Selling Beer: The Challenge & Opportunity of Direct-to-Consumer Beer Shipping

Alex Koral, senior regulatory counsel of Sovos ShipCompliant, shares his expertise on the changing regulatory landscape for brewers considering whether to send beer directly to their customers.

Alex Koral Sep 3, 2020 - 7 min read

Selling Beer: The Challenge & Opportunity of Direct-to-Consumer Beer Shipping Primary Image

These are difficult days for the beer market. Even before the COVID-19 crisis struck and caused the shutdown of bars and restaurants across the country, the industry overall had been dealing with flat or declining sales for a few years.

Many factors have contributed to this decline, from market saturation to competition from hard seltzers to the general trend of reduced alcohol consumption. Whatever the reasons, this decline has led many brewers to look at the direct-to-consumer (DTC) shipping model as an attractive prospect. Afterall, DTC shipping of wine brought in more than $3 billion in revenue in 2019, allowing smaller producers to gain a national presence. Craft brewers, with unique and rare products and compelling personal stories, could particularly benefit from accessing this market.

The question, then, is why isn’t DTC shipping of beer as widespread as it is for wine?

Defining the DTC Market for Breweries

It is important to first define our terms. For “direct-to-consumer shipping,” the last word is critical. This is more than taproom sales or to-go growlers. Instead, DTC is a specific type of direct sale that is fulfilled using a carrier.

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There is still a direct sale—perhaps over the Internet or at a taproom—but the transfer of the beer is delayed. That is, the consumer receives the beer at their home on a later date via a service such as UPS or FedEx. This is different also from deliveries made by brewery staff in vehicles they own, which has become more common during the COVID-19 crisis.

Wine vs. Beer: The Challenge of DTC Shipping

The use of a common carrier presents a key challenge for beer: Beer is a relatively heavy commodity, and it can be expensive to ship a case of it. Often, the cost of shipping can exceed the cost of the beer being shipped.

This is less challenging for wine, where the average price for a DTC-shipped bottle of wine is $40. If a consumer spends $500 on a case of wine, they are open to spending an additional $30 on shipping. By contrast, the most expensive cases of beer tend to be far less costly. Shipping fees can double the overall cost, and sticker shock could cause some to not complete their purchase. A brewery offering reduced or included-in-the-price shipping fees would have to bear those expenses personally.

In addition, beer is an elastic good, meaning that any particular brand could be replaced with a sufficient equivalent. The widespread availability of high-quality craft beer means that consumers can likely find a suitable local alternative, even if it is not exactly the same. This is rather different from the wine market, where virtually all domestic wine is produced in just three states. If a wine consumer really wants a rare or non-distributed product, they have to reach out to the remote producers and cannot make do with a nearby equivalent.

But ultimately, the biggest difference between DTC shipping of beer versus wine is that not many states allow DTC beer sales. Currently, only a handful of states—Nebraska, New Hampshire, North Dakota, Ohio, Oregon, Vermont, and Virginia, plus the District of Columbia—clearly permit the DTC shipping of beer from licensed brewers located anywhere in the country.

State Regulations Governing DTC Shipping

Under the 21st Amendment, each state can design its own laws for importing and selling alcohol. Most states currently require beer to be sold through their three-tier marketplaces, with some exceptions for taproom sales and local deliveries. (Similarly, any temporary provisions that allow breweries to deliver beer during the COVID-19 crisis are exceptions to the rules.)

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By comparison, the wine DTC shipping market exists because states have amended laws to permit it. Over decades of concerted lobbying efforts, the wine industry has worked to develop an amenable regulatory environment in all but a handful of states.

To legalize DTC shipping of wine throughout the country, the industry and state regulators have worked out a sort of general compromise, wherein wine shippers agree to be licensed and accede to the jurisdiction of the states to which they ship. For example, under the law in most jurisdictions, wineries must:

  • remit all sales and excise taxes that would apply had the sale occurred in the destination state;
  • monitor and limit how much they ship to individuals within a given period of time;
  • ship only wines they produce or bottle;
  • verify the age of their customers and comply with strict delivery requirements.

Breweries will have to agree to abide by a similar set of rules if they would ever want to enjoy DTC shipping in the way that it works for wineries.

How to Get There

Despite the challenges, the prospect of DTC shipping for breweries is very attractive. As online sales of everything become standard (even without the COVID-19 crisis), consumers will increasingly demand it.

But breweries should take care not to get ahead of themselves. A concerted, national lobbying effort—perhaps based on the model of the wine industry’s Free the Grapes campaign—is a necessary first step.

After laws change to allow more DTC shipping of beer, then comes the challenge of establishing the market. That includes bringing consumers online, building out logistics services, and managing the compliance requirements as set out by each individual state.

There is reason to believe DTC shipping could be a new avenue for success for breweries, but there is still a long and challenging road to get there.

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