New brewpub law will stunt growth of small brewers

Wisconsin breweries will be disadvantaged in the national and regional marketplace with the passage of a law intended to allow Madison's Great Dane Pub and Brewing Company to expand its business.

Previously, breweries here could always rely on on-premises restaurants to aid in income differentiation, marketing and testing.

But with the passage of SB224, breweries that annually produce 10,000 barrels -- about the size of Lakefront Brewery in Milwaukee -- are without that option because they are forbidden from holding a brewpub license, the only license which allows restaurant operations for brewers.

The Great Dane Pub needed the law changed to allow it to sell its own beer at its third restaurant near the Hilldale Shopping Center. The previous law only allowed sales at its two older pubs, one in Madison and one in Fitchburg. The two Great Dane brewpubs combined produce about 4,400 barrels a year for sale in their restaurants.

The brewing industry follows a three-tier distribution system:

• The producers sell to distributors,
• distributors sell to retailers,
• retailers sell to consumers.

The brewpub is an exception to that general rule; it is a producer that sells directly to consumers. Under the prior laws, a brewery could only have two brewpubs. Under the new law, a brewpub can have up to six locations until it reaches 10,000 barrels in production annually. The catch is complicated, but basically boils down to this: A brewing company must choose whether to be a distributing brewery or a brewpub. Brewpubs must limit their total production to 10,000 barrels, distributing breweries cannot hold a restaurant license.

Catch-22 situation

It is a bit of Catch-22. A brewing company could choose to be a brewpub until it hits its 10,000th barrel, but then it must end its restaurant operations. This puts Wisconsin breweries at a competitive disadvantage. Chicago's Goose Island and Great Lakes Brewing Company of Cleveland -- both well-respected regional breweries -- were both able to start as brewpubs and grow the restaurant along with the distribution. But Wisconsin breweries would be actively discouraged from following in their footsteps because of the knowledge that once the 10,000th barrel is produced the restaurant must be abandoned.

Most breweries have no interest in running multiple restaurants. Restaurants are difficult businesses to run and require a lot of dedicated resources. For proof, just look at the number of restaurants that do not make it to their second year. Most breweries would just like to be able to make some food to serve in their tasting rooms. For example, Madison's Ale Asylum serves deli sandwiches and pizzas.

Discourages investment

The new law will not only prevent them from continuing to do so after the 10,000th barrel but will also discourage putting any significant investment into restaurant operations. Imagine if Ale Asylum served gourmet specialty pizzas that became regionally known. People would come from all around the Midwest to have Ale Asylum's excellent Belgian-style ales and a gourmet pizza; a brewery regionally known for its excellent beers and its world-class pizza kitchen. This would be possible until Ale Asylum got too good at it, then it would have to shut down its restaurant. Hardly a fair result, and it hampers the ability of Wisconsin breweries to grow in the ways that other successful regional breweries have shown is possible.

Possible solution

Legislators have recognized that the new rules may be unfair, and have shown some willingness to listen to ways to make improvements.

One corrective solution seems relatively simple: Every brewery gets one restaurant license for use on its primary brewing premises regardless of production. If the brewery wants more than one restaurant (e.g., it wants to operate as a brewpub) it must abide by the rules now in place (e.g., stay under the production caps, etc.).

This doesn't solve all of the problems with the new bill, but it at least solves the biggest problem. The brewery still gets to differentiate its income while marketing and testing its products and the consumer still gets a chance at a great brewery and restaurant that can compete in today's marketplace.

Jeffrey M. Glazer is editor-in-chief of the Madison Beer Review, an online publication focusing on craft beer in Wisconsin.