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Beer Payola in Washington, DC – A DCBeer Special Report

Last week, Tommy Hunter, the Washington, DC representative for Flying Dog, tweeted that his brewery had lost a draft line to Pilsner Urquell, a brand owned by Miller Coors. Hunter accused MillerCoors of paying the unnamed bar or restaurant to sell Pilsner Urquell at the expense of Flying Dog. This is a practice known colloquially as payola, a term that comes from the days when record companies would pay radio stations to play their artists. The day after making the accusation, Hunter apologized for what he had written, and he deleted the two offending messages, but by then the story had spread, as Beernews.org picked up the story, which led to a number of industry members to comment via Twitter.

Courtesy of BeerNews.org

DCBeer spoke to numerous distributors, bar managers, beer directors, and beer representatives for this article. Each of these individuals requested anonymity, which we granted to them. Where possible, the claims of these sources were verified by other sources. The information from the industry sources we talked to paints a disturbing and at times illegal picture of the DC beer market.

There appear to be two primary factors driving payola in Washington, DC: the Budweiser-MillerCoors rivalry, and retailers playing those two companies against each other. Craft brewers are often caught in the middle, though some of them play this game, albeit with more limited means.

Washington, DC uses, like much of the rest of the country, a three-tiered distribution system for beer. The system consists of producers (brewing companies), distributors (in DC: Premium, Hop and Wine, Legends, etc.), and retailers (bars, restaurants, stores). Brewers sell beer to distributors, who in turn sell it to retail operations. There are exceptions for brewpubs, and some states allow smaller operations to self-distribute, creating a two-tier system. The Washington, DC Code regarding alcoholic beverages (DC Code, Title 25, §25-735 and 736 (Chapter 7, Subchapter 4, Title 25, pdfs are below) is clear that retailers cannot accept gifts or money from either of the other two tiers. Not from “Manufacturers,” the brewing companies, nor from “Wholesalers,” the distributors. Nonetheless, based on conversations with distributors, brewers, and retailers, gifts are exchanging hands, often at great expense, and not all of the parties involved seem to be aware of these practices’ illegality.

“I think it’s fairly common practice although actual dollars are rarely offered,” said one beer director we spoke to. “It is BS. It happens all the time,” said a distributor. Another distributor hailed DC’s laws as strict, but also not enforced, leading to a situation in which DC is viewed as “the wild west.”

Courtesy of BeerNews.org

It’s “a culture, a new bar opens… and pits them [Budweiser and MillerCoors] against each other; some bars are greedier than others,” this distributor said. In economic terms, these gifts are transaction costs; an illegal version of a stockbroker taking a commission, for example. These costs are built in to doing business in DC, and to a lesser extent, Maryland. “We are used to it in DC. Maryland it gets pretty aggravating, especially because it is illegal. But one thing we are not is tattle-tails,” one distributor told us.

District of Columbia Official Code 25-735//
District of Columbia Official Code 25-736//

Interviews conducted with people working across the three tiers mentioned gifts. However, none of these, save Hunter’s tweet, mentioned money exchanging hands, and some explicitly denied that it did. The gifts, however, run the gamut from pint glasses, clothing, tickets to sporting events, and industry tastings to DirecTV Sunday Ticket packages and keg/draft line refrigeration systems. One distributor, in the middle of a conversation, even paused to take a call from a restaurant that asked for a refrigeration unit, paid for by the distributor and a large brewing company.

It’s “Bud versus Miller,” according to multiple distributors. Bars ask “who wants to pay for my football package?” and “Larger bars in the city, they know how it is,” one distributor noted. These packages can be quite valuable for bars; a football package can be worth up to $5,000.

“You’d be surprised how many places ask for handouts. Buying a line is nothing. Buying and installing draft systems is a big problem [for distributors] as well. Bars will ask a distributor to install a draft system in return only pour those beers. I am sure it is fairly easy for a wholesaler that has large brands and can get help from their suppliers,” said another distributor who deals primarily in craft beer and claims to have lost draft lines to payola. “It is correct [that] we have been bounced or can’t get our product in a place because we do not ‘pay to play’ or give them free beer. I have been told ‘we will buy your beer in a couple months, just waiting because so-and-so put in our draft system.’ I have pride in our company for not selling out so to speak.”

A restaurateur close to opening in Washington, DC, whose business plans on focusing on craft beer across a number of draft lines approached another distributor, who shared this information with DCBeer, asking for a beer dispensing system for free because that’s what the restaurateur expected of the DC market. The distributor told this person that the costs of installing a draft system would be borne by a macro, thus a certain percentage of the tap lines would have to carry a macro brewer’s products. At this point, the restaurateur balked.

The above may give the impression that it is retailers who are shaking down the distributors and, by extension, brewers, but this is not always the case. Although retailers put pressure on distributors and brewers for gifts, sometimes that pressure runs the other way and distributors put pressure on retailers to carry product that they are having trouble getting put on elsewhere or are being pressured to expand the reach of by the brewing companies they represent. “Could have been [M]iller, or it could have been the distributor, or both,” noted one distributor, when we inquired as to who may have worked to replace the Flying Dog draft line with Pilsner Urquell. “The distributor might get a kickback for the more Miller [L]ite lines they get.” Another distributor speculated that the order to replace Flying Dog with Pilsner Urquell must have come from Miller. [Editor’s Note: DCBeer contacted the distributor in question for comment on these speculations but did not receive a comment in time before going to press. It is likely that we will do a follow-up for this story and hope to put whatever comment we receive there.]

Craft brewers and their distributors are also not immune to this sort of behavior, but because they are smaller businesses, the gifts they can offer pale in comparison to Budweiser and Miller. “We cannot hide that kind of money,” said one distributor of craft beer. “I can’t say, ‘Hey, I have a bar that wants to put on your beers only, do you want to co-op [partner, splitting the costs] $10,000 to have [a draft system] installed?”

The Alcoholic Beverage Regulation Administration, or ABRA, can punish at the retail or distributor levels, but not the brewery level, for violations of the law. However, since 2010, the earliest date for which online records exist, the Alcohol Beverage Control Board has neither held a hearing, nor issued an order, nor reprimanded a distributor or retail location for payola. DCBeer contacted ABRA for a comment. Cynthia Simms, Community Resource Officer, wrote to us:

There is no specific data or complaint regarding any manufacturer or wholesaler receiving gifts or loans of any kind.  I have been employed by ABRA for nearly 10 years and what happens on occasion is that an individual may send an e-mail inquiring about what they can or cannot accept from a wholesaler or manufacturer.  The majority of licensees know that they cannot accept gifts or loans of any kind except where it is stated in the law.

The scenario you are speaking of is not very clear because a licensee can choose to change manufacturers or wholesalers if they like.  Now unless this company knows that a gift or a loan was given to the licensee, then ABRA could get involved.  There would need to be a complaint filed against the other company and forwarded to ABRA.

Payola is bad news for consumers, particularly fans of craft beer, because due to liquor license moratoriums in some neighborhoods and the role that Advisory Neighborhood Commissioners (ANCs) play in the licensing process (see here, here, and here for example), there are a finite number of draft lines in DC. Admittedly, despite all of that, DC still boasts an impressive selection of beer, both in quality and quantity. Still, the products craft beer supporters seek out are sometimes threatened by macros engaging in payola and competing for these lines, which in turn threatens the diversity of offerings on tap in DC.

“A lot of bars have dedicated brands, they’re loyal… but some are skeevy,” in that they frequently pit breweries and distributors against each other in exchange for goods, noted a distributor. This echoes the “wild west” theme above; some of DC’s reputation as an “anything goes” town also stems from the on-the-shelf variety we have in liquor stores thanks to those stores ability to self-import.

While not illegal, better craft beer bars sometimes benefit from relationships with distributors and brewery representatives in which those bars end up with the most sought-after products. The good news is that multiple sources across the three tiers were adamant that some of these bars do not participate in payola. No craft beer bar was specifically named as participating in payola, which is even more good news.

Everyone that we interviewed in the craft community took a strong stand against payola and mentioned wanting the product to speak for itself. Payola “sets a bad example to the good beer community…, you either want good beer or you don’t,” said a distributor. This comment was supported by people we interviewed across all three tiers. And these problems aren’t unique to DC. The problems in Washington, DC are not different from those in other parts of the country. Craft brands in other cities certainly face these same issues. Stone Brewing Company’s Greg Koch has been typically outspoken on this issue, and his simple solution for how to combat payola and other quid pro quo tactics is to refuse to play the game. The beer will speak for itself, and people at all three tiers will be able to turn a profit on a quality product. In turn, the consumer will win because they have made the choice for a quality product.

This vision of the craft beer market as the “city on a hill” is a nice image, and one that remained relatively untarnished through our interviews. The reality remains, however, that with a finite number of taps, there will continue to be competition for tap lines and shelf space in this city between macro and craft brewers. That competition is widely acknowledged, if not endorsed, by many that we spoke with. This tells us that payola is not a myth, and it is not confined to the songs you hear on the radio. As always with the suds you sip, a knowledge and understanding of how the beer, macro or craft, gets from the brewer to the tap to your glass is incredibly valuable and something DCBeer hopes that you will keep in mind next time you sit down for a pint.

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