We are Texas, and our Star shines bright.
As of December 31, 2011, Texas was home to 71 licensed small craft breweries (which, for the purposes of my analysis, include breweries less than 75,000 barrels of annual production, up from 47 just a year earlier. That number includes 34 brewpubs (up from 28 at year end 2010) and 37 production breweries (almost double from the 19 licensed production breweries at the end of 2010). in 2011, Texas small craft brewers produced 130 thousand barrels of beer, compared to 93 thousand just the previous year.
The growth of our industry has been amazing and has not gone unnoticed, yet I submit to you the following proclamation: we are underachieving.
31 Texas counties are home to a small craft brewery, but that’s out of 254. Not good enough.
That 130 thousand barrels produced by Texas small craft brewers? That represents a paltry 1.2% of the craft beer industry and a pathetic 0.06% market share in the overall US beer market. Not good enough.
Those 71 small breweries? We still rank 46th in breweries per capita in the US. Not. Good. Enough.
Since I only speak on behalf of myself and my brewery, I won’t call the following list a set of goals. Instead, let’s call them a challenge.
By 2015, I challenge Texas to the following:
- Be home to 160 actively licensed small craft breweries.
- Produce 250,000 barrels of beer from small craft breweries.
- Have a small craft brewery in 40 Texas counties (this one is admittedly harder, since breweries tend to open in more populated areas, for obvious reasons).
These three challenges are achievable, but it will take the effort of numerous parties. To be successful, I’m challenging the following groups to do their part.
- Texas Small Craft Brewers: your challenge is obvious.
- Texas beer distributors: you are our ally in the growth of the industry, and our growth cannot happen without you. Commit to carrying and featuring Texas brands.
- Texas beer retailers: you are the front line. Abandon the old school way of retailing beers and the intimidating walls of industrial light lager. Give brewers a fair and equitable display with no unfair preference to brands who kick you illegal incentives. Provide consumers easy, clear access to the brands they want.
- Texas Legislators: you are challenged with the task of establishing fair, competitive industry reforms that allow Texas small craft brewers to grow their brands. That means allowing production breweries to establish tasting rooms and sell directly to consumers on premise and allowing brewpubs to sell into the wholesale tier. There is almost $1 billion in economic impact at stake for helping Texas meet the 2015 Challenge (based on my annual Economic Impact Study – latest version to be published in March/April).
- Texas beer consumers: you have the best job in achieving the challenge. Continue drinking and supporting Texas small craft brewers.
Together, we can do this. Share the message of the 2015 Challenge with friends, colleagues, industry members, and anyone you know who cares about Texas Craft Beer.
Drink Beer, Save Texas.
And now for the lighter side. As I alluded to previously, Judge Sparks’ judgement is full of all kinds of funny lines. If this whole judging thing ever gets old to him, he’s got a career in comedy.
Judge Sparks wastes no time getting into the humor (and a little jab), and offers this in his background on the case:
The practice of law is often dry, and it is the rare case that presents an issue of genuine interest to the public. This is just such a case, however. Dealing as it does with constitutional challenges to the Texas Alcoholic Beverage Code, it is anything but “dry”and this Court wouldnever be so foolish as to question the sincerity of Texans’ interest in beer.
Given this obvious public interest, it is both surprising, and unfortunate for proponents of the Alcoholic Beverage Code, that the State of Texas does not appear to have taken as much of an interest in this case as it might have.
Judge Sparks did limit comedy to his commentary, and titled one section of his Judgement as:
2. Beers and Liquors and Wines, Oh My!
On the defense’s argument that The Texas Alcoholic Beverage Code is constitution because it is the Texas Alcohol Beverage Code:
In a remarkable (though logically dubious) demonstration of circular reasoninga tactic it repeats throughout its briefing, and which it echoed in open court TABC attempts to defend the constitutional legitimacy of the Code through an appeal to the statutory authority of the Code itself.
On the idea that the state should have the authority to define words however the legislature sees fit (and in what can only be seen as a tip of the hat to Freetail Brewing Co… right?):
Second, TABC’s argument, combined with artful legislative drafting, could be used to justify any restriction on commercial speech. For instance, Texas would likely face no (legal) obstacle if it wished to pass a law defining the word “milk” to mean “a nocturnal flying mammal that eatsinsects and employs echolocation.” Under TABC’s logic, Texas would then be authorized not only to prohibit use of the word “milk” by producers of a certain liquid dairy product, but also to require Austin promoters to advertise the famous annual “Milk Festival” on the Congress Avenue bridge. Regardless of one’s feelings about milk or bats, this result is inconsistent with the guarantees of the First Amendment.
This one isn’t so humorous as it is an insight into the larger issue that I have dealt with extensively: the restrictions of brewpubs to sell their beer to distributors or retailers for resale based on 3-tier arguments. Judge Sparks questions whether or not the concerns purported by the WBDT as reasons for not letting brewpubs sell their beer to distributors and retailers is a valid one.
Although unquestionablytrue whenthe Code was first written, andthe evils oforganized crime’s involvement in the alcoholic beverage industry were both immediate and substantial, it is less clear that vertical integration of the alcoholic beverage industry still poses a grave threat to Texas’s interests. In any case, in light of wineries’ exemption from these regulations, this purported interest is suspect.
In response to the defendant’s argument that the “Beer” and “Ale” distinctions are important for consumers to know how strong a product is in terms of alcohol, the Court reponds (my favorite part highlighted by me):
Although a typical member of the public may not be able, off the cuff, to state the average alcohol content of popular Texas malt beverages, the Court is confident that same person could, if presented with the alcohol content of a variety of malt beverages, come to a reasonably quick and accurate conclusion regarding their average range. Having determined the average range, this person could then make an intelligent choice whether to deviate from that range, in which direction, and by how much. The Court simply does not share TABC’s apparently low estimation of Texans, and remains steadfast in its belief that they are capable of basic math.
On why TABC’s lawyers presented what appears to be a less-than-full effort:
Regrettably, TABC has almost wholly failed to submit such evidence, and has often failed even to respond to Authentic’s arguments. Whether this failure reflects a tactical error, laziness, an implicit concession that the Code cannot withstand constitutional scrutiny, an erroneous assumption that TABC is entitled to special treatment, or a mere oversight, the Court cannot say. However, under the circumstances here, the Court is obligated to grant summary judgment in favor of Authentic on its First Amendment challenges.
On why just because TABC doesn’t know why it enforces stuff, it doesn’t make it unconstitutional:
However, as noted above, the state need not come forward with any record evidence whatsoever in defense of the Code. Further, just because particular individuals within the Texas governmenteven those of high rank within the administrative agency that enforces the law may not be able to articulate a reason for the Code’s disparate treatment, that does not mean no reason exists. Indeed, although it may well be desirable, there is no constitutional requirement that a personwho enforces of a law must also know the legislative purpose behind it.
Again, on defendant’s level of effort in defense:
The Court is shocked and dismayed at the Texas Attorney General’s halfhearted conduct in this case. The very purpose of having the Attorney General’s Office defend suits like this, is so the State of Texas can vigorously defend its duly enacted legislative mandates. Here, however, when TABC responded to Authentic’s challenges at all, it responded with little in the way of argument, and even less in the way of relevant evidence. The State of Texas is lucky the burden of proof was on Authentic for many of its claims, or else the Alcoholic Beverage Code might have fared even worse than it has.
Final note: I don’t feel the Attorney General let the TABC down as much as Judge Sparks thinks they did. Judge Sparks thinks the AG left arguments on the table, but I would contend THERE WERE NO ARGUMENTS TO PUT ON THE TABLE!
Been a fun day. Cheers everyone.
I’m going to post a quick summary, and follow up later with interesting tidbits from Judge Sparks’ ruling. But in the interest of getting information out there quickly, the Judge has ruled Sec. 108.01(a)(4) of the Texas Alcoholic Beverage Code unconstitutional as a violation of the First Amendment. . Additionally, he has ruled Texas Administrative Code Title 16, Sec 45.77, 45.79(f), 45.90, & 45.110(c)(3) unconstitutional as a violation of the First Amendment.
What does this mean in layman’s terms? 3 things:
- TABC cannot prohibit you from telling customers or advertising where they can buy your products
- TABC cannot require you to label your products by their definition of “beer” and “ale”
- TABC cannot prohibit you from advertising the strength of your products by prohibiting words like “strong”, “prewar strength”, “full strength”, etc
Like I said, be back later with more details. You can play the home game and read the full judgment here.
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):
- Increase the real value the product provides consumers (make your product better)
- Increase the perceived value it offers consumers even if it offers no more real value (in economics, we call this advertising)
- Become the more attractive option for consumers from a price perspective (make your product more affordable)
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Wow, what a wild weekend. As I mentioned the last few days, the rally was a huge success and a ton of fun. Saturday night I did some internal rallying with some good friends of mine from Real Ale Brewing Co. in Blanco as they came to town and dragged me to a Norwegian Black Metal concert. That type of music isn’t my cup of tea, and I was afraid all the metalheads were going to steal my lunch money – but it’s always good to see my big brothers in the brewing world. For those of you who experienced the RealTail festival last year, you’ll be happy to know we are already thinking about what to do this year.
This morning I met with the owner of a very large (in fact one of the largest, if not the largest) distribution company, who is on board with HB 660 and will be actively helping us get it through. Contrary to what the paid lobbyist for the Wholesale Beer Distributors of Texas thinks, some wholesalers see the future of beer in the craft segment and recognize consumers shifting tastes towards local, artisan products. These folks (who will remain nameless for now) will eventually be deserving of as much credit as myself and my brewpub peers when HB 660 passes.
This blog post was literally just interrupted for 15 minutes as I conducted an interview for KETK, the NBC affiliate in Tyler. Look for the story tomorrow on their website (and of course I’ll have it linked here), and if you live in Tyler you can catch it tonight at 6 and 10.
Wrapping up the coverage Friday’s rally, Univision has a Spanish language piece on the bill which features my good friend Joey Villarreal of Blue Star Brewing Co. dusting off his Spanish skills.
This Week’s Fun Fact
The brewers association has announced that the number of breweries in the United States has passed 1,700. Sadly, Texas only has 43 (or 2.5%) of those. For a state that makes up almost 10% of the beer consumed in the US, that simply isn’t good enough!
Today’s post is another relatively short one, based on a simple graphic.
The graph below shows the number of Brewpub Licenses active in Texas from 1993-2010. As you can see, after an initial boom in the 90s, brewpubs as a business type have struggled to grow in Texas. Meanwhile, the number has exploded in the US. In 1986, America’s 5th brewpub opened and as of July 31, 2010 there were 994 brewpubs operating.
(Click for full-size version of graph)
A couple of important notes. This represents the number of active BP Licenses issued by TABC, not the number of operating brewpubs. So, for example, while Waterloo Brewing Co. in Austin (the 1st brewpub in Texas) closed in 2001, its license was active until 2002 – so that is when it drops off the chart. There are also a number of licenses issued to places that may not have ever brewed a batch of beer as a brewpub.
In other news, Committee Preference Cards are due from House Representatives today. Based on these preferences, committees will be assigned, which will be crucial to the fate of HB 660 and every other bill filed. Something we will definitely keep an eye on.
Around the Web
Ted at the Barley Vine has another blog post about HB 660.
Calily of Micah brews. Calily cooks. has a post on HB 660 with the KENS 5 television story embedded. (PS: if someone can teach me how to embed it here, I’d love to do that).
Today, only a couple of graphics. The top graphic is volume of beer consumed. Texas ranks #2 in the United States. The bottom is Breweries per Capita (per 1 million residents). Texas ranks #47.
Click on images to see full-size.