When Krombacher decided to export to the U.S., their target markets were New York, Chicago and LA. After appointing a New York distributor in 2011, and working through the necessary details, the brand was launched with some small success. As with many imports from other countries, the plan was to first acquire distribution in the low hanging fruit areas, (e.g. German accounts and the major liquor and chain stores).
During the rollout period, Krombacher was notified about the existence of a key retailer who owned four pub/sports bars, three of which were located on Long Island and one in Manhattan. The account featured over 40 brands on draft, mostly imports and crafts, with a number of packages. The account was one that any brewer would have loved to have had representation in.
The owner made it very clear that he was interested in putting Krombacher on tap in all four of his accounts. Not because Krombacher was Germany’s top selling beer, but because the retailer wanted new outdoor patio furniture for all of this accounts. If Krombacher so agreed, payment for the furniture would have been made payable to the retailer’s marketing company. In return, the beer would stay on draft for one year in all four accounts.
This was an example of a classic retailer pay-to-play scenario. One must wonder, with the number of other brands on tap, what this retailer charged other breweries for putting their beer in his accounts. By leveraging such keg boxes, glassware, furniture, cash, etc. this retailer could have put himself in business by leveraging the breweries.
This is just one example of a retailer leveraging his bars against brewers who are willing to do whatever it takes to gain distribution and exposure. As the industry knows, this type of deal-making is in all states, and given the number of crafts and imports, retailers are saying “why not take advantage of these opportunities?”
For several months the TTB, along with the state of Florida, has been investigating illegal activity by brewers and importers in that state. While there has yet been no official announcement, one medium-size importer was fined by the TTB for buying-off retailers in that state. The initial fine was in excess of seven figures. Lawyers are working to negotiate the amount of the fine and the industry will soon know.
The TTB continues to expand their investigations into other states as well. The agency is teaming up with state agencies in California, Colorado, Nevada and New York. In the coming months, the TTB plans to announce all fines and offending companies involved. It has been rumored; however, that prior to mitigation, the total amount of the fines could be more than $30 million.
It is a good bet that those companies who are fined range from small crafts to much larger breweries. It is also a good bet that the fines leveraged will be sizably substantial to ensure violators are served up as examples of these unethical and illegal business actions. Given the difficulty of obtaining distribution, crafts and importers will continue to work around the system using whatever means they can to gain distribution. Retailers know this and will use that knowledge for their own interests.
Perhaps the TTB or the CBC leadership should speak to this issue at the upcoming convention. But will it make any difference if they do voice their concerns?
If you are not cheating, you are not trying…