Blurred Draught Lines?

Local brewers and bar owners speak out about Dann Paquette's #dirtylines whistleblowing.

dirty lines

‘Metallic Taps’ photo courtesy of saap585/Shutterstock

On Monday, October 13, Harpoon Brewery hosted the Brooklyn Brewery Mash with some of craft beer’s leading figures: Jim Koch (Boston Beer Company), Dan Kenary (Harpoon), Dann Paquette (Pretty Things), Will Meyers (Cambridge Brewing Company), and Steve Hindy (Brooklyn Brewery). The gathering touched upon a number of topics, but none was as controversial as the subject of craft beer’s stunning growth.

Moderator Daniel Bradford (All About Beer magazine) asked the panel about the industry’s “incredible proliferation” and how that influx had affected their individual businesses. Kenary was nonplussed, describing the craft beer industry as a “fraternity” and even a “family” in a market with plenty of room for growth.

Hindy was equally as bureaucratic, saying, “Before Prohibition there were over 2,000 breweries in America, and they weren’t all making the same kind of light lager style beer. The population at the time was about 50 million people. Today the population is 325 million and we have 3,200 breweries with maybe another 2,000 in the works. I think we can easily absorb that volume of beer that’s coming along. The craft section is chasing demand. There’s more demand than good craft beer, so I’m not worried.”

Maybe Hindy and Kenary are truly optimistic, or maybe they come from a more fortunate place given their history and relatively prodigious output. Either way, that conversation came after Koch made a wry observation earlier on in the evening, that the five panelists had all gone out to dinner at a popular beer bar where absolutely none of their products was being served. The combination of those seemingly disparate remarks, along with Koch’s typical acerbic honesty, seemed to have inspired Paquette to open up later that night on Twitter about a topic that’s been bubbling under the surface for a number of years now: that a number of breweries are participating in “pay-to-play” tap lines.

After the event, Paquette aired his grievances on the topic, tweeting:

And there was so much more.

Of course, this sparked a firestorm, which included other brewers chiming in with the hashtag #dirtylines. Gordon Wilcox, owner of the Wilcox Hospitality Group (which includes the Lower Depths and Bukowski’s Tavern), one of the restaurateurs fingered in Paquette’s late-night tirade, felt the need to fire back in an open letter, saying: “I personally don’t even know you, never asked you for a damn thing, never intend to ask you for a damn thing and will not serve your inferior product.” The Boston Globe reported that the state is now looking into Paquette’s claims, but the larger issues surrounding the accusations, it seems, will only continue to mount—and go way beyond Wilcox specifically.

I spoke with a number of area craft brewers, restaurant owners, and bar managers to get their take on the situation, and most were terrified to talk. Several even said they were scared of retribution by the ABCC (Alcoholic Beverages Control Commission), the government organization that’s supposed to be sniffing out graft.

There are a number of factors at play here. A major one that was broached at the Brooklyn Brewery Mash, the one Kenary and Hindy had such polished, packaged answers for, is namely the insupportable number of craft breweries that are entering the market every day. As one brewer told me (Brewer #1) under the condition of anonymity:

I think people whose businesses aren’t doing real well would rather point the finger than deal with the core issue, which is loss of sales on their end. I think people who are losing sales are looking for an explanation: it’s not my beer, it’s not my pricing. The issue really is—and maybe it’s a year from now who is bitching, who knows—but it’s going to get so much worse. It’s going to get so much worse before it gets better. Every single tap line out there is up for grabs and you are going to get knocked out of rotation. Is it because you’re the new hot beer, is it because you’re going to do an event, is it because any number of things that are perfectly legal. The sheer vast number of breweries that are going to be entering the market in the next two to five years is staggering and if you’re losing sales now, you’re going to be in real trouble in five years. Bell’s is coming. Deschutes is coming. New Belgium is coming. A lot of huge national breweries are going to be in Massachusetts, and you better be able to deal with your taps going away. It’s going to be Yuengling all over again. This is the beginning of the end of the rosy period for the craft brew world. Everyone wants to paint this picture of the craft world being so damn collaborative. I think this [Paquette’s] unsolicited rant is just the tip of the iceberg. There’s 20 taps in a bar and thousands of breweries. It is limited and anyone who is saying differently is lying to themselves or lying to the public.

A different brewer brought up the Alcohol and Tobacco Tax and Trade Bureau regulations themselves, asking a relevant question: Are these Post-Prohibition laws now dated? Should beer and spirits be deregulated and treated like every other consumer good, which are supportive of slotting fees—a sum paid for by manufacturers to retail outlets for space on their shelves. Or does the prospect of slotting fees prohibit choice, creativity, and value? Once again, speaking under strict anonymity, that brewer (Brewer #2) told me:

The larger conversation here is should slotting fees be legal in the liquor industry and should a post-Prohibition law still be on the books? That’s the bigger question. Post-Prohibition there were a lot of laws that were implemented to keep oligarchies and monopolies at bay that would discourage competition. That’s why you have the three tier law. That is still valid. With slotting fees you would see less variety, because small brands wouldn’t be able to get off the ground due to the fact that they wouldn’t be able to pay them.

To that, a third craft brewery owner (Brewer #3) said:

I have a very unpopular opinion that the world would be better if no one was allowed to discount and everyone just set a fair price. That’s why I was excited about getting into the brewing industry because that’s actually the law, and it’s not followed sometimes. I know it’s very natural for people to ask for a deal when they’re doing a certain amount of business. But beer is controlled because it’s both a positive and negative cultural factor and to have it under the same pressures as cars or consumer goods drives it towards creating a commodity like in those markets. At that point you’re just paying for alcohol.

That same brewer (Brewer #3), in the same conversation, later went on to contradict himself though, if only slightly:

In this business, slotting fees don’t make sense to me. You should be able to offer discounts, but I don’t see why people don’t offer them above the board. You’re allowed to change your prices once a month and say, “Hey, if you buy five cases, you get one for free.” I think that works perfectly fine. What I don’t understand are the inducements to lock up a line. You earn a line if you have the best product for the lowest price.

Everyone wants to do well in the market and hence why there’s some seriously gray area. The law is quite clear, but people think that if they do it a certain way then it’s okay. It’s very hard for the ABCC to judge if some things are actually inducements. The wording is “significant value” so there’s varying interpretations in there. Coasters and mugs aren’t seen as significant, its just doing business and part of the service of beer. But that’s not a “bribe” to hold a line.

That “gray area” brought up by so many of the sources is another major factor here. Most breweries/distributors participating in pay to play aren’t doing anything as obvious as paying with envelopes of cash. There have been sources posting on Beer Advocate‘s site contradicting that, claiming that Gordon Wilcox blatantly asks for monetary kickbacks from beer distributors. But whether it’s inducements in the form of say, airline tickets, concert tickets, gift cards, walk-in coolers, free merchandise, or even just a neon sign, it’s all technically illegal.

Max Toste, co-owner of Deep Ellum and Lone Star Taco Bar, says that there’s a difference between good business and inducements:

It’s the kind of thing where people offer to help and do things. Sometimes it’s genuine and sometimes it’s about getting a dedicated line. It’s one thing if I’m going to pour somebody’s beer at X amount of dollars for X amount of time, if I already intended to pour that beer in the first place. That’s like working with a farmer. “Hey I’m guaranteeing I’m going to serve your burger on my menu forever. Now what’s the best price you can give it to me at?” I think that’s business and there’s nothing wrong with that.

When I opened Lone Star the guys from Anheuser Busch wanted to put Pacifico on draft, I told them sure, we’re going to sell a bunch of this Mexican beer on draft and I want you to give me the best possible deal you can. That’s just business. But I would never reach out to anyone to get them to pay for anything because at the end of the day I want control over what I do.

Will Meyers, Brewmaster at Cambridge Brewing Company told me via email that even if inducements are discussed more, it’s nearly impossible to prove they are happening:

Pay To Play is nothing new, and it’s against the law. It is something that many, many bar owners are involved in, but also many distributors and more than a few large brewers (and perhaps some small-to-medium ones). We cannot name names because there’s no way to show proof, but there are plenty of bars, distributors, and brewers who are known throughout the industry to engage in this practice. The problem with enforcing the law is that unless you’re wearing a wire you will not be able to show proof when someone asks you for $5,000 in an envelope in order for them to serve your beer, or asks for a new reach-in or walk-in cooler, or new tap line trunk and faucets, etc. in exchange for a “commitment.”

So where does good business end and bribery begin? There’s no clear answer here, which is why it remains a hot-button topic, and leaves us, more than anything, with lots of unanswered questions. After 18 years without acting on any prior complaints, will the ABCC investigation yield results or just more empty promises? Will other brewers outside of Dann Paquette have the guts to speak out openly about the subject—and was it even in his best interest to do so in the first place? And more importantly, is this issue even important at all? Should the government just step away and allow beer to operate like the grocery and car industries?

Or, maybe, the best analogy to the whole situation is what Forbes had to say about professional baseball in 2012: If we already know that a majority of the players are using performance enhancing drugs, should we just make them legal? It might already be a level playing field.