Self Distribution in South Dakota

In early January, South Dakota Governor Dennis Daugaard perked up the antennae of craft brewers and beer drinkers alike by proposing legislation to, among other things, increase the state’s cap on barrel production and allow brewers to self-distribute.
South Dakota is one of thirteen states that still do not allow brewers to self-distribute, instead requiring them to go through a distributor to sell any of their product off-site. This requirement is based on the Three-Tier System, a regulation created at the repeal of Prohibition in 1933. The current law states that in order for a brewer to sell its bottles, cans and kegs outside the taproom, the product must be sold through a distributor at wholesale rate, who will then sell it to retail establishments, taking a cut of the profits, usually around 25%, along the way. Some microbreweries do whatever it takes to abide by this agreement, but other, more up-and-coming establishments simply cannot afford this system. Many, too, are wary of turning over their product to a large, consolidated distributor, oftentimes affiliated with one of the two malt beverage behemoths, Anheuser Busch InBev or MillerCoors, with varying degrees of craft brew consideration. Franchise laws created in the 1970’s, seen by many as skewed unfairly to distributors’ advantage, typically protect a distributor from a supplier terminating its relationship at will. Producers can be locked into a contract for years, despite how well or poorly the brewer’s product is being marketed and sold. Smaller brewers in these situations have little room to grow and thrive, and a frustrating lack of control.
Implementing the change to self-distribution in South Dakota means a lot of things: By giving a brewer the freedom to sell his or her product directly to bars and restaurants puts them on the path to growing their business. More successful breweries encourages an already vibrant craft brew scene to flourish: more craft brew fans come to visit the state, upping tourism dollars that much further; more home brewers feel encouraged in the friendlier environment to take the leap of opening their own microbreweries; more jobs are created and more money stays in local communities, which is good for everyone.
Of course, self-distribution by no means destroys the distributors’ presence or livelihood. Theirs is very much a necessary place in the craft brew world: by making warehouse storage and trucking available and efficient, this takes the load off of a brewery once it becomes big enough for this need. Typically, but not always, once a brewery is producing enough barrels for large-scale sales outside of their immediate area, they’re almost certainly running out of on-site storage room and practical transportation options. Established distributors can then help by storing and moving product, and give brewers access to a wider sales market. Allowing brewers to self-distribute will foster growth and put them on the path to ideally one day requiring the services of independent distributors. Everybody wins.
On this train of thought, Governor Daugaard wants to raise the state’s cap of annual barrel production from 5,000 to 30,000, which will put South Dakota in better competition with its neighbors. North Dakota’s current cap is 25,000 barrels, Wyoming is 50,000 and Montana is 60,000. It should be said that each of these states also allow their brewers self-distribution. This is another obvious way of encouraging the state’s microbreweries to succeed.
South Dakota is a state full of potential, and passing this legislation to modernize its laws is just one way to showcase what its entrepreneurs have to offer, to stimulate growth, make the state more competitive, and keep more money at home.

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