Beer Ditstribution

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https://en.wikipedia.org/wiki/Beer_distribution

Beer distribution is specific categories of market distributions as beer is an alcoholic drink which is sale under some certain regulation or legislation by some governments such as USA. It is a general process to allocate the beer made by the factory to the general population. Modern beer industry is under business environment transition, which experiences rapid increase of new entries and emphasis of market distribution. It may assist brewery sells its enormous numbers of products in an effective way. The processes and methodology of beer distribution are various due to different demand for location and categories of beer companies. Generally, there are two dominated methods of beer market distribution can be applied to different scales and kinds of beer companies. Firstly, the indirect method, also called the three-tier system, is the brewery sells beer to one or more distributors and those distributors, in turn, sell the beer to retails, restaurants and costumes. Secondly, the other method is that directly sell the products to customers called self-distribution. Different breweries in different regions would choose different options since the advantages and disadvantages of those two methods are visible.

Indirect strategies (three-tier system)

The process of the three-tier system includes manufacturing, wholesaling and retailing. Each stage and function are allocated to separate roles, namely suppliers, distributors and retails. The process is As the origin of the chain, suppliers are the brewery which makes the products, the beer, and they have responsibilities for the safety and quality of their products under the local legislation. Those breweries and supplier should pay relative beverage taxes through cooperation. Distributors are the intermediary in the process. Distributors can purchase kinds of beer directly from their suppliers and breweries. They can apply market strategies such as storage and dump their good, the beer to generate more profit. It is their responsibility to supply beer as fresh as possible to its customers, the retailer. However, when they can storage or dump beer in some period, they have the face a potential risk of loss such as unmarketable situation. Retailing, the last stage in three-tier distribution, they can sell the beer to general population customers. All terminal retailers with permission by the government including bars, liquor shops, and various grocery stores. Theoretically, retailers can set their price of beer in specific conditions.

Advantage

Inventory space

Three-tier system is praised due to its effectiveness and well. One its significant advantages is it can provide different kinds and scales of breweries with the almost the same opportunities to separate out and promote their product which can facilitate the beer industry competing in a comparing fair constitution. The reason for that is the channels for beer producer to sell their products are the same and fixed to some extent because the distributor in certain areas is fixed. For beer factories, there are couples of other benefits in such market strategies. Beer distributors will make efforts and invest their capital into advertising to attract their retailers and potential customers. It is extremely important in current and coming decades since although beer factories can produce high-quality beer and achieve premiumization, attract potential customers’ interest and basis is more important, according to J.P Morgan report. It is one of possible reasons to help producers to achieve economic efficiency as those informational distributors may provide more accurate condition about customers demands. As the result, distributors with informational and capital capacity can ensure kinds of beer to the general market with massive demand in low price to gain competitive power . Especially, for those are small scale and wandering achieving premiumization beer companies, such market strategies can help them reduce the operation and promotion cost such as public advertises and market investigates. Besides, distributors can help beer factories save the space to stare beer kegs. That is beneficial for both beer producer with large scale or small scale because they reduce the cost to purchase some equipment to store beer, especially for those breweries with small space. Apart from giving advantages for beer producers, distributors can share the benefits in this three-tier system. Distributors can improve diversity in the beer market to attract those retailers who want to provide more choices for their customers. In addition, the government is one of the beneficiaries in such market methodology. Since the accounts in the whole chain are separate, governments can monitor and manage those transactions more easily, which will help the government get taxes more accurately and control the beer industry develop in a right way. Since the three-tier regulations are made at state level, it would like be more suitable and appropriate for certain local concern and unique local environment. For the beer industries itself, the three-tier system can stimulate the competition of the industry because this method seems like is the cheapest way to transfer product from beer factory to customers in real life. As this result, all of the participators in this chain have to improve their competence. Producers should find and develop a new way to produce high-quality beer effectively. Distributors should apply couples of market methods to increase diversity and profits of its goods.

Disadvantage

Some adverse impacts about the three-tier system on social economics and beer industry development are indicated. Firstly, the compulsory approach may limit small breweries which dementedly are the craft beer producers and grow rapidly in recent years since it is increasingly appealed by young people . However, regulatory constraints seem to generate a negative influence for craft beer producers to launch their business. There is research reports that small breweries prefer choose the places which can provides an easier access to market and small brewers are more sensitive about the access to distribution than the large beer companies. The result indicates compulsory marketing regulations such as the three-tier system may impose negative impact on small breweries entrepreneurship. Besides, in order to generate more profit breweries would launch their own beer hub which can sidestep the restriction of three-tier system. Nevertheless, more than half of profits come from sale of on-premises food rather than sale of beer, which is not benefit for small brewers to concentrate its beer producing activities.

Three-tier system in USA

Main article: Three-tier system (alcohol distribution)

he three-tier system has played an important role in beer distribution in America. Although the three-tier system has not been compulsory in current years in some states, it has literately influenced the structure and development of the beer industry. Before 1919 the model of beer distribution was a simple method which allows private brewers directly sell their beer to retailers and general customers without any restrictions and limitations . At that period, there is no national brand but some small breweries within small geographic areas. As lack of national brands and refrigeration technology, the selections of beer are narrow for both in taverns and customer. That caused competition for local breweries is cutthroat and low price strategies are crucial methodology to win local market share. Therefore, public drunkenness has been seen as an increasingly frequent and serious social problem in that period. Consequently, public perception reckon that this simple direct strategy encourage alcohol abuse and over-consumption of beer will impose adverse impact on economic growth. After 1919, government and supreme court passed the 19th Amendment and Volstead Act . As a result, the government intervenes the beer market, which allows only state-licensed distributors can purchase from beer producers and sell to retailers, which encourages government getting more power in the domestic beer market. However, after enacting certain years, government find that over-restricted and compulsory regulation may cause government sorely missed amounts of excise taxes and jobs generated by alcohol industry . Besides, the three-tier system as a compulsory regulation may cause a negative effect of the development of small producers . Therefore, the government released the 21st Amendment to give states authority to manage alcohol and beer market . From that time, the three-tier system has not been the only option for brewers and distributors.

New trend

Craft beer tastings

The role of distributors between beer producers and customers has continuously changed as the craft beer has become more popular and widely accepted by male consumer age 21-34 and there is evidence shows that the beverage consumption ratio of the craft beer is increasing in recent years , which cause the beer market existing a huge and potential demand about the craft beer. And the beer distributors find that they are at a better position to get close to the customers who have demand of “ better beer”, the craft beer. Cooperating with craft beer producers has become parts of a new trend for distributor and craft brewers developing and most craft beer producers are small-scale.  As those results, beer distributors are trying to provide information for beer lovers about their database of craft style and brand and other beer events such as tastings, which can encourage craft beer lovers to find more kinds of craft beer and guide them to find certain retailers which can provide these craft beer. In addition, with the help of modern information technologies, beer distributors establish mobile apps to cater to the need of young people who the dominated group preferring the craft beer. Such a strategy is beneficial for all of craft beer producers, both retailers, and general customers and beer distributors themselves. As mentioned above, one of the dominated drawbacks of three-tier system lacks the power to support small brewers which has limited geographic influence in the local market to improve local brand to national brand. The new trend of three-tier system migrates the unsatisfied side effect of this business model. Besides, it fits for the increasing demand for craft beer and is becoming an increasing sector in distributors’ profit center . Besides, the new trend includes the government reduces the restrict regulation and constraints for small producers, which stimulate the entrepreneurship and fit the future development of beer industry. For example, beer authority of Massachusetts allows the small-scale brewers which produce under 30,000 barrels a year to choose any form of distribution at any time with any reason . This action provides small breweries with opportunities to develop their business and promote the market fair.

Direct strategies (self-distribution)

Self-distribution is the other option for breweries to put their products into the market. It is a slight difference between the three-tier system. Self-distribution is that the beer producer directly supplies its products to retailers even general customers, which lack the middleman, the distributors. This methodology, in the most cases, adopt for those beer factories which want to form local appeal and the small factors deserve to maintain cost efficiencies. Usually, the one-hundred-mile radius of the brewery is regarded as the suitable market area for beer producers to achieve the balance between profits and cost by self-distribution methods.

Advantage

Comparing with the three-tier system, the benefits for breweries is obvious since beer producer can gain more profits which have been shared with distributors. Besides, retailers can control and set the sale price more flexible as, in the three-tier system, retailers have to increase 25% of beer price to cover the distribution cost.

Delivery vehicles

Disadvantage

Although self-distribution can provide breweries with more opportunities to generate more potential profits and gain more freedom, the disadvantages of self-distribution cannot be ignored. As the results of no distributors, beer producers have to pay the cost of storage space, storage equipment, and delivery vehicles. These are a considerable cost for beer companies, since either lease or purchase that avoidable equipment will influence the financial condition. Especially, for those producers with small scale, their cash flow may be hugely occupied by those equipment and lack of cash flow may put small companies into the risk of adverse situation.. As the result, giving up service altogether seems like the only option for small breweries . Apart from the use amounts of capital to purchase or lease the facilities, beer companies need people to operate and maintain the equipment. Furthermore, amounts of human resources may need to keep contact with retailers and seek for new potential markets. In practical bossiness condition, beer companies need to store additional inventory for avoiding market fluctuating risk. That means beer producers need more working capital to maintain and support the daily operation. These are the reasons why the large breweries have risk in suffering from product rotation and merchandising problems

See also

• Beer and breweries by region
• List of countries by beer consumption per capita

External links

• Media related to [[commons:|]] at Wikimedia Commons
• Quotations related to Beer Ditstribution at Wikiquote

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