible for them to walk the kegs 50' across the road to serve in their original pub.

Now that they're on with a distributor, they can serve their own beer at the original Pub. But guess what happens to that beer? The distributor picks it up, trucks it out to their warehouse, fills out all the necessary paperwork, puts it back on a truck and delivers it back 50' from where it started. Not quite as American Dream as the Boulevard story. Now MCBC is all over town so it's a moot point, but I'm sure it would have helped them out greatly when they were just starting out.

Almost all other states have recognized this problem and have opened up the right to self-distribute for small breweries. Once they hit a certain number of yearly barrel production, they have to get with a distributor. This allows those small breweries to get a proven sales record, but still maintains the 3-Tier System. This is the best of both worlds.


Food Rule


You might be asking now, why do we need self distribution--breweries can just open a tap room and prove themselves there, right? Well, not exactly. The problem is the Food Rule. The law stipulates that for sales by-the-drink for breweries in Johnson County, a 30% of your revenue must come from food sales. This is the case in many of the counties across KS--when Prohibition ended, the State gave each county the option to be completely dry, to enforce the Food Rule, or to allow bars to open without having to serve food. Ever wonder why bars don't exist in JoCo without restaurants?

So essentially, it's not possible for most people to start a small brewery in JoCo. You either have to drum up $1 million to open a 15 BBL package brewery, or you have to open a brewpub. Most people can't get the investment necessary to start a large package brewery, and most don't have any desire to open a restaurant. They want to brew beer, not manage kitchen staff.

Border Brewing Co couldn't have
opened in KCMO a year ago.
Up until a couple months ago, the Food Rule was also the law in KCMO. The Council revised the city ordinance in December of last year to allow microbreweries of any size to have taprooms. You can see the impacts already--Border Brewing Co couldn't have opened in the Crossroads a year ago. The shitty part of the matter is that outside of KCMO between the MO River and the Plaza, the place with the highest population density of craft beer drinkers that would support new breweries is northeast JoCo.

The Food Rule is important in another way--the brewery boom in America has primarily come from small microbrewery taprooms (that can also self-distribute). There have been 4 times more microbreweries than brewpubs opened in the US in the last decade, and many of those are breweries like Border Brewing Co.


But why does it matter anyways? We've got lots of options with out-of-town and out-of-state breweries in the metro, and we've always got Boulevard to count on for new brews coming out. I'm going to explore why I think it matters in Part 3 of the series, and also talk about what we can do to help our craft beer scene really start to boom.

4 comments:

  1. Fantastic assessment Jay! Someone should forward this blog to the city council.

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  2. You should check out the 22% Manufacturer/Wholesaler laws in Missouri. It does permit self distribution and some breweries are taking advantage of this today. The State of Missouri publishes the breweries that are licensed this way. There are about 12, I believe. Most in the St. Louis area, but I recall seeing Big Rip on the list. The best explanation of it is listed here. We probably remember Doodle Brewing. That's how they were licensed: http://www.ratebeer.com/forums/doodle-brewing-opens-for-business_153497_2.htm

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  3. Thanks! At least the KCMO city council had some common sense. Making sensible reforms to attract business instead of just handing out money to rich companies so they'll jump state/city lines isn't their strong suit. Unfortunately in JoCo, it's not that simple because it's a constitutional matter. I'll get into it in the 3rd part of the series!

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  4. Great addition. I don't know if there was anymore depth to be had on this leg, but you had my attention throughout. Can't wait for the next installment.

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