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Friday, October 17, 2014

Tricks Wholesalers Use, a Pay-to-Play Follow-up

Earlier this week, Dann Paquette made some pretty incendiary claims about how breweries got tap handles in certain Boston pubs: by paying for them.  After I posted on it, a few people emailed to give some insight into their experiences here.  I know all these people and can vouch they are who they say they are--but for obvious reasons they did not want their names associated with their comments.  I think you'll find it interesting, though.

This first comment, from a brewery sales rep working in OR, WA, ID, and AK, summarizes a lot of what I heard:
Pay to play absolutely exists in mature markets like the northwest but it's not typically found in bars except for high volume accounts with few beer choices. You can imagine even if you could convince a buyer at a bar with a great beer selection to put beer on in exchange for money or gifts it would not make the consumer try your beers. The accounts that do this seem to be closer to stadiums and event centers that have huge crowds that pack a place but are not known for beer selection. If you are one of a few beer handles you will pick up some sales. 
But unlike some markets, where it seems corruption is rampant (the source above added "I went on a trip to Chicago a year ago and could not believe what was being asked of me. Buyers asked to buy two kegs get one free. Bartenders asked for money to push our beer"), it's more nuanced in the Northwest.  This comes from a wholesaler:
We do see some of this in Portland, where if distributors don’t give accounts free T-shirts, glassware, kegs etc. then your beer isn’t on.   I know of one distributor that’ll give an out of date keg to an account for free to sell in another tap handle.  Overall it’s not too bad in Portland (& Oregon in general) but it does happen with certain accounts.  My impression is it’s driven by the accounts asking for free stuff vs. distributors pushing free stuff.

We compete pretty hard in Portland but I’m pretty pleased to say it’s mostly above board.  All the OR distributors sit in the room together at OBWDA meetings and get along for the most part.
There seems to be a fuzzy line where breweries are asked to offer inducements of freebies.  (You can see how that would be good for pub business.) A former rep for a NW brewery added a bit of texture.  (The source asked me to paraphrase his comments.)
Wholesalers aren't allowed to give "items of value" to pubs in OR and WA.  You can give things like information sheets or beer mats, but not leather jackets, neon signs or free kegs.  Interestingly, it is legal to give items to customers--things like glassware, given to pubgoers directly, rather than through the pub.  
He went on to describe a practice that is probably not legal, but would be nearly impossible to police.  He actually witnessed this happen first hand.
A brewery was willing to pay $500 to the distributor's representative if he could move ten kegs of the brewery's beer.  This is legal.  As the promotion was about to end, the distributor had sold only eight kegs.  At the last account, he swung a deal so that he essentially dipped into the promo money and sold the two kegs to the pub for the price of one.  (The pub paid for the two up front, and the distributor shared the cost of the keg later.) 
Writing in comments, The Common's Josh Grgas echoed the same thing:
There is a backward pay to play approach some larger craft breweries have taken. In this case, a brewery will provide a cash incentive to distributor's sales reps for each competitors tap handle they acquire. This type of head hunting has happened in Portland, unfortunately. 
Josh added a comment that illustrates how hard it would be to separate pubs who are corruptible from those who just have random preferences:
Committed lines do happen, but it’s not nefarious like in other areas. A bar manager might stock a certain brewery or distributor based on personal preference, superior service or other intangibles. For example, there’s a bar in NE that almost exclusively stocks a certain distributor because the distributor’s warehouse is located nearby and the staff all drink at the bar after work. 
The upshot: Portland and Oregon are probably pretty clean, but every market is different.  We often talk about the ways in which the three-tiered system is so good at preventing market domination--and it is.  But having an invisible layer in between the producer and retailer also offers an opportunity for hard-to-stop corruption.

1 comment:

  1. With or without the three-tier system, these sort of things will happen, either above or below the table. (here it's mostly above the table, all written down, billed and taxed, it can still hurt smaller, less affluent breweries, but you must also see it from the point of view of someone putting together a pub or a restaurant).

    More often than not, anyway, it'll be impossible to police because many of the lines will be blurred. Where does incentive end and bribe begin? Buy 10 kegs, get one for free / How about if I throw in a keg, on the house, would you buy these other 10?