Last week NJ Monthly published an article by Tara Nurin that has spawned a ton of discussion about Bars vs. Breweries. It is a complex issue that has many different parts that are sometimes hard to understand. Sean Galie, Head Brewer of Lower Forge Brewery in Medford, wrote a piece on the Lower Forge website that we thought explained it very well. With Sean’s permission, we are posting his article in its entirety on the website:
Bars, Boycotts, & Local Beer by Sean Galie
On Wednesday, New Jersey Monthly published a piece titled “Bars Lash Out Vs. Craft Beers”. The article breaks down a small number of South Jersey bar owners who have collectively decided to “boycott” New Jersey-brewed craft beer (such as our own) due to a proposed bill before the state legislature. The proposed legislation (A4602/S3024) would allow brewery visitors the option of taking a tour (instead of a requirement) and allow brewery owners to provide light snacks on premises. According to the bar owners in the article, the proposed rules would “devalue their pricey liquor licenses”. Additionally, quotes from the article include this from Augie Carton, of Carton Brewing:
If all of New Jersey’s more than six dozen craft breweries sold all their beer into the state at once, there’d only be enough for a two-day party. He adds that a bar/restaurant’s liquor license allows owners to sell beer, wine, spirits and food while a limited brewery license allows brewers to sell one product – their own. Selling that amount of beer isn’t actually competition and seeing it as competition is wrong for the community.
We’re sharing this to hopefully help add our own take on the debate that has started since Wednesday, both online and offline, about the differences between bars and breweries as well as how New Jersey’s laws have disparities between breweries, wineries, distilleries, and other alcohol producers. It should be noted, from the article, that:
Though many of the state’s 7,200 on-premises liquor licensees gripe about the new bill, NJM could confirm only nine that have stopped carrying New Jersey beer: the Ott’s restaurant locations in Medford, Berlin and Washington Township, plus Braddock’s Tavern in Medford (all owned by Bob Wagner, a New Jersey Restaurant & Hospitality Association board member and the driving force behind the boycott); the Village Pub locations in Swedesboro and Washington Township along with their corporate sibling, Cinder Bar, in Clarksboro; Dadz Bar & Grill in Lumberton; and the Neighborhood Pub & Grill at Ellery’s in Middlesex.
How this debate started for us
Last spring, as Lower Forge began approaching bars and restaurants to begin carrying our beers – one of the first calls we made were to the Ott’s location in Medford, less than 3 miles from the brewery. Our brewers met with the managers and after tasting some of our beers, they ordered Against the Grain for both the restaurant and retail store. Less than a week later, we received a phone call from one of the managers stating that the owner had seen Lower Forge’s beer on tap and demanded that it be removed and returned, along with instructions to refuse to pay the delivery invoice. The manager returned the kegs themselves, stating that they were instructed that they would no longer carry “local” beers such as any brewed within Medford or any of the surrounding towns.
Interestingly, another delivery the same week was to a neighboring bar less than a mile away that has continued to carry Lower Forge beers in a tap rotation with other local breweries since that time. Together with this retailer, promotional materials were developed for their location that advertised the local beers along with a tag line, “beer brewed less than 3 miles from your seat” – that successfully helped them promote their availability of local beer and led to brisk retail sales for the retailer, and subsequent orders of additional kegs from the brewery. Feedback from both the retailer and the community is that local beers are an attraction for this retailer, and many patrons are willing to pay a small premium for something brewed nearby versus a “big beer” brand at a lower price point.
The law as it is today
Before 2012, New Jersey breweries were severely limited in the activities that were allowed at the brewery premises. On-premise sampling was nearly non-existent and it was impossible to launch a brewery within the state without millions in capital as a brewery would have to open to supply the wholesale market exclusively with little-to-no introduction to the consumer. The situation had led to New Jersey being ranked nearly last in the entire country for locally brewed craft beer and the number of local breweries – and that finally inspired change in the form of legislative reform. These reforms, going into effect in 2013, allowed breweries to operate sampling rooms with restrictions such as no food sales and a mandatory requirement of a tour. While this does not seem significant, these requirements are unusual since no surrounding state has similar restrictions. Further, the requirements were anti-competitive since no other New Jersey alcohol producers, such as wineries, are held to the same standard and already perform much of the activities that bar owners are protesting with this “boycott”.
Under current law, the holder of a limited brewery license is entitled to brew up to 300,000 barrels of 31 fluid gallons capacity per year of malt alcoholic beverages to sell and distribute to wholesalers and retailers. These licensees are authorized to sell their product at retail to consumers on the licensed premises for on-site consumption, but only in connection with a tour of the brewery. The licensee is prohibited under current law from selling food and operating a restaurant on the licensed premises.
These sampling rooms that the 2013 law allowed were important, as brewers could introduce their beers to consumers and help build the brand for their customers – so that restaurants would not risk carrying an “unknown” brand but instead enjoy sales from customers who enjoy looking for, and ordering local beers when available. This changed the nature of New Jersey beer and tripled the number of breweries in our state (which now ranks in the “middle” of state brewery numbers instead of near the bottom, both Pennsylvania and New York still enjoy a lead over New Jersey).
The proposed changes in the law
Despite the rhetoric that the organizing bar owners of this “boycott” would suggest, the proposed legislation does not hurt or dilute their investments in their retail liquor licenses. I’ll save the argument over the astronomical costs of retail licenses in New Jersey for one of the debates raging on social media – but the proposed bill allows parity with other New Jersey alcohol producers, breweries in surrounding states, and removes an anti-competitive provision in existing law that was forced by special interests outside the craft beer industry.
Under this bill, consumers would not be required to take a tour of the brewery to purchase beverages for onsite consumption. Additionally, consumers would be allowed to either purchase, or be provided gratuitously, light snacks on the licensed premises of a limited brewery.
The secret is, as a brewery owner, I don’t want to open a restaurant. Restaurants are a high-risk, capital-intensive industry – as a brewery owner, I’ve already joined a high-risk, capital-intensive industry and would like to avoid the added risk of combining the two together. While the debate continues on A4602/S3024, one of the comments from John Ellery in the NJM article is “if they want to be a bar they should buy a liquor license” – however, any brewery visitor in New Jersey will tell you that a brewery is not a bar. Breweries are closer in comparison to visiting a certain famous candy factory in Pennsylvania, with production equipment dominating spaces – and the gift shop, as I say on tours at Lower Forge, being one of the cooler gift shops you’ll ever visit.
Retail versus Production Licensing
The largest argument in this debate, the exorbitant costs of the retail liquor license in New Jersey versus the “cheap” production licenses held by breweries may be the most interesting thing to discuss. In the article, it’s stated that some bars and restaurants have paid more than one million dollars for their retail licenses. However, the last liquor license sale in Medford Township did not sell for any amount, as bidders could not be found to meet the minimum bid.
Production brewery licenses have a lower up-front cost, but also have continuous obligations that somehow get missed in this discussion. A retailer is responsible for their sales tax, corporate income taxes, and various local obligations as they operate their business – just as each brewery is responsible for all of these items as well. However, brewers must also record and pay taxes on everything produced – making continuous and frequent payments to New Jersey alcohol regulators and federal taxation agencies for any and all beers that are sold both on and off premises. To compare this to a restaurant, imagine if they had to pay $1.00 to the IRS and $0.50 to the Health Department for every hamburger they made in their kitchen. This is a simplification, but that’s a very quick glance at how the excise taxes on breweries work – and how, if we expand and increase production, our burdens increase with everything we make – instead of being a one-time fee that can fade into memory as a successful restaurant moves forward with their business.
Where do we go from here?
If you’re still with me – this post ended up far longer than intended. This article wasn’t meant as “anti-retailer”, or even as an attack on the bar owners who want to boycott Lower Forge and our fellow New Jersey brewers. If anything, the exact opposite is needed as New Jersey’s beer scene continues to expand – partnerships between breweries and the bars that carry their beers.
A relationship that recognizes that the brewery sampling room is an experimental space where brewers can introduce their brand, test the waters with beers that may never make it past the brewery doors, and the build the customer’s support so that the retailer can enjoy continuous and steady sales when they put a New Jersey beer on their taps.
Some retailers see this vision – a few days ago The Shepard & The Knucklehead in Haledon featured 60 taps of New Jersey beers in an amazing event that showcases the possibilities when breweries and retailers partner together. For me, during my visit, I didn’t avoid the bar and drink at a nearby brewery as the boycotting bar owners state in their opposition – I sat down after delivering our kegs and ordered a great Kolsch from NJ’s own 2nd Act Beer, along with a giant plate of The Shep’s nachos, because I’ll leave the cooking to the restaurants and just keep brewing the beer for their taps.