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Ethics

Please do not buy Freetail beers on eBay

It has been brought to my attention that someone is selling, or trying to sell, our beers on eBay. I heard about it with Ananke (which we still have bottles of sitting on our shelves) and I found a listing for a 2011 La Muerta with a starting bid of $49.99.

Please do not buy these. First of all, La Muerta isn’t worth $49.99. It’s worth exactly $11+tax, the price we sell it for. I highly advise that no one ever pay a cent more (and there are no competitive issues with me saying that, since we are the only ones legally able to sell it).

Second of all, this is flat out f’ed up and I’m fully in support of TABC going after this person for the unlicensed sale of alcohol. If I find out who you are, I will make sure you are banned from ever buying our bottles again.

We take great pride in what we do and hate to see our hard work tarnished by someone trying to make a quick buck. I have no problem with the trading community (so long as traders don’t begin to crowd out our local customers) and in fact am very flattered to see our beers end up all over the country. But when someone buys our beers to try to flip them for financial gain, you’ve completely gone against what we are about.


Of Dinosaurs and Dealing With Lawyers

Okay, so I don’t have a whole lot to say on this topic, but I did want to address it.

Yes, I received a Cease and Desist (C&D) letter from an attorney representing another brewery over the name HOPASAURUS REX. Yes, I responded to that C&D like a child. Yes, I also had a lot of fun in acting like a child. Yes, I did include a drawing of a dinosaur waiving white flags in his little T-Rex arms. Yes, I had a lot of fun doing it.

But I didn’t do it with the intention of “going viral” or getting publicity for my brewery. I did it because that’s the kind of thing I do. I have no ill will towards the other brewery or the lawyer.

At the end of the day, I hope the main message are:

1) A lot can be solved if we just communicate with one another directly instead of always resorting to lawyers as the first option and

2) Please continue to support your local craft brewery, wherever you are!

That is all!

Scott

PS: A lot of you are asking about T-Rex with White Flags t-shirts… hmmmm… maybe. Lemme think about it.


Crafting Better Businsess: Insights from the Craft Beer Industry

Here is a talk I did at TEDxSanAntonio this year. It discusses how we can look at the beer industry of how to overcome the propensity for businesses to achieve for economies of scale, thereby lessening their value to the community. Hope you enjoy it.


Aftershock of Judge Sparks’ Ruling

As seen in the post immediately preceding this one, Judge Sparks has sided with the plaintiffs, Authentic Beverage, on the 1st Ammendment claims of their lawsuit filed in Federal Court.

To summarize, the ruling has the following effects:

  1. TABC cannot prohibit you from telling customers or advertising where they can buy your products
  2. TABC cannot require you to label your products by their definition of “beer” and “ale”
  3. TABC cannot prohibit you from advertising the strength of your products by prohibiting words like “strong”, “prewar strength”, “full strength”, etc

If you read my blog post on thoughts from the motions hearing in this case, you might remember I raised some questions about point #1, specifically in respect to the potential for brewers or distributors to advertise on behalf of retailers in order to provide a benefit to the retailer. I maintain that it is not far fetched for a Big Distributor or Big Brewer rep to say “hey, carry our beers and we’ll include you in our ad” as an inducement to gain tap space.

In spite of Judge Sparks’ ruling, such behavior remains illegal – but its enforcement may prove difficult. I agree with the general sentiment that brewers should be able to tell you where you can find their products, but I maintain a real danger exists that this may open the door to less than scrupulous activity. If you’re a normal reader of this blog, you know my feelings on ethical behavior and its primacy in the marketplace. I hope this does not open a can of worms that results in the eradication of small, local brands from tap walls and bottle shops as larger brands “buy out” the space with inclusion in ads. I think it is a lot to ask of any enforcement agency to be able to effectively track down, prosecute, and prove guilty violators of this behavior – as we’ve seen it is already difficult for them to enforce the laws restricting other illegal inducements (see the No Label tap targeting case).

The biggest win on these points is for the Texas beer consumer, as it should open to the doors to more brands coming into Texas. This may, in fact, make Texas a more competitive market place and put more strain on start-ups fighting for space in bars, restaurants and other retailers. However, you will not find me arguing against the lifting of restrictions of competition. I don’t believe in laws that reduce competition for wholesale or retail tiers, and I certainly don’t believe in anti-competitive laws so far as they concern the production tier. Quite simply: let the best beer win.

It was not a total victory for the plaintiffs, brewers, and Texas beer consumers, however, as Judge Sparks sided with the state on the claim that the restrictions on permissible activities of breweries and brewpubs. Authentic’s lawyers argued the restriction of breweries from selling to consumers and brewpubs from selling to resellers (wholesalers or retailers) was a violation of the 14th Amendment Equal Protection Clause and the Commerce Clause.

In essence, Judge Sparks did not go so far as to say that the state’s restrictions on breweries and brewpubs were constitutional, just that the plaintiffs did not satisfy the burden of proving they are unconstitutional. As critical as Judge Sparks was of the defense in their arguments in the 1st Amendment issues, he was just as critical of the plaintiffs in their arguments on these claims. To quote Judge Sparks:

Because Authentic has failed to present sufficient evidence in support of its Equal Protection claims, it is clearly not entitled to judgment as a matter of law. It further appears TABC is entitled to such judgment, by reason of its cross-motion, and because of Authentic’s failure to meet its evidentiary burden. Accordingly, the Court grants summary judgment in favor of TABC on Authentic’s Equal Protection claims.

While the illogical restrictions on the activities of breweries and brewpubs in Texas may have withstood legal challenge this time, Judge Sparks has provided a lot of kindling for the fire when the next legislative session rolls around. My fellow Texas Beer Freedom members and I have already begun discussing strategy for the next Legislative Session, and we have the continued support of San Antonio Representative Mike Villarreal, who is steadfast in his commitment to fair, logical beer laws.  In 2013 I think you will find Texas Craft Brewers more united than ever before and our chances of reforming the law and finding an equitable solution are better than ever.

I’d like to give some thanks and credit. First, to Jim Houchins and Rachel Fisher of Authentic Beverage and Pete Kennedy of Graves Dougherty Hearon & Moody for taking on this case. They are deserving of all the endearing credit that I hope you all bestow upon them. They took this lawsuit up not because a brewer asked them to, but because they believed in the cause. Additional thanks to Jester King Craft Brewery and Zax for volunteering to be co-plaintiffs in the suit so that it could have standing.

And finally, in what I think is an overdue thank you, thank you to all the other brewers in Texas who were involved in this effort behind the scenes. There is more than meets the eye in this case, and a lot more Texas breweries were involved than you know about, providing feedback and assistance to Authentic and Mr. Kennedy when asked. They did so without the expectation or desire for credit or applause from the crowd, but rather they did so because of a belief in the cause. You won’t find their names on press releases or blog postings nor will you ever get their names from me even though I know them. The community of Texas Craft Brewers is a tight knit group – perhaps too tight at times and I know newcomers to the scene may at times find themselves “outsiders” to the club – and that tight knitting is what provides the support system for efforts like this one, or HB 660, HB 602, HB 2436, the Texas Craft Brewers Festival, and countless other to be possible. A tip of my hat to all my fellow brewers. I often jokingly brag to folks how I have the coolest job in the world, and a big part of that is because I have the coolest peers in the world.

Cheers!

PS: In a few hours I’ll post “Judge Sparks’ Greatest Hits”. His judgement is a demonstration of some extraordinary wit, and some comments are just too good not to share.


The Case For Three-Tier

Wait… WHAT?

No, you read the title of this post correctly, The Case For Three-Tier. Disclaimer for those who are pregnant, may soon become pregnant, or suffer from a heart condition: you are about to read me make a case for the three-tier system and not in a “devil’s advocate” sort of way, but in a real “we actually need this” way.

There is a growing sentiment among consumers, and even a growing trend among statutory changes (like this one Tuesday in Washington state), against the 3-tier system. The behind-the-scenes warfare, as detailed here, between the members of the various tiers has only intensified as the clamoring for reform has grown. Most of you are probably aware that I led a charge for statutory reform in Texas earlier this year that would have allowed brewpubs like mine sell to distributors, which is currently prohibited.

So I come here today to once again remind us all of the importance of a truly independent distribution tier. The simple fact of the matter is that craft beer needs the middle tier for its continued existence. The distribution game is a difficult one, and in most cases requires scale in order to be profitable. Because of the scale required, it often takes big resources and big companies to be an effective distributor – something most craft breweries cannot be. If not for the requirement for an independent middle tier, there is little question the world’s mega brewers would vertically integrate distribution networks, and eventually crowd out craft brands. Niche distributorships may emerge, but their geographic reach would be limited (and many geographic areas would probably end up underserved or completely unserved).

Craft beer needs distributors. But our beer laws also need reform. These are not concepts in conflict with one another. As the fight for fairer beer laws in Texas continues, I’m proud to say that I’m in the process of meeting with distributors across the state to find common-ground solutions so that we can move forward. What I’ve found is that the distributors are not as unreasonable as we are led to believe, and they increasingly want craft beer in their portfolios. Now they want a way for us to work together without opening things up completely and allowing the world’s mega-brewers to re-establish the vertically integrated monopolies that flourished pre-prohibition.

The craft movement has a strong foothold and is here to stay. Let’ s not undermine the progress made thus far by calling for the complete abolition of 3-tier, let’s instead focus on making the right improvements to the system that doesn’t kill the craft movement in the process.


The Value of Business Integrity: A Call for Enhanced Ethics, Respectfulness and Law Abiding Behavior

So, it’s been awhile – and even before the last update, posts had been sporadic at best.  Don’t stop me if you’ve heard this one before – but I’m going to make a real effort to update at least once a week. Some updates will attempt to be poignant and tackle serious issues, other might be about the daily in-and-out of running a small brewery and teaching economics while finding time for soccer and mountain biking. In any event, content will be more frequent if not necessarily more meaningful.

Today I want to discuss something that’s been bugging me for a while, a certain lack of business integrity by not only by big business (the rumored targeting of start-up No Label Brewing taps by mega-distributor Silver Eagle for example), but by fellow craft brewers and non-beer industry small businesses in my community. (Note, I’ve always adhered by the long-standing prison code of “Snitches Get Stitches”, so I’m not here to rat anyone out. If you’re reading this and any of the things I’m describing sound like you, then they may very be you. It’s up to you to correct your behavior.)

Pay-to-play is a fairly common practice in the beer business, independent of how illegal and unethical it is. Stories like this one out of Chicago are just telling us what we already know: where the incentive exists, businesses will try their hardest to circumvent fair trade in order to gain the upper-hand. When products don’t have incremental intrinsic value to offer the consumers, they can hang onto, or gain, market share in a number of ways (this list not intended to be comprehensive):

  1. Increase the real value the product provides consumers (make your product better)
  2. Increase the perceived value it offers consumers even if it offers no more real value (in economics, we call this advertising)
  3. Become the more attractive option for consumers from a price perspective (make your product more affordable)
  4. Cheat

The first three options on this list are all okay, because they all require a two-way match of wants, preferences and needs for a consumer to choose one product over another. Like it or not, some people make purchasing decisions based on who has the best ads. Fair enough, but an ad in and of itself does not take a competing product off the shelf and limit consumer choice. The same with making a product better or less expensive. Sales of that product will still depend on how much consumers value that product relative to all other options.

It’s fairly self-evident why “cheating” in business is bad for consumers (not to mention our nation’s continuously bleak economic picture). We generally have little problem calling out big, faceless, corporations when they “cheat” – but it seems like we lose our ferocious intolerance for cheating when someone we have an emotional attachment to is doing it. We have no problem blasting Silver Eagle and the brands they carry (who we only alledged might be the brands replacing the targeted No Label handles) – but there is nary a whisper when it’s a beloved craft brewer openly and proudly engaging and promoting blatantly illegal activity. We may not like the Texas Alcohol Beverage Code, but until it changes we are still bound to follow it. Those who ignore the law, even if out of a sense of rebelliousness, are no better than a big distributor illegally targeting a small brewers taps.

Beyond the obvious ethical hypocrisy, I wonder about the potential backlash from this kind of activity in a legislative session. We all remember The Wholesale Beer Distributors of Texas Keith Strama’s bumbling, incoherent diatribe in front of the Licensing and Administrative Procedures Committee (chronicled here) where he stammered on how allowing brewpubs to distribute would somehow lead to babies drinking barley wine on street corners in dry counties. It may not be too hard to picture him standing before the LAP Committee again rambling on about how we can’t even obey the existing laws and we want the state to give us more freedom? It would be like handing the car keys to a teenager who you just grounded for getting excessive speeding tickets. (This would be the argument used against us, not one I actually believe in). It is imperative, for the success of any future legislative efforts (which there will be for years to come, even after breweries and brewpubs are allowed the freedom we seek – there are many other issues to tackle) that we be model citizens.

So here I present you with a proposed Code of Small Business Ethics. Please comment to add to, disagree with, or give a tip o’ the hat.

  1. Be a Law Abiding Corporate Citizen. Regardless of your opinion of the law, you chose to open and operate a business under the jurisdiction of said laws and they must be obeyed.
  2. Commit to Product Excellence. Let the sales of your product be dictated by the real value of your product, not by increasing your relative value by putting down your competitors. Your competitors making a better product should drive you to make a better product, not drive you to find ways to tell consumers a competitors’ products are garbage.
  3. Make Honesty a Core Value. Be open, honest and transparent about your business, even your shortcomings. As a small business, your customers have an emotional connection with you. They knew you weren’t perfect long before you admitted it to yourself. Be truthful when you fail and never be ashamed to say sorry.
  4. Be Direct and Discreet With Those You Disagree With. The growth of social media has made for entertaining battles when two figures (either business or personal) clash, but when you have beef with a competitor or partner, take your beef directly to them – not to twitter.
  5. Give Credit Where It Is Due. Give props to the people who made things happen. If someone gives you credit that you don’t deserve, be the first to stand up and distribute it where it truly belongs – don’t let others do it for you.
  6. Always be Customer Focused. This is obvious and cliché, but seemingly oft forgotten. Never forget, that without your customers, your business has no reason to exist.
  7. Commit to Fairness Throughout the Supply Chain. Treat your suppliers, creditors, employees and downstream customers with the same respect and fairness you would expect from them. Your supplier has bills to pay too, and squeezing every drop of margin out of him threatens his viability and your ability to benefit from him in the future.
  8. Be Passion-driven, not Profit-driven. Let your business decisions be driven by what you believe, not by what would be most profitable in the short-run. Your passion will best support you in the long-run. The craft beer industry is a great example of small businesses driven by passion, not by capturing economies of scale and seeking the greatest profit. As a result, it’s the only segment of the beer industry that is growing.

What should we add to the Small Business Code of Ethics? Chime in!

Next Post: I’ll have La Muerta details on my next post, which I’ll aim to have out this weekend at the latest. Cheers.