the method by which a brewery’s beer actually reaches the marketplace. Brewing a great beer is the first step toward success for any brewer anywhere in the world. The second step is getting that beer distributed—getting the beer into the hands of the consumer. Woe shall betide the brewer who underestimates the difficulty of the second step. From the earliest days of brewing, government has had an interest in regulating the production and distribution of beer—to insure the safety of the product, to limit its consumption to people of legal drinking age, and to collect taxes. The structure of beer distribution varies from country to country and even from state to state, or even municipality to municipality, within a country.

In the UK a brewer can be a distributor and own pubs. There are more than 50,000 pubs in the UK. The pub sector is split into three groups—managed, tenanted or leased, and free houses.

There are approximately 9,000 managed pubs in the UK. These are pubs owned by a brewery. The staff of the pubs are employees of the brewery. Decisions on the beers stocked by these pubs will be made by the brewer, and although some beers from other brewers will be sold, the buying decisions will be made by the owning brewer and not the publican. See tied house system.

The largest group of pubs—about 19,000—are tenanted and leased. A tenanted/leased pub is owned by a brewery or by a pub-owing company and then leased on a short-term or long-term lease to a tenant/lessee. Tenants/lessees are tied for their beer supply at a pre-agreed price, which is likely to be more expensive than the same beer bought by anyone else from a brewer. The owners of the pubs argue that this higher price must be seen in the context of the total rental package the tenant is offered; the tenant, they say, will incur a relatively low capital cost to set up the business. The tenants of pubs owned by national brewers can serve one cask-conditioned beer of their choice from a source of their choice—the so-called guest beer rule championed by the Campaign for Real Ale, a consumer advocacy group. See campaign for real ale (camra).

In addition, there are about 17,000 “free houses.” These are owned and managed by the licensee who makes the decision about which beers are stocked.

In continental Europe it is not unusual for a brewery to own pubs, bars, or even liquor stores. Brewers also will tie retailers to their products through a system of financial loans, whereby the retailer agrees to stock a product in exchange for investment in the business. The investment could include marketing and advertising support, the provision of equipment for draught beer, or even decoration and refurbishment of the premises.

In the UK and Europe, big retail chains sometimes require brewers to pay fees to stock their beers.

In China and many countries throughout the world, brewers pay royalty fees to distributors and retailers, who then agree to sell their beers.

In Sweden the government controls retail beer sales though the Systembolaget, the Swedish Alcohol Retail Monopoly, with the government acting as both wholesaler and retailer. Unless the Systembolaget buys a brewer’s beer, it cannot go on sale. The Systembolaget exists “to minimize alcohol-related problems by selling alcohol in a responsible way, without profit motive.” Dating back to the mid-1800s, similar monopolies also exist today in Norway, Finland, Iceland, Canada, and some US States. In Sweden, brewers can own and sell directly to bars, restaurants, and hotels.

All of the above-mentioned systems of beer distribution have resulted in a concentration of the beer industry in the hands of small groups of large brewers who could afford to control the distribution of beer and, in some cases, the retail sale of beer.

The United States has a unique and complicated system of beer regulation that was instituted when Prohibition was abolished in 1933. The beer industry in the United States, as in most of the world, became greatly concentrated in the 20th century because of the power of mass marketing and mass distribution. But the US system had some unique features that enabled small brewers to develop their businesses to a greater degree than other countries. See prohibition.

The 21st Amendment of the U.S. Constitution—which abolished Prohibition—provided that the states, not the federal government, would have primary responsibility for regulation of beer and other alcoholic beverages. (Beside tax collection, the only role played by the federal government is to insure that no state makes laws that discriminate against the brewers of other states—the “commerce clause” of the Constitution.)

With some exceptions, most of the states subscribe to the three-tier distribution system. Under this system, a brewer cannot be a wholesaler or a retailer. Wholesalers also may not own retail outlets. Only a retailer—a liquor store, supermarket, restaurant, bar, or hotel—can sell to the consumer. The “tied house”—a bar or store owned by the brewer as in the United Kingdom—was banned in all states. In addition, retail chain stores cannot charge fees to stock beers.

Thus, the wholesaler and the retailer are independent businesses that can make their own choices about what beers they will handle.

States have introduced various exceptions to the three-tier system, the most common being a brewpub, which is both a brewer and a retailer. Some states allow a business to have a part in two of the tiers, allowing breweries to distribute their own and others beers and allowing brewers to sell beer at retail from a store at their brewery.

Most state laws provide that brewers must grant distributors exclusive distribution rights for a geographic area. Many states have “franchise laws,” which hold that distributors garner equity in beer brands when they sell brands in their areas. This means that a brewer cannot arbitrarily terminate a distributor’s contract without cause. These laws usually provide that the brewer must compensate the distributor if he does terminate the relationship, often for the “fair market value” of the distribution rights.

The various states also have established rules that govern the relationship of the brewer to the retailer. In some states, a brewer may not give promotional items or services to a retailer. In other states, the value of the items is limited. In some states, a brewer can set up and maintain draught lines in a restaurant or bar. In other states, this is prohibited.

The independent wholesalers fostered by the three-tier system have been a key factor in enabling the craft brewing renaissance in the United States. Similar efforts to establish craft breweries in many countries have been stifled by the large brewers’ control of the means of distribution.